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R.    H.    F.    V  ARIEL 

ATTORNEY  AT  LAW 

LOS  ANQCLB8.   CAL. 


N 


f 


i  THE  LIBRARY 

OF 

THE  UNIVERSITY 

OF  CALIFORNIA 

LOS  ANGELES 

SCHOOL  OF  LAW 
GIFT  OF 


COMMENTAKIES 


ON    THE    LAW    OF 


PRIVATE  CORPORATIONS 


BY 


SEYMOUR   D.   THOMPSON,   LL.  D. 


IN       SIX       VOLUMES, 

Volume  I. 


SAN    KRANCISCO: 

BANCROFT-WHITNEY    COMPANY. 

l.S!)5. 


T 
T3T/6c 


Entered  according   to  Act  of  Congress  in  the  year  1895,  by 

SEYMOUR   D.    THOMPSON, 
In  the  OfiBce  of  the  Librarian  of  Congress,  at  Washingtoa. 


Zo  %.  E.  Z. 

Save  for  the  two  years  during  which  the  final  preparation 
of  the  manuscript  of  this  ivork  has  withdrawn  me  from  your 
society,  you  have  been  the  companion  of  this  and  of  my  other 
literary  labors.  I  can  trace  on  almost  every  page  of  my  works 
on  the  law,  the  record  of  your  intelligent,  patient,  and  loving  assist- 
ance. I  obey  the  first  impulse  of  my  heart  in  reserving  this  page 
for  a  public  acknowledgment  to  you;  knowing  that,  however 
much  you  may  slirink  from  publicity,  it  will  be  gratifying  to  our 
children  that  your  name  is  linked  with  mine,  as  your  life  and 
fortunes  have  been,  on  a  page  of  the  most  important,  and,  I  trust, 
the  most  permanent,  of  my  published  works.  Let  us  trust  that  it 
shall  be  to  them  like  an  inscription  on  a  monument,  inciting  them 
to  honorable  endeavor,  long  after  we  shall  have  "  passed  to  where, 
beyond  these  voices,  there  is  peace." 


Ul^^^l 


PREFACE. 


This  is  an  attempt  to  state  the  law  relating  to  corpo- 
rations existing  in  the  United  States,  except  those  created 
for  governmental  purposes.  As  will  be  seen  by  the  analysis 
of  the  whole  work  which  immediately  follows  this  preface, 
it  is  divided  into  nineteen  separate  titles.  So  great  is 
the  extent  and  variety  of  the  questions  under  consider- 
ation that  it  has  been  found  necessary  to  distribute 
the  matter  in  these  titles  into  no  less  than  two  hundred 
and  one  chapters.  Many  of  these  chapters  are  so  large 
that  it  has  been  necessary  to  subdivide  them  into  sub- 
chapters, called  articles.  For  example,  one  of  these  chap- 
ters contains  fifteen,  another  twelve,  others  seven,  and  still 
others  lesser  numbers  of  these  articles ;  so  that  many  of 
the  so-called  chapters  are  really  extensive  titles.  In  many 
cases  it  has  been  found  necessary,  for  the  convenient  and 
accurate  grouping  of  subjects,  to  subdivide  these  articles 
into  sub-articles,  called  subdivisions.  The  whole  work  is 
again  divided  into  about  eight  thousand  separate  para- 
graphs, called  sections.  These  sections  form  the  units  oC 
grouping,  of  reference,  and  of  indexing.  The  whole  work 
is  comprised  in  six  volumes,  of  about  eleven  hundred  pages 
each. 

The  author  finds  his  justification  for  the  publication  of 
so  large  a  work  upon  a  single  title  of  the  law,  in  the  vast, 


Vi  PREFACE. 

exuberant,  and  intertangled  growth  of  uncodified  and  unas- 
sorted statutes  and  judicial  decisions,  the  work  of  near 
fifty  independent  sovereignties  and  jurisdictions,  which  we 
in  America  call  our  law.  He  also  finds  it  in  the  fact 
that  upon  no  subject  in  that  law  has  this  growth  been  as 
rapid  and  as  rank  as  upon  the  subject  here  under  consid- 
eration. The  statement  of  a  single  fact,  made  by  Mr. 
Justice  Field  in  his  oration  delivered  at  the  centennial 
celebration  of  the  Supreme  Court  of  the  United  States,  in 
the  city  of  New  York  in  1890,  that  four-fifths  of  the  wealth 
of  the  country  is  held  by  corporations,  will  give  emphasis  to 
what  is'  here  said.^  Since,  under  our  mixed  system  of  State 
and  Federal  government,  this  law  cannot  be  the  work  of  one 
supreme  national  legislature,  nor  of  one  supreme  national 
tribunal,  it  necessarily  exists  in  some  fifty  collections  or' 
groups  of  statutory  and  case-made  rules,  which  form  what 
is  called  the  law  in  each  particular  State  of  the  Union. 
These  collections  or  groups  of  rules  differ  in  many  cases 
essentially  from  each  other,  and  the  rules  established  by 
the  courts  of  the  States  diff'er  in  many  instances  from  those 
established  by  the  Federal  judicatories;  and  in  some  cases, 
as  has  been  pointed  out,^  the  Federal  judicatories  have  even 
declined  to  follow  and  apply  the  law  as  enacted  by  the 
Legislature  of  the  State  in  which  the  rights  in  controversy 
arose.  Nevertheless,  there  is  on  the  more  important  sub- 
jects a  general  uniformity,  not  only  in  the  adjudged,  but 
also  in  the  statute  law.  Such  being  the  state  of  the  law 
in  the  United  States,  an  author  who  proposes  to  himself 
the  ambitious  task  of  collecting  anl  stating  the  whole  law 
upon  a  given  subject  must,  if  his  work  would  have  the 
semblance  of  completeness  in  any  particular  State,  collect 
and  state  the  law  as  it  exists  in  that  particular  jurisdiction. 
This  requires  him  to  collect  and  state  the  law,  however  dis- 

'  24  Am.  Law  Rev.  364.  '  Post,  §  1669,  ei  seq. 


PREFACE.  Vll 

cordant,  as  it  exists  in  all  the  different  American  jurisdic- 
tions, Federal  and  State. 

This  work  was  commenced  more  than  sixteen  years  ago. 
It  was  designed  and  announced  in  1883  to  be  in  three  vol- 
umes; it  has  grown  to  six,  and  it  has  required  much  conden- 
sation to  bring  the  text  within  the  limits  of  six  thousand 
pages.  Its  completion  has  been  interrupted  by  other  labors, 
and  especially  by  a  tour  of  twelve  years  of  judicial  service  in 
an  overburdened  appellate  court.  Since  its  commencement 
great  changes  have  taken  place  in  the  American  law  of  pri- 
vate corporations.  The  American  doctrine  that  the  capital 
stock  of  a  corporation,  including  its  unpaid  share  subscrip- 
tions, is  a  trust  fund  for  its  creditors,  has,  during  that  period, 
been  greatly  modified — so  much  so,  that  it  may  now  be 
doubted  whether  the  capital  of  a  corporation  is  a  trust  fund 
for  its  creditors  in  any  different  sense  than  the  sense  in  which 
the  property  of  a  private  person  is  a  trust  fund  for  his  credit- 
ors.^ The  doctrine  formerly  held  by  many  of  the  State  courts 
and  emphasized  by  a  decision  of  the  Supreme  Court  of  the 
United  States,"  and  still  firmly  insisted  upon  in  England,*'*  that 
the  shares  of  a  corporation  can  be  sold  and  distributed  only 
at  their  full  value,  either  in  money  or  in  property,  has  been 
greatly  shaken,  if  not  overthrown,  by  recent  decisions  of 
the  Supreme  Court  of  the  United  States.*  The  doctrine, 
established  some  twenty  years  ago  by  decisions  of  the 
Supreme  Court  of  the  United  States,'  that  it  is  not  uncon- 
stitutional for  the  Legislatures  of  the  States,  in  the  exer- 
tion of  the  police  power,  to  limit  the  maximum  charges  of 

'  Post,  §  1569,  et  seq.;  §  2841,  et  seq.;  with  which  compare  §  1665, 
et  seq. 

'  Upton  V.  Tribilcock,  91  U.  S.  45;  post,  §  1568. 

'  Ooregum  Gold  Mining  Co.  v.  Roper  [1892],  A.  C  195,  H.  L. 
See  also,  post,  §  1615. 

*  Post,  §  1665,  et  seq. 

'  Munn  t'.  Illinois,  94  U.  S.  113,  and  other  cases. 


Vlll  PREFACE. 

corporations,  and  even  of  private  persons,  whose  business  is 
"clothed  with  a  public  interest,"  has  been  greatly  shaken  by 
a  subsequent  decision  of  the  same  court,^  and  may  be  said 
to  be  now  tottering  in  the  balance.^  On  the  other  hand, 
tlie  protection  of  corporate  rights  under  those  clauses  of 
the  Federal  Constitution  which  prohibit  the  States  from 
depriving  any  person  of  his  property  witliout  due  process 
of  law,  and  from  denying  to  any  person  the  equal  pro- 
tection of  the  laws,^  has  been  undergoing  a  steady,  though 
a  generally  conservative  progression.  Again,  during  the 
period  in  which  this  work  has  been  under  preparation,  cor- 
porations engaged  in  similar  industries  have,  for  the  purpose 
of  reducing  competition  among  themselves  and  of  engross- 
ing the  markets  in  respect  of  their  products,  formed  them- 
selves, under  various  schemes,  into  extensive  combinations 
or  partnerships,  called  "trusts."  These,  in  turn,  have  been 
the  subjects  of  severe  repressive  legislation,  both  Federal  and 
State,  and  the  public  opposition  to  them  has  called  forth  a 
totally  new  group  of  judicial  decisions.*  These,  and  other 
topics  in  respect  of  which  the  law  has  undergone  a  recent 
development,  have  been,  for  obvious  reasons,  treated  with 
more  fullness  of  detail  than  those  topics  in  respect  of  which 
the  law  has  become  settled. 

It  should  be  stated,  moreover,  that  the  plan  upon  which 
this  work  was  originally  projected,  and  to  which  the  author 
has  endeavored  to  adhere  throughout,  has  been  to  treat 
every  topic  with  such  fullness  of  detail  that  the  state  of  the 
law  in  respect  of  it  could  be  learned  from  the  pages  of  the 


^  Chicago  etc.  R.  Co.  v.  Minnesota,  134  U.  S.  418. 

'  In  Brass  v.  North  Dakota,  153  U.  S.  391,  the  doctrine  of  Munn 
V.  Ilhnois  was  reaffirmed  by  a  bare  majority  of  the  court.  Compare 
Reagan  v.  Farmers'  Loan  etc.  Co.,  154  U.  S.  362. 

'  Const.  U.  S.,  14th  Amendment.  See  post,  ch.  117,  art.  II,  and 
ch.  118. 

*  Post,  ch.  142. 


PREFACE.  IX 


work,  and  without  the  necessity  of  the  reader  searching  the 
adjudged  cases.  To  this  end  the  author  has  endeavored  to 
state  not  only  what  the  courts  have  decided,  but  also  the 
reasons  which  they  have  given  for  their  decisions,  and  the 
applications  which  they  have  made  of  them  to  various 
states  of  fact.  It  may  be  that  he  has  erred  in  the  direc- 
tion of  too  much  detail;  but  he  has  continually  wrought 
under  the  dread  of  reaching  the  opposite  extreme,  that  of 
making  a  work  which  should  be  a  mere  collection  of  ulti- 
mate decided  points,  huddled  together  in  some  sort  of 
grouping, — in  short,  a  work  which  would  deserve  no  better 
title  than  that  of  a  mere  index  to  the  decisions  of  the 
courts. 

The  author  can  only  say  to  his  professional  brethren,  by 
way  of  apology  for  whatever  defects  may  be  found  in  this 
work,  that  he  has  tried  hard  to  serve  them,  and  that,  in 
this  effort,  he  has  bestowed  greatly  more  labor  upon  it  than 
upon  all  his  previous  published  works  in  the  aggregate.  It  is 
the  first  of  his  works  which  he  has  ventured  to  dignify  with 
the  name  of  "  Commentaries."  He  has  felt  justified  in  this 
by  the  character  of  treatment  originally  proposed  and  in 
the  main  carried  out, — that  of  analyzing  and  classifying  a 
great  and  more  or  less  conflictmo:  mass  of  statute  and  case 
law,  of  drawing  the  conflicting  decisions  into  compari- 
son, and  of  making  such  comments  upon  their  respective 
merits  as  a  long  study  of  the  subject  seemed  to  justify  him 
in  makinor.  If  these  comments  have  been  at  times  severe, 
he  can  only  say  that  they  were  such  in  each  case  as  seemed 
proper  to  him  at  the  time  when  the  particular  topic  was 
under  study;  and  that,  notwithstanding  the  criticism  which 
he  has  felt  called  upon  to  bestow  upon  some  judicial 
decisions,  he  parts  with  his  task  with  an  increasing  admira- 
tion for  the  general  sense  of  justice  which  pervades  the 
work  of  the  English  and  American  Judges.  In  this  expres- 
sion of  admiration  he  also  includes  a  Bar,  second  to  none 


PREFACE. 


in  the  world,  without  whose  co-operation  the  Judges  never 
could  have  produced  a  mass  of"  materials  of  jurisprudence 
such  as  that  possessed  by  the  Anglo-American  family, — an 
accumulated  treasure  possessed  by  no  other  people  that  has 
lived  in  the  tide  of  time.  Nor  can  the  author  suppress  the 
confession  that,  during  the  long  and  weary  years  in  which 
he  has  been  engaged  upon  his  task,  the  self-accusing  doubt 
has  often  forced  itself  upon  him,  whether  he  was  indeed 
exercising  the  dignified  office  of  a  commentator,  or  the  more 
humble  office  of  a  mere  carpenter-and-joiner  of  other  men's 
ideas. 

It  should  be  stated  that  two  works  previously  published 
by  the  author  on  topics  connected  with  the  law  of  corpora- 
tions,^ having  done  their  work,  such  as  it  was,  and  had  their 
day,  have  been  suppressed  in  their  original  form,  and  their 
contents,  so  far  as  deemed  worth  preserving,  have  been,  after 
suitable  revision,  retained  in  the  present  work.  As  these 
works  are  in  all  the  public,  and  in  most  of  the  private, 
law  libraries  in  the  country,  they  have  been  cited  a  few 
times  in  the  present  work,  where  they  have  contained 
details  which  it  has  been  thought  not  necessary  to  include 
herein, — the  former  as  "  Tliomp.  Stockh.,"  and  the  latter 
as  "  Thomp.  Off.  Corp." 

It  affords  the  author  great  pleasure  to  state  that,  during 
the  period  in  which  this  work  has  been  under  preparation, 
he  has  received,  from  time  to  time,  some  assistance  from 
others,  which,  while  important  in  itself,  and  duly  appre- 
ciated, has  been  inconsiderable  in  comparison  with  the 
whole  work.  Many  years  ago  Mr.  Edwin  G.  Merriam,  of 
the  St.  Louis  Bar,  who  was  the  author's  associate  in  literary 

'■  "A  treatise  on  the  Liiw  of  Stockholders  in  CorporationB," 
originally  published  in  1877,  and  not  since  revised;  and  a  work 
called  "  The  Liability  of  Directors  and  Other  Officers  and  Agents 
of  Corporations,  Illustrated  by  Leading  Cases  and  Notes,"  originally 
published  in  1880,  and  not  since  revised. 


PREFACE.  XI 

work  of  this  kind,  did  a  considerable  amount  of  work  of  a 
high  grade,  which  has  found  its  way  into  three  titles,  that 
relating  to  directors,  that  relating  to  ministerial  officers,  and 
that  relating  to  actions  by  and  against  corporations.  If 
that  capable  lawyer  shall  have  the  curiosity  to  search  in  the 
following  pages  for  these  children  of  his  brain,  he  will,  no 
doubt,  be  disappointed  at  finding  them  almost  buried  under 
the  subsequent  accumulations  of  fifteen  years.  The  author 
also  acknowledges  valuable  assistance  from  the  late  Judge 
William  P.  Wade,  of  California,  author  of  several  able 
legal  treatises;  from  Professor  James  A.  Yantis,  of  the 
University  of  Missouri;  and  from  Mr.  William  L.  Murfree, 
Jr.,  Mr.  Virgil  Eule,  and  Mr.  S.  S.  Merrill,  all  of  the 
St.  Louis  bar.  And  if  he  has  omitted  to  mention  any 
others,  it  should  be  charitably  ascribed  to  that  forgetfulness 
which  comes  with  the  lapse  of  time.  With  these  exceptions, 
the  work  is  the  personal  work  of  the  author,  and  is  founded 
upon  his  personal  examination  of  the  cases  and  statutes 
therein  cited. 

I  should  deserve  the  accusation  of  ingratitude  if  I  were 
to  omit,  in  conclusion,  to  return  public  thanks  to  my  pub- 
lishers, the  Bancroft-Whitney  Company,  who,  during  a  long- 
succession  of  delays  and  disappointments,  have  maintained 
their  faith  in  my  ultimate  success,  and  have  supported  my 
efforts  to  an  extent  which  deserves  to  be  described  as 
heroic. 

I  also  take  this  occasion  to  return  to  my  professional 
brethren  mv  sincere  thanks  for  the  o'enerous  indulgence 
which  they  have  extended  to  the  faults  of  my  previous 
works. 

And  to  that  good  Being  who  has  given  me  the  strength  to  per- 
severe to  the  end,  through  so  many  years  of  toil  and  discourage- 
ment, I  tender  my  most  grateful  arhiowledgments . 

SEYMOUR   D.   THOMPSON. 

Saint  Louis,  January  1,  1895. 


AN  ANALYSIS  OP  THE  WHOLE  AVORK. 


TITLE  I. 

ORGANIZATION   AND   INTERNAL    GOVERNMENT. 

Chapter 

1.  Nature  and  Kinds  of  Corporations. 

2.  Creation  by  Special  Charters. 

*  3.  Acceptance  of  Special  Charters. 

4.  Amendment  of  Charters. 

5.  Charters  Granted  by  the  Courts. 

6.  Organization  Under  General  Laws. 

Article  I.     Purposes  for  Which  Incorporation  Permitted. 
Subdivision  I.     Examples  from  Various  Statutes. 

II.     Decisions  Construing  Particular  Stat- 
utes. 
II.     Steps  Necessary  to  Perfect  Organization. 

7.  Reorganization. 

8.  Names  of  Corporations. 

9.  Consolidation. 

Article  I.     In  General. 

II.     Effect  Upon  Shareholders. 

III.  Transmission    of    Rights    and    Liabilities    of 

Constituent  Companies. 

IV.  Effect  on  Remedies  and  Procedure. 
10.      Promoters. 

Article  I.     Liability  on  Their  Contracts. 


XIV  ANALYSIS    OF    THE    WHOLE    WORK. 

Chapter 

Article  II.  Liability  to  Subscribers. 

III.  Liability  to  tbe  Company. 

IV.  Non-liability  of  the  Company  for  Contracts  of 

Promoters. 

11.  Irregular  and  De  Facto  Corporations. 

Article  I.     Dc  Facto  Corporations. 

II.     Corporations  by  Estoppel. 

12.  Constitutional  Restraints  upon  the  Creation  of  Cor- 

porations and  the  Granting  of  Corporate  Privi- 
leges. 
Article  I.     Provisions  of  Various  State  Constitutions. 

II.     Restraints  Upon  tbe  Passing  of  Special  Acts, 
Conferring  Corporate  Privileges. 

III.  Restraints  as  to  tbe  Titles  of  Laws. 

IV.  Restraints  as  to  tbe  Mode  of  Passing  Laws. 
V.     Various  Other  Restraints  and  Provisions. 

13.  National  Corporations. 

14.  Place  of  Holding  Corporate  Meetings  and  of  Doing- 

Corporate  Acts. 

15.  Corporate  Elections.  • 

Article  I.  Assembling  the  Meeting. 

II.  The  Quorum. 

III.  Right  to  Vote. 

IV.  Conduct  of  the  Election. 

V.     Right  to  the  Office:  Contesting  the  Election. 

16.  Amotion  of  Officers. 

17.  Expulsion  of  Members. 

Article  I.  Power  to  Expel:  Grounds  of  Expulsion. 

II.  Corporate  Proceedings  to  Expel. 

III.  Judicial  Proceedings  to  Reinstate. 

18.  By-Laws. 

Article  I.     Nature  and  Interpretation. 

II.     Power  to  Enact  and  Mode  of  Enacting. 
Subdivision  I.     At  Common  Law. 

II.     Statutes  Vesting  Power  in  Corpora, 
tion  or  Members. 
III.      Statutes  Vesting    Power  in  the  Di- 
rectors or  Other  OflBcers. 
III.     Requisites  and  Validity. 


ANALYSIS    OP    THE    WHOLE    WORK  XV 

TITLE  II. 

CAPITAL  STOCK  AND  SUBSCRIPTIONS  THERETO. 

Chapter 

19.  Nature  of  Capital  Stock  and  Shares  in  General. 

20.  Who  May  Become  Shareholders  in  Corporations. 

Article  I.     Natural  Persons. 

II.     Private  Corporations. 
III.     Municipal  Corporations. 

21.  The  Contract  of  Subscription. 

Article  I.     Theories  as  to  the  Nature  and  Formation  of 
the  Contract. 
11.     Theories  as  to  the  Consideration. 

III.  Theories   as  to  the  Necessity  of   Paying  the 

Statutory  Deposit. 

IV.  Theory  that  the  Full  Amount  of  the  Capital 

Must  be  Subscribed. 
V.     Other  Theories  and  Holdings. 

22.  Alteration  of  the  Contract. 

23.  Conditional  Stock  Subscriptions. 

Article  I.     Validity  of  Conditional  Subscriptions. 
II.     Effect  of  Conditions  in  Subscriptions. 
III.     Interpretation  of  Particular  Conditions. 

24.  Effect  of  Fraud  on  Stock  Subscriptions. 

Article  I.     General  Principles. 

II.     What  Frauds  Will  and  What  Will  Not  Avoid 
the  Contract. 

III.  Remedies     of     the     Defrauded     Shareholder 

Against  the  Company. 

IV.  Time    Within   Which   a   Rescission   Must  be 

Claimed. 
V,     Remedies  Against  the  persons  Guilty  of  tlie 

Fraud. 
VI.     Fraudulent  Issues  and  Over-Issues. 
26.      The  Surrender  of    Shares  and    Release    of    Share- 
holders. 
26.     Payment  of  Shares. 

Article  1.     In  CJoneral. 


XVI  ANALYSIS    OV    THE    WHOLK    WORK. 

C'haptrr 

Article  II.  ±n  Property. 

III.  In  What  Kind  of  Property. 

IV.  New  Doctrine  That  :i  Corporation  Can  Give 

Away  its  Unissued  Shares. 
V.     Rights  of  Bona  Fide   Purchasers  of  Unpaid 
Shares. 
VI.     Miscellaneous  Holdings. 
27.      Assessments  and  Calls. 
Article  T.     In  General. 

n.     Conditions  Precedent:  Full  Subscription — Or- 
ganization. 
III.     Sufficiency    and    Notification    of   the   Assess- 
ment. 


TITLE   III. 

REMEDIES  AND  PROCEDURE  TO  ENFORCE  SHARE  SUB- 
SCRIPTIONS. 

Chapter 

28.  Forfeiture   of   Shares   for   Nonpa^mient   of   Assess- 

ments. 

Article  I.  Power  to  Forfeit  and  How  Exercised. 

II.  Effect  of  Such  Forfeitures. 
III.     Relief  Against  Such  Forfeitures. 

29.  Actions  by  the  Corporation  Against    Shareholders 

for  Assessments. 
Article  I.     Parties. 
II.     Pleading. 
III.     Miscellaneous. 

30.  Evidence  in  Such  Actions. 

Article  I.     Evidence  of  Corporate  Existence. 

II.     Conduct  Showing  Membership:  Estoppels. 

III.  P>ooks   and   Records  of   Corporation   as    Evi- 

dence. 

IV.  Other  Evidence  of  Membership. 
V.     Other  Points  of  Evidence. 

31.  Defenses  to  Actions  for  Assessments. 


ANALYSIS    OF    THE    WHOLE    WORK  XVll 


Chapter 


32,      Limitations  of  Actions  Against  Stockholders. 
Article  I.     General  Doctrines. 

II.     When  the  Statute  Begins  to  Run. 
III.     Questions  Under  Special  Statutes. 


TITLE  lY. 

SHARES  CONSIDERED  AS  PROPERTY. 

Chapter 

33.  Powers  of  the  Corporation  in  Relation  to  its  Own 

Shares. 

34.  Increasing  and  Decreasing  Capital  Stock. 

Article  I.     Increasing  Capital  Stock. 

II.  Reducing  Capital  Stock. 

35.  Dividends. 

Article  I.  Generally. 

II.  Validity  and  Propriety  of  Dividends. 

III.  Stock  and  Scrip  Dividends. 

IV.  Right  to  Dividends    as    Between    Successive 

Owners  of  Shares. 
V.     Right  to  Dividends  as  Between  Life  Tenant 

and  Remainderman. 
VI.     Remedies  to   Compel    Payment  of  Declared 
Dividends. 

36.  Interest-bearing,  Preferred,  and  Guaranteed  Stock. 

Article  I.     Interest-bearing  Stock. 
II.     Issuing  Preferred  Stock. 

III.  Rights  of  Preferred  Shareholders. 

IV,  Remedies  of  Preferred  Shareholders. 

37.  Transfers  of  Shares. 

Article  I.  Right  of  Alienation. 

11.  Lien  of  Corporation  on  its  Shares. 

III.  Nature  of  Share  Certificate. 
TV.  Formalities:  Registration. 

V.     Unregistered  Transfers. 

VI.     Priorities  as  Between  Attaching  Creditors  and 
Unrecorded  Transferees. 


Xviii  ANALYSIS    OK    THK    WllOl.K    WORK. 

Ohaptek 

Article  VII.  Coinpelling  Transfers  in  Equity. 

VIII.  Mandamus  to  Conripel  Transfers. 

rX.  Action  at  Law  for  Refusal  to  Register. 

X.  Measure  of  Damages  for  Refusing. 

XI.  Fiduciary   Relation    Between    Company    and 
Stockholder. 

X 1 1.  Its  Liability  for  Wrongful  Transfers. 

XIII.  Its  Duties  and  Responsibilities  where  Certifi- 

cates have  been  Lost  or  Stolen. 

XIV.  Transfers  of  Shares  Held  in  Trust. 

XV.     Liability  for  Transferring  on  Forged  Powers 
of  Attorney. 
■  Subdivision'  I.     Liability  to  the  Original  Shareholder 

II.     Liability    to    Bona    Fide    Sub-pur- 
chasers. 
III.      Miscellaneous  Holdings. 

38.  Bona  Fide  Purchasers  of  Shares. 

Article  I.     In  General. 

II.     Who  are  Such  Purchasers. 

39.  Pledges  and  Mortgages  of  Shares. 

Article  I.  Nature  and  Incidents  of  the  Contract. 

II.  Validity  as  Against  Third  Parties. 

III.  Returning  the  Identical  Certificate. 

IV.  Enforcing  the  Contract. 

V.     Actions  by  the  Pledgor  for  Conversion  of  the 
Shares. 

40.  Other  Deahngs  in  Shares. 

Article  I.  Dealings  With  and  Through  Brokers. 

II.  "  Options,"  "  Futures,"  "  Straddles." 

III.  Loans. 

IV.  Sales. 

V.     Warranties. 
VI.     Other  Dealings. 

41.  Execution  and  Attachment  Against  Shares. 

Article  I.     In  General. 
II.     Procedure. 

42.  Taxation  of  Shares  and  Dividends. 

Article  I.     General  Considerations. 

II.     Double  Taxation  in  Respect  of  Shares. 
III.     Exemptions  from  Taxation. 


ANALYSIS    OF    THK    WHOLP:    WORK.  XIX 

Chapter 

Article  IV.     Situs  of  Shares  for  the  Purpose  of  Taxation. 
V.     Taxation  of  Shares  in  National  Banks. 
VI,     Taxation  of  Dividends. 
VII.     Questions  Relating  to  Assessment  and  Collec- 
tion. 


TITLE   Y. 


LIABILITY  OF  STOCKHOLDERS  TO  CREDITORS. 

CUAPTEU 

43.  Nature  and  Extent  of  This  Liability   at  Common 

Law. 

44.  Liability  in  Equity  on  the  Ground  that  Capital  is 

a  Trust  Fund  for  Creditors. 

45.  Liability  Before  Organization  Complete  and  Capital 

Paid  in. 

46.  Constitutional  Provisions  Creating  and  Abolishing 

Individual  Liability. 

47.  Construction  of  Statutes  Making  Stockholders  Per- 

sonally Liable  for  the  Corporate  Debts. 

48.  Constitutional     Questions     Arising     Under     Such 

Statutes. 

49.  Extra-territorial  Force  of  Such  Statutes. 

50.  Statutes  Creating  a  Joint  and  Several  Liability  as 

Partners. 

51.  Statutes  Creating  a  Several  Liability. 

52.  For  Wliat  Debts  These  Statutes  Make  Stockholders 

Liable. 

53.  Liability  for  Interest,  Fees  and  Costs. 

54.  Statutes    Making    Stockliolders    Liable    for    Debts 

Due  for  Labor,  Provisions,  etc. 

55.  To  Wliat  Class  of  Shareholders  Liability  Attaches: 

Present  iirid  Past  McinlxTs. 


XX  ANALYSIS    OF    THE    WHOLE    WORK. 

Chapi'KR 

56.  Status  and  Liability  of  Legal  and  Equitable  Owners 

of  Shares. 

57.  Divestiture  of  Liability  by  Transferring  Shares. 

Article  I.  In  General. 

II.  Right  of  Shareholder  to  Divert  His  Liability. 

III.  Fraudulent  Transfers  to  Escape  Liability. 

IV.  Transfers  to  Persons  Incapable  of  Contracting. 
V.  Exoneration  of  the  Transferor. 

VL     Liability  of  the  Transferee. 

58.  Liability  of  Executors,   Administrators,   Heirs,  and 

Legatees. 

59.  Conditions    Precedent   to    the    Right   to    Proceed 

Against  Stockholders. 
Article  I.     Dissolution  of  the  Corporation. 

II.     Necessity  of  Creditor  Exhausting  His  Rem- 
edy at  Law. 

III.  What  Will  Excuse  This  Necessity. 

IV.  Other  Conditions  Precedent. 

60.  Effect  of  Judgment  Against  the  Corporation. 

61.  Remedies  and  Procedure. 

Article  I.     Theories  and  Statutes  Under  Which  Remedy 
is  at  Law. 
II.     Theories  and  Statutes  Under  Which  the  Rem- 
edy is  in  Equity. 
III.     Where  the  Creditor  is  Also  a  Stockholder. 
IV.     Rules  in  Particular  Jurisdictions. 

62.  Parties  to  Proceedings  by  Creditors  Against  Stock- 

holders. 
Article  I.     Creditors  as  Parties  Plaintiff. 

II.     Shareliolders  as  Parties  Defendant. 
III.     The  Corporation  as  a  Party  Defendant. 

63.  Proceedings  in  Equity. 

Article  I.     Nature  and  Incidents  of   Creditors'  Bills   in 
Such  Cases. 
II.     Questions  of  Pleading  and  Procedure. 
III.     Relief  Granted. 

64.  Right  of  Action  in  Receiver,  Assignee,  etc. 

65.  Proceedings  by  Garnishment. 


ANALYSIS    OF    THE    WHOLE    WORK.  XXI 

Chapter 

66.  Executions  Against  Stockholders. 

Article  I.     Generally. 

II.     Under  the  Missouri  Statute. 

67.  Questions  of  Procedure. 

Article  I.     Questions  of  Pleading. 
II.     Questions  of  Evidence. 
III.     Other  Questions  of  Procedure. 

68.  Defenses  to  Actions  Against  Stockholders  by  or  on 

Behalf  of  Creditors. 
Article  I.     In  General. 

IT.     Defenses  Affecting  the    Corporation  and   its 
Management. 

III.  Defenses  Affecting  the  Status  and  Liability 

of  the  Defendant  as  a  Stockholder. 

IV.  Defenses  Affecting  the  Discharge  and  Release 

of  the  Shareholder. 
V.     Defenses  Afitecting  the  Plaintifif's  Demand. 
VI.     Defenses  Relating  to  the  Conduct  of  the  Cred- 
itor Affecting  his  Demand. 
VII.     Defenses  Relating  to  the  Conduct  of  the  PiO- 
ceeding  to  Charge  the  Stockholder. 
VIII.     Other  Defenses. 

69.  Limitation  of  Actions  by  or  on  Behalf  of  Creditors. 

Article  I.     General  Principles. 

II.     When  Such  Statute  Begins  to  Run. 

70.  Set-ofF. 

Article  I.     In  General. 

II.     Under  Particular  Statutes. 

71.  Contribution  Among  Stockholders. 

72.  Priorities  Amono-  Creditors. 


TITLE  VI. 

DIRECTORS. 


Chapter 


73.  Right  to  the  Office. 

74.  Directors  and  Officers  De  Facto. 

75.  Quorum  of  Directors  and  Number  That  Can  Act. 


Xxil  ANALYSIS    OF    THK    WIIOI.K    WORK. 

Chapter 

76.  Delegation  of  Their  Power  by  Directors. 

77.  Powers  of  Directors. 

78.  Obliiratioiis  of  Directors  as  Fiduciaries. 

Article  I.     In  General. 

II.  Contracts  Between  the  Directors  and  the  Cor- 

poration. 
III.     Contracts  Between  Two  Corporations  Having 
the  Same  Directors. 

79.  General  View  of  the  Liability  of  Directors. 

80.  Liability  of  Directors  for  Negligence. 

81.  Peniedies  of  the  Corporation  or  its  Representative 

Asfainst  its  Unfaithful  Directors. 

82.  Liability  of  Directors  to  Strangers  and  Creditors  of 

the  Corporation  Outside  of  Statute. 

83.  Statutory  Liability  of  Directors  and  Officers  to  Cred- 

itors. 
Article  I.     In  General. 

II.     What  Debts  of  tlie  Corporation   are  Within 
Such  Statutes. 

III.  Liability  Attaches  to  What  Directors  in  Re- 

spect of  the  Date  of  the  Debts  being  Con- 
tracted. 

IV.  Liability  for  Debts  Contracted  Before  Organi- 

zation. 
V.     Statutory  Liability  for  Failing  to  File  Certain 

Reports. 
VI.     Liability  for  Making  False  Reports. 
VII.     Liability  for  Debts  Contracted  in  Excess  of  a 
Prescribed  Limit. 
VIII.     Liability  for  Certain  Prohibited  Loans. 
IX.     Liability  for  Declaring  Unlawful  Dividends. 
X.     Miscellaneous  Liabilities  and  Penalties. 
XL     Remedies  and  Procedure  Under  these  Statutes. 
XII.     Defenses  to  Such  Actions. 

84.  Contribution  and  Subrogation. 

85.  Compensation  of  Directors  and  Officers. 


ANALYSIS    OF    THE    WHOLE    WORK.  XXlll 

TITLE  VII. 

RIGHTS    AND    REMEDIES    OF    MEMBERS    AND    SHARE- 
HOLDERS. 

Chapter 

86.  Rights  of  Membership. 

87.  Right  to  Inspect  Books  and  Papers. 

88.  Other  Rio-hts  and  Remedies. 

89.  Remedies  of  Shareholders  in  Equity. 

90.  Injunctions  in  Aid  of  Such  Remedies. 

91.  When  Such  Remedies   Extend  to  Winding  Up  and 

When  Not. 

92.  Further  as  to  the  Form  of  Relief 

93.  Parties  to  Such  Actions. 

Article  I.     Parties  Plaintiff. 

II.     Parties  Defendant. 

94.  Pleadinos  in  Such  Actions. 

95.  Various  Matters  of  Practice  in  Such  Actions. 


TITLE  VIII. 

MINISTERIAL  OFFICERS  AND  AGENTS. 

(Jhaptek 

96.  The  President. 

Article  I.     His  Powers. 

II.     His  Liabilities. 
III.     His  Compensation. 

97.  The  Vice-President. 

98.  The  Secretary. 

99.  The  Treasurer. 

100.     The  Cashier  of  a  Banking  Corporation. 

Article  T.     His  Status,  Powers,  and  Duties  in  General. 

II.     His  Power  to  Bind  the  Bank  by  Declarations 
and  Statements. 


XXIV  ANALYSIS    OF    THE    WHOLE    WORK. 

Chaptkr 

Article  III.     His  Powers  Toucliing  Negotiable  Paper. 

IV.     His  Powers  Concerning  Certificates  of  Deposit 

and  the  Certification  of  Checks. 
V.     His  Frauds  and  Torts. 

101.  The  Teller  of  a  Bank. 

102.  The  Managing  Agent  Other  Than  the  President  and 

Cashier. 

103.  Attorneys  and  Counselors. 

104.  Powers  and  Liabilities  of  Corporate  Agents  Gener- 

ally. 

Article  I.  General  Principles. 

II.  Their  Declarations  and  Admissions. 

III.  Liability  of  Corporations   for  the   Frauds  of 

Their  Agents. 

IV.  Ratification  of  Unauthorized  Acts  of  Agents. 
V.     Powers  Touching  Particular  Acts. 

VI.     Matters  Relating  to  Particular  Agents. 
VII.     Other  Matters. 


TITLE   IX. 

FORMAL    EXECUTION    OF   CORPORATE   CONTRACTS. 

Chapter 

105.  General  Principles. 

106.  Sealed  Instruments. 

Article  I.     When  Corporate  Seal  Necessary,  and  When 
Not. 
II.     Manner  of  Executing  Sealed  Instruments  by 
Corporations. 

107.  Negotiable  Instruments. 

108.  Other  Written-  Contracts. 

109.  Parol  Contracts. 

110.  Implied  Contracts. 


ANALYSIS    OF    THE    WHOLE    WORK  XXV 

TITLE   X. 

NOTICE,  ESTOPPEL,  RATIFICATION. 

Chapter 

111.  Notice  to  Corporations, 

112.  Estoppels  Against  Corporations  and  Their  Members. 

113.  Ratification  by  Corporations. 


TITLE   XL 

FRANCHISES,  PRIVILEGES,  AND    EXEMPTIONS. 

Chapter 

114.  Nature  of  Franchises  in  General. 

115.  Construction  of  Grants  of  Franchises. 

116.  Vendibility  of  Franchises. 

117.  Constitutional  Protection  of  Franchises. 

Article  I.     On  the  Footing  of  Charters  being  Contracts. 
II.     Under  the  Fourteenth  Amendment. 
III.     In  Other  Respects. 

118.  Exercise  of  the  Police  Power  Over  Corporations. 

119.  Regulation  of  Tolls  and  Charges. 

120.  Taxation  of  Franchises. 

121.  Exemptions  From  Taxation. 

122.  The  Delegated  Power  of  Eminent  Domain. 


TITLE  XII. 

CORPORATE  POWERS  AND  THE  DOCTRINE  OP  ULTRA 

VIRES. 

Chapter 

123.  Corporate  Powers  in  General. 

124.  Interpretation  of  Charters. 

125.  Financial  Powers. 


XXVI  ANALYSIS    OF    THE    WHOLK    WORK. 

Chafper 

126.  Powers  Relating  to  Negotiable  Paper. 

127.  Powers  Relating  to  the  Ownership  and  Transfer  of 

Property. 
Article  I.     Power  to  Take  and  Hold  Land  and  Transmit 
Title  Thereto. 
II.     Power  to  Take,  Hold,  and  Transfer  Personal 
Property. 

128.  Power  to  Do  Various  Acts. 

129.  Powers  Ascribed  and  Denied  to  Particular  Corpo- 

rations. 
Article  I.     Insurance  Corporations. 
II.     Railroad  Corporations. 

III.  Turnpike  Corporations. 

IV.  Miscellaneous  Corporations. 

130.  Doctrine  of  Ultra  Vires. 

Article  I.     Nature  and  Extent  of  This  Doctrine. 

II.     Theories    Under    Which    its    Application    lb 
Denied. 


TITLE  XIII. 

CORPORATE    BONDS   AND   MORTGAGES. 

Chapter 

131.  Corporate  Bonds  and  Coupons. 

Article  I.     Corporate  Bonds. 

II.     Coupons  of  Such  Bonds. 
III.     Remedies  of  Bondholders. 

132.  Power  of  Corporations  to  Mortgage  Their  Property 

and  Franchises. 

133.  Power  of  Directors  and   Officers  to   Execute  Such 

Mortgages. 

134.  Various  Incidents  of  Mortgages   and   Other  Liens 

Created  by  Corporations. 

135.  Foreclosure  of  Corporate  Mortgages. 

136.  Priorities   Among  Creditors    in    Such    Foreclosure 

Suits. 


ANALYSIS    OF    THE    WHOLE    WORK.  XXYll 

TITLE  XIV. 

TORTS  AND  CRIMES  OF  CORPORATIONS. 

Chapter 

137.  Civil  Liability  of  Corporations  for  Torts. 

138.  Liability  for  Trespasses  and  Malicious  Injuries. 

139.  Liability  for  Frauds. 

140.  Liability  for  Negligence. 

Article  I.     In  the  Performance  of  Duties  Imposed  by  Law. 
II.     In   the    Performance   of   Duties    Voluntarily 
Assumed. 

141.  Rules  of  Damage. 

Article  I.     Consequential  and  Special  Damages. 
II.     Exemplary  Damages. 

142.  Unlawful  "Trusts"  for  the   Control  of  Corporations 

and  the  Prevention  of  Competition  Among  Them. 

143.  Indictment  of  Corporations. 
1  4.      Contempts  by  Corporations. 


TITLE  XY. 

INSOLVENT  CORPORATIONS. 

Chapter 

145.  Assignments  for  Creditors. 

146.  Preferring  Creditors. 

147.  Fraudulent  Conveyances  by  Corporations. 

148.  Selling  Out  to  a  New  Corporation. 

149.  Creditors'  Suits. 


TITLE   XVI. 

DISSOLUTION  AND  WINDING  UP. 

Chaptek 

150.  In  What  Manner  Corporations  Dissolved, 

151.  Doctrine  that  Forfeitures  can  only  be  Effected  by 

the  State. 


XXviii  ANALYSIS    OF    THE    WIIOl.K    WORK. 

CiivprFK 

152.  Grounds  of  Forfeiting  Charters. 

153.  Ipso  Facto  Forfeitures  of  Charters  and  De  Facto 

Dissolutions. 

154.  Surrender  of  Franchises  and  Voluntary  Dissolutions. 

155.  Winding  up  at  the  Suit  of  Stockholders. 

156.  Effect  of  Dissolution. 

157.  Quo  Warranto. 


TITLE   XVII. 

RECEIVERS  OF  CORPORATIONS. 

Chapter 

158.  Appointment,  Qualification,  and  Removal. 

Article  I.  Appointment. 

II.  Jurisdiction  to  Appoint. 

III.  Who  Appointed. 

IV.  Proceedings  to  Appoint. 

V.     Stcatutory  Receivers  in  New  York. 

159.  Effect  of  Appointment. 

160.  Title  and  Possession  of  Receiver. 

161.  Whom  the  Receiver  Represents. 

162.  Collecting  the  Assets. 

163.  Actions  by  the  Receiver, 

164.  Incidental  Powers  and  Duties  in  Administering  the 

Trust. 

165.  Proving  Claims  Against  the  Fund  in  the  Hands  of 

the  Receiver. 

166.  Distribution  of  the  Fund  in  the  Hands  of  the  Re- 

ceiver. 

167.  Restoration  of  Trust  Funds  by  the  Receiver. 

168.  Preferred  Claims  in  Railway  Receiverships. 

169.  Actions  against  the  Receiver. 

170.  Liability  and  Remedies  for  Torts  of  the  Receiver. 

171.  Receivers'  Certificates. 


ANALYSIS    OF    THE    WHOLE    WOKK.  XXIX 

Chapter 

172.  Removing  and  Discharging  the  Receiver. 

173.  Receivers  of  Railroads. 

174.  Receivers  of  Insurance  Companies. 

175.  Receivers  of  National  Banks, 

176.  Foreig^n  Receivers. 


TITLE   XVIII. 

ACTIONS  BY  AND  AGAINST  CORPORATIONS. 

Chapier 

177.  Power  to  Sue  and  be  Sued. 

Article  I.     In  General. 

II.     Actions  by  Corporations. 
III.     What  Actions  Lie  Against  Corporations. 

178.  Jurisdiction  as  Depending  Upon  Residence  and  Citi- 

zenship. 
Article  I.     Of  State  Courts. 

II.     Federal     Jurisdiction    as    Dependent    Upon 
Diverse  Citizenship. 

III.  Removal  of  Such  Actions  from  the  State  to 

the  Federal  Courts. 

IV.  ''Inhabitancy"  of   Corporations  for  the  Pur- 

poses of  Federal  Jurisdiction. 

179.  Jurisdiction  as   Depending  Upon    Process   and    Its 

Service. 
Article  I.     What  Process  Used  in  Actions  Against  Cor- 
porations. 
II.     Service  of  Process  on  Corporations  Generally. 

180.  Jurisdiction  as  Dependent  Upon  Voluntary  Ap})ear- 

ance. 

181.  Parties  to  Such  Actions. 

182.  Name  in  Which  Actions  Brought  by  Cor})orations. 

183.  Pleadings  in  Such  Actions. 

184.  Questions  Relating  to  Corporate  Existence. 

AirncLE  I.     In  General. 

IT.     Questions  of  Pleading. 


XXX  ANALYSIS    OF    THE    WHOLE    WOKK. 

Chapter 

Article  III.     Proof  of  Corporate  Character. 
.   IV.     Eflfect  of  Dissolution. 

185.  Evidence  in  Such  Actions. 

Article  I.     Corporate  Books  and  Records. 
11.     Other  jNIatters  of  Evidence. 

186.  Various  Matters  of  Practice  in  Such  Actions. 

187.  Injunctions  in  Such  Actions. 

188.  Attachments  Against  Corporations. 

189.  Garnishment  of  Corporations. 

190.  Mandamus  Against  Corporations. 

191.  Limitation  and  Laches. 

192.  Executions  Against  Corporations. 

Article  I.     In  General. 

II.     The  Writ  and  Proceedings  Thereunder. 


TITLE  XIX. 

FOREIGN  CORPORATIONS. 

Chapter 

193.  Status  and  Powers  of  in  General. 

194.  Powers  of  Foreign  Corporations  Relating  to  Land. 

195.  State    Laws    Imposing    Conditions    Upon    Foreign 

Corporations . 

196.  Actions  by  Foreign  Corporations. 

197.  Actions  Against  Foreign  Corporations. 

198.  Service  of  Process  on  Foreign  Corporations. 

199.  Proceedings  Against  Foreign  Corporations  by  At- 

tachment. 

200.  Proceedings  Against  Foreign  Corporations  by  Gar- 

nishment. 

201.  Taxation  of  Foreign  Corporations. 


CONTENTS  OF  VOLUME  I. 


CONTENTS  OF  VOLUME  I. 


TITLE    ONE. 

ORGANIZATION    AND    INTERNAL   GOVERNMENT. 


CHAPTER   I. 


NATURE   AND   KINDS 


corpora- 


Section 

1.  Wliat  is  a  corporation? 

2.  Judicial    definitions    of 

tion. 

3.  A  collection  of  incidents  which  make 

a  corporation. 

4.  None  tlie  less  a  corporation  because 

members  liable  for  its  debts. 

5.  Nor  because  it  cannot  sue  or  be  sued 

in  its  corporate  name. 

6.  Nor  because  acts  of  parliament  de- 

clare that  it  shall  not  be  a  corpo- 
ration. 

7.  A  collection  of  natural  persons. 

8.  Corporations  sole. 

9.  Ordinary  powers  of  a  corporation. 

10.  Immortality —  "Perpetual     succes- 

sion. " 

11.  In  what  sense  a  "person." 
]'-.   In  what  sense  a  "citizen." 

13.  Distinction    between    a    corporation 

and  a  partnership. 

14.  DifTerences  between  corporations  and 

joint  stock  coinpanies. 
C  xxxi 


OF   CORPORATIONS. 

Section 

15.  Distinction    between   a   corporation 

and  a  guild,  fraternity,  or  society, 

16.  Composed  of  what  body  or  constitu- 

ency. 

17.  Further  of  tliis  subject. 

IS.   Illustrations  of  this  distinction. 

19.  Sense  in  which  the  state  may  be  a 

corporation. 

20.  Quasi-corporations. 

21.  Official  boards  of  municipal  corpora- 

tions. 

22.  Kinds  of  corporations. 

23.  Tiie. definition  given   by  Chancellor 

Keut. 

24.  Public  and  private  corporations. 

25.  Public  school  corporations. 

26.  Corporations  to  promote  charities  of 

a  public  nature. 

27.  Corporations  formed  to  promote  pul)- 

lic  objects  for  private  gain. 
'JS.   ^Vl^en  municipal  corporations  deemed 

private. 
29.    Illustrations  of    public  corporations. 


XXXIY 


CONTKNTS  OF  VOLUME  ONE. 


CHAPTER   II. 

CREATION  BY  SPECIAL  CHARTERS. 

Section  Section 

35.   Corporations    are   created    by  legis-  42.   Legislative  deviations  from  rules  of 

l;itive  power.  the  conunon  law. 

oG.   To  what  extent  tliis  power  maybe  43.   Who  included  in  the  word  "associa- 

delegated.  ates." 

37.  Ivxercised      by     judicial      or     min-  44.    How  legislative  grant  made  and  cor- 

isterial      action      under      general  poration  organized. 

laws.  45.    What  if  the  commissioners  refuse  to 

38.  To  what  extent  exempt  from  judi-  act. 

cial  review.  4(3.    When  charter  provisions   deemed  a 

39.  Corporation   need    not    be    declared  substitute  for  provisions  of  a  gen- 

sucii  in  express  words.  eral  act. 

40.  Theories   as  to  when    charters   take  47.   Whetlier    corporations     created    by 

effect.  concurrent  action  of  two  states. 

41.  Creation    by    reference    to    another  48.   Decisions  adhering  to  the  view  that 

act.  this  cannot  be  done. 


CHAPTER   III. 


ACCEPTANCE   OF   SPECIAL   CHARTERS. 


Section 

52.  Necessity  of  acceptance  of  charter 

53.  Cannot  be  accepted  in  part. 

54.  By  what  body  or  constituency. 

55.  At    meeting    held   in   another  state, 

void. 

56.  Illustrations  of  the  foregoing. 

57.  Withdrawal    or    repeal    before   ac- 

ceptance. 


Section 

58.  Illustrations. 

59.  Effect  of  acceptance. 

GO.   Facts    from    which    acceptance    pre- 
sumed. 

61.  Further    of    evidence    to    show   ac- 

ceptance. 

62.  Evidence  of  non-acceptance. 

63.  A  question  for  a  jury. 


CHAPTER   IV. 

AMENDMENT   OF   CHARTERS. 


Section 

G6.  Preliminary. 

()7.  Power  of  legislature  to  amend  char- 
ters. 

G8.  Amendments  in  furtherance  of  the 
original  design. 

G9.  Amendments  granting  or  altering 
lemedy. 

70.  Amendments   made   in  the   exercise 

of  the  police  power. 

71.  What    amendments    release  non-as- 

senting subscribers. 

72.  View  that   majority  binds   minority 

except  as  to  fundamental  cliaiigcs. 


Section 

73.  View  that  majority  binds  minority 

unless  there    is  a  total  deviation 
from  the  original  object. 

74.  What  changes  are  material  so  as  no'. 

to  bind  minorities. 

75.  Amendments  authorizing   consolida- 

tion or  subdivision. 
7G.   Other    changes    deemed    fundamen- 
tal. 

77.  Further  holdings  on  this  subject. 

78.  Amendments  increasing  the  capital 

stock, 

79.  lUiLstrations. 


CONTENTS    OF    VOLUME    ONE. 


XXXV 


SlCCTlON 

80.  WliL'ii  stockholder  bound  ou  princi- 

ple   of   acquiescence,    ratification, 
or  estoppel. 

81.  Effect  of  want  of  knowledge  of  the 

change    on  the    part    of   a    share- 
holder. 

82.  Other    alterations    immaterial     and 

hence    permissive. 

83.  Amendments     changing     denomina- 

tion  of  shares. 

84.  View  that  subscription  is  made  sub- 

ject to  legislative  power  to  amend 
charter. 

85.  Materiality  of  amendment  question 

for  court, 

86.  What  body  give  assent. 

87.  When   the  action    of    the  directors 

evidence  of  acceptance. 

88.  Illustration. 

89.  EflFect   of     reservation   of    power    to 

alter  or  repeal. 

90.  Whether  this  power  is  merely  a  reser- 

vation to  state  for  public  purposes. 

91.  Further  of  this  subject. 

92.  Power    to  alter  or    repeal,  reserved 

in  a  general  law,  applies  to  fu- 
ture special  charters. 


Section 

93.  Illustration. 

94.  Subsequent    general    laws    operat- 

ing   as    amendments    of    special 
charters. 

95.  Amendments  authorizing  a  surren- 

der of  franchises. 

96.  When    acceptance    of    amendment 

not   necessary. 

97.  Evidence  of  acceptance  of  amend- 

ment by   corporation, 

98.  Evidence   of   acceptance    by  stock- 

holders. 

99.  View   that    assent    of    stockholder 

is  to  be  presumed,   and  dissent 
proved. 

100.  Instances     under     the     foregoing 

rule. 

101.  Estoppel    to    deny    acceptance    of 

amendment. 

102.  View  that  objections  can  only  be 

raised  by  quo  wmTanlo,  etc. 

103.  Amendment  by  substitution  of  new 

charter. 

104.  Objection    by    third    parties:    con- 

tractors. 

105.  How    minority    are    protected    in 

England. 


CHAPTER  V. 

CHARTERS  GRANTED  BY  THE  COURTS. 

Section 


Seci'ion 

110.  Devolving   the   power   of    creating 

corporations  on  the  courts. 

111.  Objects   for  which  the  courts  may 

grant  charters  in  Pennsylvania. 

112.  Proceedings  to  obtain  such  charters 

must  be  public. 

113.  Requisites    of    charter    submitted 

to     court     under     Pennsylvania 
statute. 

114.  Requisites  of   charter  under  Penn- 

sylvania act  of   1874. 

115.  Reasons    for    which    charters    liave 

been  refused. 

116.  Charters  refused  which  contain  an 

indefinite  power  of  expulsion. 

117.  Further  of  this  subject. 

118.  Charters  refused  containing  powers 

not  specified  in  the  statute. 


119.  Charters  refused  with  power  to  con- 

fer decrees. 

120.  Charters   refused  for  mutual  mar- 

riage benefit  associations. 

121.  Charters    refused    containing    by. 

laws. 

122.  Charters  refused  because  not  writ- 

ten on  a  single  piece  of  paper. 

123.  Ciiarters  under  §   1676   of  Georgia 

Code. 

124.  Referring    the     application    to    an 

amicus  cur  ice. 

125.  No  appeal  from  decree  refusing. 

126.  Charters  amended   by  the   judicial 

courts. 

127.  What  body  assent  to  amendments 

by  judicial  courts. 


XXXVl 


contp:nts  of  volume  one. 


CHAPTER  VI. 

ORGANIZATION  UNDER  GENERAL  LAWS. 

Art.  I.     Purposes  for  Which  Incorporation   Permitted. 

SUED!  V.     I.     Examjihs  from  Various  Statutes. 
SUBDIV.   11.     Decisions  Construincj  Particidar  Statutes. 

Art.  II.     Steps  Necessary  to  Perfect  Organization. 


Article  I.    Purposes  for  Which  Incorporation  Permitted. 

SUBDIVISION  I.     E.xawples  from  Various  Statutes. 


Section 

132.   Statutes  autliorizing  the  formation 

of, corporations. 
1.33.  Agricultural  fairs. 

134.  Alumni. 

135.  Avenues. 

136.  Banks. 

137.  Bar  associations. 

138.  Breeding  domestic  animals. 

139.  Bridges. 

140.  Building  and  loan  associations. 

141.  Building  towns. 

142.  Business  purposes:    mining,   manu 

facturing,  merchandising,  etc. 

143.  Camp  meetings. 

144.  Canals. 

145.  Cemeteries. 

146.  Chambers  of  commerce:  merchants' 

exchanges:  boards  of  trade. 

147.  Colleges. 

148.  Co-operative  associations. 

149.  Cruelty  to  animals. 

150.  Cruelty  to  children. 

151.  Detective  associations. 

152.  Fencing  land. 

153.  Ferries. 

154.  Fire  companies. 

155.  Fire  department  relief. 

156.  Gaslighting. 

157.  Guano:  fertilizers. 

158.  Guaranty:    suretyship:   indemnity: 

safe  deposit. 

159.  Gymnastic  purposes. 

160.  Health  resorts:  sanitariums:  medi- 

cines, etc. 

161.  Horticulture. 

162.  Hydraulic  power. 


Section 

1C3.   Insurance. 

164.  Lawful  purposes. 

165.  Lodges:  fraternities:    societies. 

166.  Masonic  buildings. 

167.  Mining:  manufacturing,  etc. 

168.  Navigation. 

169.  Patrons  of  husbandry. 

170.  Pipe  lines. 

171.  Police  relief. 

172.  Political  clubs. 

173.  Public  libraries. 

174.  Railroads. 

175.  Rafting:  booming  logs. 

176.  Religion:  education:  benevolence. 

177.  Savings  banks. 

17S.  Slack-water  navigation. 

179.  Soldiers'  monuments. 

180.  Sporting. 

181.  Stage  coaches. 

182.  Street  railroads. 

183.  Telegraphs:  telephones. 

184.  Tobacco  warehouses. 

185.  Toll  roads:   plank,  gravel,   macad- 

amized, turnpike  roads,  etc. 

186.  Training  nurses. 

187.  Tramways,  elevated. 


188. 
189. 
190. 
191. 


192. 


Trust  companies. 

Union  depots. 

Water  works. 

Indiana:    enumeration  of  purposes 

for  which  corporations   may    he 

formed. 
Texas:  enumeration  of  purposes  for 

which      corporations      may      be 

formed. 


CONTENTS    OF    VOLUME    ONE. 


XXXVll 


SUBDIVISION  II.      Decisions  Construing  Particular  Statutes. 


Section 

200.  Corporations  for  internal  iuiprove- 

meuts. 

201.  "  Lawful  sporting  purposes." 

202.  Erection  of  buildings. 
20.3.  Industrial  pursuits. 

204.  "For  any  other  purpose  intended 

for  mutual  profit,"  etc. 

205.  "Other  lawful  business." 


or     protective     pur- 


Section 

206.  "Beneficial 

poses. " 

207.  "  Manufacturing  purposes. " 

208.  "  Works  of  public  utility." 

209.  "Pecuniary  profit." 

210.  "  Loan,  mortgage,  security,  guar- 

anty, indemnity  company. " 


Article  II.     Steps   Necessary  to   Perfect  Organization. 


Section 

215.  Corporations  may  be  organized  un- 

der general  laws. 

216.  Theory  of  the  nature  of  a  charter 

where  the  incorporation  is  under 
a  general  law. 

217.  When     life    of     corporation    com- 

mences. 

21S.  Distinctions  between  actions  against 
the  supposed  corporation  and 
actions  against  the  supposed 
corporator. 

219.  Necessity  of  articles  or  certificate 
of  incorporation. 

22<).  Corporate  existence  proved  by  user 
under  an  instrument  of  incorpo- 
ration. 

221.  Defective  certificate  not  prima  facie 

evidence  of  incorporation. 

222.  Distinctiou    between    user    under 

special    charter,  and  compliance 
with  conditions  under  general  law. 

223.  Originals   evidence   where    statute 

prescribes  copy. 

224.  Literal  compliance  with  statute  not 

necessary:  substantial  compliance 
sufScient. 

225.  Substantial  compliance  necessary. 

226.  Distinctions     between     conditions 

precedent   and  conditions  direc- 
tory. 

227.  Illustrations. 

228.  Defects  in  the  articles  or  certificate 

which  do  not  vitiate. 

229.  Claiming  more  than  the  law  allows. 

230.  Provision  as  to  expulsion  of  mem- 

bers. 


Section 

231.  Specifying  the  objects  of  the  asso- 

ciation. 

232.  Illustrations. 

233.  Stating  the  place  where  the  busi- 

ness of  the  corporation  is  to  be 

carried  on. 
2.34.   Stating  the  manner  of  carrying  on 

the  business. 
235.   Provision  as  to  manner  of  payment 

of  stock. 
230.   Fatal  defects  not  supplied  by  parol 

evidence. 

237.  Acknowledgment  of  articles. 

238.  Ainendmentof  articles  or  certificate, 

239.  Filing,  publishing,  and  recording  ar- 

ticles. 

240.  Filing  copy  with  secretary  of  state, 

etc. 

241.  Illustrations. 

242.  Recording  in  the  wrong  book. 

243.  Fraudulent   and    surreptitious    re- 

cording. 

244.  Noncompliance  with  provisions  di- 

recting publication  of  articles. 

245.  Provision  as  to  assent  and  approba- 

tion of  a  judge. 

246.  Subscription  of  tlie  wiiole   amount 

of  the  capital  stock. 

247.  Payment    of    a  certain    amount    of 

the  capital  stock. 

248.  Certificate  of  treasury  board,  comp- 

troller of  currency,  etc.,  conclu- 
sive. 

249.  Letters    patent     of     incoi-poratiou 

conclusive  evidence  of  corporate 
existence. 


XXXVUl 


CONTKNTS  OK  VOLUMK  ONE. 


CHAPTER   VII 

REORGANIZATION. 


Section 

255.  Effect  of  renewal  of  charter. 

•256.  Distinction  between  the  revival  of 
an  old  corporation  and  the  crea- 
tion of  a  new  one. 

257.  Franchise   to  be  a  corporation  not 

the  subject  of  a  judicial  sale. 

258.  Statutory  provisions  under   which 

the  reorganized  company  suc- 
ceed to  the  franchises  of  the 
old. 

259.  Further  statutory  provisions. 

260.  These  '  schemes    of     reorganisation 

favored. 

261.  Effect  of  reorganization  after  mort- 

gage foreclosure. 

262.  Special     privdeges    of     antecedent 

companies    pass    to    new. 

263.  New  corporations,  when   not  liable 

for  debts  of  old. 

264.  Illustrations. 

265.  Assets  of  old  corporation  liable  for 

its  debts  in  hands  of  new, 

266.  Illustrations. 

267.  When  new  corporations  liable    for 

debts  of  old. 

268.  Organization  of  new  company  does 

not  necessarily  destroy  old. 


Skction 

'2{Ji).  Stockholders  bound  to  take  notice 
of  plan  of  reorganization,  and  to 
signify  their  assent  within  the 
prescribed  time. 

270.  Members  of  stockholders'  committee 

can  not  purchase  at  sale. 

271.  But  creditors  may  combine  to  pur- 

chase and  reorganize. 

272.  When  minority  of  shareholders  not 

bound  by  reorganization  by  ma- 
jority. 

273.  When     minority     of      bondholders 

bound     by      reorganization     by 
majority. 

274.  Reorganization   under   British  and 

Canadian  arrangement  acts. 

275.  Compromise  arrangement  must    be 

substantially  complied  with. 

276.  Bondholder  may  lose  his  rights  by 

laches. 

277.  Rights  of  holder  of  income  bonds. 

278.  Effect   of    transforming   a  partner- 

ship  into   a   corporation. 

279.  Abortive     corporations     reincorpo- 

rated  under  a  general  law 


CHAPTER   VIII. 

NAMES     OF     CORPORATIONS. 


Section 

284.  Importance  of  the  corporate  name. 

285.  Distinction    between    the  namcb  of 

natural  persons  and  of   corpora- 
tions. 

286.  Acquired  by  usage  and  reputation. 

287.  Petition  to  change  corporate  name, 

288.  Change  of  name  by  corporate  action. 

289.  Effect  of  changing  corporate  name. 

290.  The  corporate  name  in  suits. 

291 .  Misnomer  of  corporation  in  pleading. 

292.  Effect    of    variances    in    corporate 

name, 

293.  What  misnomers  amendable. 

294.  Effect  of  misnomer  of  corporations 

in  written  obligations. 


Section 

295.  Misnomer  in  devises  and  bequests. 

296.  Corporation  protected  in  use  of  cor- 

porate name. 

297.  Illustrations. 

298.  Discretion  of  secretary  of  state  as 

to  issuing  certificates  of  incorpo- 
ration for  a  corporation  having  a 
similar  name  to  the  one  already 
existing. 

299.  Illustration:      "Kansas    City    real 

estate  exchange" — "  Kansas  City 
real  estate  and  stock  exchange." 

300.  Prohibition     in     Missouri     statute 

against  use  of  name  of  person 
or    iirin. 


CONTENTS    OF    VOLUME    ONE. 


XXXIX 


CHAPTER   IX. 

CONSOLIDATION. 

Art.  I.     In  General. 

II.     Effect  Upon  Shareholders. 

III.  Transmission  of  Rights  and  Liabilities  of  Con, 

stituent  Companies. 

IV.  Effect  on  Remedies  and  Procedure. 


306 

307, 
.308 


Article  I. 

Secttion 

305.    Statutes   providing    for    consolida- 
tions. 

California:  railroad  companies. 

Colorado. 

Illinois. 

309.  Michigan:  railroad  companies. 

310.  Missouri:  railroad  companies. 

311.  New  York:  railroad  companies. 

312.  Ohio. 

313.  Pennsylvania. 

314.  Texas:  prohibition. 

315.  Necessity  of  legislative  action. 

316.  Legislature  cannot  compel  consoli- 

dation of  private  corporations. 

317.  Validation  by  curative  statutes. 

318.  Validation  by  legislative  recognition . 

319.  Consolidation   with   foreign  corpo- 

ration. 
Remains  a  domestic  corporation  in 

each  of  the  concurring  states. 
Foreign  law  not  transferred:  local 

law  not  displaced. 
With  what  powers  and  liabilities. 
Jurisdiction    not    parted    with    or 

transferred. 


320. 

321. 

322. 
323. 


In  General. 

Section 

324.  Selling  out  to  a  foreign  corporation 

and  taking  its  shares  in  payment. 
.S25.  Illustration. 
'6'26.   Power    to    consolidate    a    contract 

right  and  inviolable. 

327.  What    steps  necessary  to    effect    a 

consolidation. 

328.  Distinction    between    consolidation 
and  agreement  to  consolidate. 

Agreements  which  do  not  amount 
to  a  consolidation. 

By  one  company  purchasing  the 
capital  stock  of  the  other  com- 
pany. 

331.  Railroad    companies    combining    to 

purchase  another  road. 

332.  When  deemed  fraudulent  in  law. 

333.  Illustration. 

334.  Contract   of   amalgamation  an  en- 

tirety. 

Cannot  be  rescinded  without  restor- 
ing consideration. 

Obligation    of    the    committee     to 
account  for  profits. 
337.   Decisions  under  special  statutes. 


329. 


330. 


335. 


336. 


Article  II.     Effect  Upon  Shareholders. 


Section 

34,3.  Effect   of    consolidation    upon    the 

rights  of  dissenting  shareholders. 
.344.   Illustration:  effect  of  guaranty  that 

stock    of    precedent    corporation 

shall  be  at  par  at  a  future  date 

named. 
345.    View  that  majority  can  consent  on 

giving     security     to     dissenting 

sliareholders. 


Section 

346.  Rvile    where    a    statute    autlicirizcs 

consolidation  at  date  of  subsfM  i[i- 
tion. 

347.  Where  there  is  a  reserved  ]h>\\  cr  of 

amending  the  charter. 

348.  Power  to  amend  articles  does  not 

extend  to  consolidation. 

349.  When    entitled    to    an    injunction 

to  restrain  consolidation. 


X 


cl 


CONTENTS    OF    VOLUMi;    ONE. 


Sec'J 
350. 
351. 
352. 

353. 

354. 

355. 


Extent  of  injunctive  relief  aflforded. 

No  injunction  if  interest  secured. 

Action  in  cnuity  against  the  consoli- 
dated company. 

No  right  of  action  for  damages 
against  directors. 

Eflfect  of  acquiescence  of  share- 
holders. 

Rights  of  consolidated  company 
against  shareholders  of  old  com- 
panies. 


Section 

356.  Action  by  new  company  for  assess- 

ments against  shareliolders  in  the 
old. 

357.  New      company      must    show      its 

title. 

358.  Stockholders  may  plead  no  consoli- 

dation. 

359.  Illustration. 

360.  What  in  case  the  original  subscrip- 

tiou  was  conditional. 


ARTICLE  III.     Transmission  of  Rights  and   Liabilities   of 
Constituent  Companies. 


366. 


367. 


368. 


369. 


Section    ■ 

365.  New   company  succeeds  to   rights 
and  obligations  of  the  old  ones. 

Succeeds  to  rights  of  old  in  respect 
of  municipal  aid. 

AVhen  consolidation  revokes  power 
to  subscribe. 

Succeeds    to  exemption    from    tax- 
ation. 

How   as  to  accretions    and   better- 
ments. 

370.  When  exemption  lost. 

371.  Special  immunities  pass  by  the  con- 

solidation, 
37*2.  Liability  of  new  for  debts  of  old. 

373.  Statute  of   consolidation  valid,   al- 

though not  providing  for  pay- 
ment of  all  debts  of  absorbed 
company. 

374.  Act  of  merger  after  mortgage  fore- 

closure. 

375.  Liable  in  equity  to  extent  of  assets 

received. 

376.  Observations  and  illustrations. 

377.  Rule  does  not  apply  to  bonajide  sale 

of  assets. 
37S.  Rights  of  bona  fide  purchasers  from 
cousolidated  conipany. 


Section 

379.  Creditor    of     old    corporation    not 

bound    to   accept    responsibility 
of  new. 

380.  Powe.  of  new  company  to  deal  with 

credits  of  old. 

381.  Guaranty    by   the   officers    of    one 

company   of    the   obligations   of 
the  other. 

382.  Damages  for   refusal   to  carry  out 

obligation  of  old  corporation. 

383.  Illustration:  damages  for  refusal  to 

exchange  bonds  for  stock  of  con- 
solidated company. 

384.  Right   of   bondholder  to  notice   of 

privilege  given  him  by  the  con- 
solidation. 

385.  Validity  of  bonds  of  old  company 

put  in  circulation  by  new. 

386.  New  company  must  perform  public 

obligations  of  the  old. 

387.  Illustration. 

388.  Enforcement  of  stipulations  in  the 

contract  of  consolidation. 

389.  Consolidated    company   subject    to 

existing    general    law    reserving 
right  of  alteration  or  repeal. 

390.  Illustration. 


AiiTiCLE  IV.     Effect  on  Remedies  and  Procedure. 


Section 

395.  View  that   consolidation   dissolves 

the  constituent  companies. 
39G.   Not    necessarily    a    dissolution    of 

both. 


Section 

:!97.   Further  of  this  subject. 

398.  New  company  estoppe<l  from  deny- 
ing its  corporate  name  and  cliar- 
acter. 


CONTENTS    OF    VOLUME    ONEo 


xli 


Section 

399.  Legal   existence   of   old   companies 

continued  in  the  new  company. 

400.  Effect  of  a  consolidation  upon  pend- 

ing suits. 

View  that  action  abates  as  to  old 
company. 

View  that  new  process  is  necessary. 

View  that  new  process  not  neces- 
sary: effect  of  appearance  and 
oral  evidence  of  consolidation. 

Substitution  after  referee's  report 
and  before  judgment. 


401. 


402 
403. 


404. 


Sectio.v 

405.  Action  by  creditors  of  old  company 

against  new  company. 

406.  How    fact    of  consolidation    aver- 

red. 

407.  How  averment  replied  to. 

408.  Proof  of  the  consolidation. 

409.  Effect   of    dissolving   consolidation 

upon  judgments  against  consoli- 
dated company. 

410.  Binding  effect  of  admission  of  one 

of  the  precedent  corporations. 


CHAPTER   X, 

PROMOTERS. 

Art.     I.  Liability  on  Their  Contracts. 

II.  Liability  to  Subscribers. 

III.  Liability  to  the  Company. 

IV.  Non-liability  of  the  Company  for  Contracts  of 

Promoters. 


Article  I.     Liability 

Section 

415.  Meaning  of  the  term  "promoter." 

416.  Personal  liability  of  promoters  on 

contracts    made  for  a   projected 
company. 

417.  But  promoters  personally  liable  al- 

though contract  made  in  name  of 
corporation. 

418.  Pk.ule   applies  in  all  cases    to  man- 

agers. 

419.  Illustrations. 

420.  Theory   that    rule    not    applicable 

where  there  is  a  corporation  de 
facto. 

421.  English    view   tliut   promoters   not 

necessarily  liable  as  partners. 

422.  This  view  furtlier  explained  and  il- 

lustrated. 

423.  Character  in  which    liable  a  ques- 

tion of  fact. 

424.  Liable  when  signing  as  "agent." 

425.  Illustration  of  the  English  rule. 

426.  Promoters  not,  as  such,  coiitributo- 

ries. 


ON  Their  Contracts. 

Section 

427.  Further  of  the  English  rule. 

428.  The  English  doctrine  summed  up  by 

Sir  Nathaniel  Lindley. 

429.  No  action  at  law  by  one  promoter 

against  the  others. 

430.  Unless   under  exceptional   circum- 

stances. 

431.  Liability  of   committeeman    subse- 

quently joining. 

432.  Members  of  provisional  committee 

not  liable  for  contracts  of  man- 
aging committee, 

433.  Judgment  and  satisfaction  against 

one  may  be  pleaded  in  abatement 
by  another. 
4.34.   Evidence  to  charge  committeemen. 

435.  Illustrations. 

436.  Evidence  to  charge  the  associates  in 

an  abortive  corporation. 

437.  Liability  of  associates  for  expenses 

of  agents  appointed  to  procure 
charter. 


xlii 


<.H)NT1<:NTS    oI''     VOLl'MIO    ONE. 


Article  II.     Liabu 

Section 

440.  Liability    to   subscribers    for  their 

deposits  where  the  umlertaking 
proves  abortive. 

441.  Grounds  of  recovery  at  hivv  in  such 

cases. 
44'2.   Illustration. 

443.  Grounds  of  recovery  in  equity. 

444.  Remedy  in  equity  lost  by  laches. 

445.  Equity  repels  actions  brought  for 

barratrous  purposes. 

446.  lu  returning  deposits,  breach  of  trust 

to  prefer  particular  shareholders. 


ITY    TO    SUBfeCiaFlOUS. 

Section 

447.  Release  by  contract  of  rijilit  to  re- 

cover deposits. 

448.  Construction  of    such  a  contract- 

agreement     to     execute      future 
agreement. 

449.  What  coninutteemen  are  liable. 

450.  Action  at  law  against  promoters  for 

deceit. 

451.  Measure  of  damages  in  such  actions. 

452.  Remedy    in    equity,    of  sharetnker 

against  promoters  for  fraud. 

453.  Measure  of  recovery  in  equity. 


.Article  III. 

.Section 

456.  Promoters  bound  to  disclose  what 

they  are  to  get  for  their  services. 

457.  Cannot  make  secret  profits  out  of 

the  corporation. 

458.  Purchasing  and  then  selling  to  cor- 

poration at  a  higher  price. 

459.  Illustrations. 

460.  No  liability  when  the  transaction  is 

fully  disclosed. 

461.  Company    may    affirm    promoters' 

contract   and   enforce  it  for   its 
own  benefit. 

462.  Not  necessary  to  rescind  the  whole 

transaction. 

463.  Deduction  for  promoting  company. 

464.  Compromise  of  suit  against  vendors. 
4G5.   Measure  of  recovery  in  equity. 

466.  Liability  at  law  for  secret  profits. 

467.  Illustrations. 


Liability  to  the  Company. 

Section 

468.  Immaterial  that  directors  of  the 
corporation  knew  of  the  fraud. 

469.  Liability  for  fraudulent  representa 
tions. 

470.  Illustration. 

471.  No  defense  that  the  corporation 
raised  the  money  on  an  illegal 
issue  of  its  stock. 

472.  Grounds  of  recovery  against  aiders 
and  abettors. 

473.  Whether  liability  of  managing  com- 
mitteeman in  equity  for  fraud  is 
joint  or  several. 

474.  Who  may  bring  the  action  in  equity. 

475.  Great  latitude  allowed  in  admission 
of  evidence. 

476.  When  the  fiduciary  relation  be- 
tween the  promoter  and  the  com- 
pany commences. 


Article   IV.     Non-liability 

TRACTS     OF 

Section 

480.  Contracts  of  promoters  not  binding 

on  future  company. 

481.  Illustrations. 

482.  Engagement   with   promoters   is   a 

proposal  to  corporation. 

483.  Illustration. 

484.  Not  liable  for  services  rendered  in 

promoting  it. 

485.  Illustration. 

486.  Limitations  of  rule  of  corporate  lia- 

l)ility. 


OF    THE   Company    for    Con- 
Promoters. 

Section 

487.  Services  rendered  at  the  request  oi 

all  the  corporators. 

488.  Rule  not  applicable  where  third  per- 

sons join  the  corporation. 

489.  Distinction    between    cases    where 

the  remedy  is  in  equity  and  at 
law. 

490.  Illustrative  cases  where  the  corpo- 

ration  was   held   liable    on    the 
theory  of  estoppel.    • 


CONTENTS    OF    VOLUME    ONE. 


xliii 


CHAPTER   XI. 

IRREGULAR  AND  DE  FACTO  CORPORATIONS. 

Art.  I.     De  Facto  Corporations. 
11.     Corporations  by  Estoppel. 


Article  I.     De  Facto  Corporations. 


Section 

495.  Divergence  of  views  on  the  subject 

of  de  facto  corporations. 

496.  When  rightfulness  of  corporate  ex- 

istence presumed. 

497.  Presumed    from   user  of    corporate 

powers. 

498.  Especially  where  rights  have  been 

acquired  thereunder. 

499.  Corporations     by    prescription     or 

user. 

500.  What  necessary  to  give  rise  to  this 

presumption. 

501.  Validity  of  corporate  existence  not 

litigated  collaterally. 

502.  Limitations  of  this  doctrine. 

503.  What  is  meant  by  existing  de  facto_ 

504.  Rule  under  California  Civil  Code. 

505.  Rule  applies  only  where  the  corpo- 

ration might  exist. 


SECTION 

506.  Effect   of    this   doctrine    upon   the 

rights  of  shareholders  and  cred- 
itors. 

507.  Validates  irregularities  in  organiza- 

tion. 

508.  Except  where  the  thing  to  be  done 

is  a  condition  precedent. 

509.  Further  observations  and  illustra- 

tions. 

510.  State  precluded    by  lapse  of   time 

from    questioning    regularity    of 
corporate  organization. 

511.  Corporation  suing  for  rights  which 

can  only  inhere  in  it  as  a  corpo- 
ration. 

512.  Corporations  by  legislative  recogni- 

tion. 

513.  Illustrations. 


Article  II.     Corporations  by  Estoppel. 

Section 

526.  Party  dealing  with  corporation  per- 
mitted to  show  corporate  know), 
edge. 

527.  Party  claiming  under  legislation 
creating  a  corporation  estopped 
to   deny   its   existence. 

528.  Stockholder  estopped  to  deny  cor- 
porate existence. 

529.  Estoppel  to  set  up  fraudulent  or- 
ganization. 

530.  Exception  where  the  corporation 
has  expired  by  lapse  of  time. 

531.  Forfeiture  for  misuser  or  nonuser 
not  pleadable  collaterally. 

532.  Corporation  estopped  to  deny  cor- 
porate existence. 

533.  Corporations  for  illegal  purposes. 


SEcrrioN 

518.  Obligor  in  contract  with  corporation 

estopped  to  deny  corporate  exist- 
ence. 

519.  Illustrations  of  the  rule. 

520.  Various  statements  of  this  rule. 

521.  Corporate     existence     proved     by 

showing  that  the  objecting  party 
has  dealt  with  it  as  such. 

522.  Rule  restrained  to  cases  of  de  facto 

corporations. 

523.  This  estoppel  not  raised  where  there 

is  no  law  authorizing  tlie  corpo- 
ration. 

524.  View   that   incorporation   must  be 

stated   in    the  contract. 

525.  Except  where  party  is  induced  by 

fraud  to  recognize  corporate  ex- 
istence. 


xliv 


CONTENTS    OK    VOLUMK    ONE. 


CHAPTER  XII. 

CONSTITUTIONAL  RESTRAINTS   UPON  THE   CREATION  OF  CORPORA- 
TIONS  AND  THE   GRANTING   OF   CORPORATE  PRIVILEGES. 

Art.     I.     Provisions  of  Various  State  Constitutions. 

II.     Restraints  Upon  the  Passing  of  Special  Acts 
Conferring  Corporate  Privileges. 

III.  Restraints  as  to  the  Titles  of  Laws. 

IV.  Restraints  as  to  the  Mode  op  Passing  Laws. 
V.     Various  Other  Restraints   and  Provisions. 

Provisions    of   Various    State  Constitutions. 


Article  I. 

Section 

538.  Scope'  of  this  chapter. 

539.  Corporations  not  to  be  created  by 

special  laws. 

540.  But  only  under  general  laws. 

541.  And  subject   to  legislative   altera- 

tion or  repeal. 
54'2.   Legislature  not    to  extend  charter 

nor  remit  forfeitures. 
54:>.   Except  on   condition   of   accepting 

constitutional  provisions. 

544.  Legislature   may  alter,    revoke,  or 

annul    existing   charters. 

545.  No  special  law  as  to  more  than  one 

corporation. 
54G.   Existing    charters    annulled    where 
no  organization  has  taken  place. 

547.  State  aid  not  to  be  granted. 

548.  Nor  debts  to  state,  nor  state's  lien, 

released  or  commuted. 

549.  Nor  municipal  aid  granted. 

550.  Except  upon  conditions. 

551.  Neither  state  nor  municipal  aid  to 

Ije  granted. 

55"2.  Provisions  of  Minnesota  constitu- 
tion as  to  state  aid:  "Minne- 
sota railroad    bonds." 

553.  Private  corporations  not  to  have 
municipal    or   taxing  powers. 


Section 

554.  Laws  permitting  alienation  of  cor- 

porate franchises  prohibited. 

555.  Corporations  not  to  employ  Chinese 

labor. 

556.  Existing  rights  saved. 

557.  Retrospective   laws   for   benefit   of 

corporations   prohibited. 

558.  Two-thirds     legislative     vote     re- 

quired. 

559.  Duration  of  corporation  limited. 

560.  Power  of  creating  corporations  de- 

volved on  the  courts. 

561.  Saving    rights    arising    during   the 

civil    war. 

562.  Provisions   as    to    religious   corpo- 

rations. 

563.  Police  power  over  corporations  not 

to  be  abridged. 

564.  Bills  creating  corporations  continued 

till  next  session  of  legislature. 

565.  Laws  to  be  passed  protecting  labor- 

ers. 

566.  Bonus  to  be  paid  to  the  state. 

567.  Meaning  of  the  word  "corporation" 

as  used  in  A inerican  constitution s. 

568.  Not    to    authorize     investment    of 

trust  funds  in  private  corporate 
securities. 


Article  II.     Restraints    Upon    the    Passage    of    Special 
Statutes  Conferring  Corporate    Privileges. 

Section  Section 

573.   Restraints    upon    tlie     passage    of  574.    Object  of   such  constitutional  pro- 
special  acts  conferring  corporate  visions. 

powers.  575.   Such  provisions  not  retroactive 


CONTENTS    OF    VOLUME    ONE. 


xlv 


Section 

57G.   Accepting    charter    after    date    of 
constitutional  proliibition. 

577.  General   laws   perpetuating    privi- 

leges granted  by  previous  special 
charters. 

578.  Conferring  corporate  privileges  on 

corporations  to  be  thereafter  cre- 
ated under  general  laws. 

579.  Illustration. 

580.  Rule  in  the   federal    courts  where 

a  state  constitution  has  received 
conflicting  interpretations  in  the 
state  courts. 

581.  Further     of     prohibitions    against 

special  acts  conferring  corporate 
powers. 

582.  States  in  which  applicable  only  to 

private  corporations. 

583.  Prohibition    against   incorporating 

includes  prohibition  against 
amending. 

584.  A  contrary  view. 

585.  Restrains    amendments     enlarging 

existing  powers  and  privileges. 

586.  General  enabling  acts  applicable  to 

existing  corporations. 

587.  Distinctions   as    to    what   are    and 

what  are  not  corporate  powers. 

588.  Exceptions  where  general  laws  can- 

not be  made  applicable. 

589.  Special  act  not  maile  general  by  leg- 

islative declaration  to  that  effect. 


Section 

590.  Acts  curing  defects  in  the   organ- 

ization of  particular  corporations. 

591.  What  is  a  "local"  law  within  the 

meaning  of  such  a  prohibition. 

592.  Statute    is   general   when   uniform 

in   its   operation    upon    all    the 
members  of  a  particular  class. 

593.  Provided  classification  natural  and 

not  arbitrary. 

594.  Illustration:  invalidity  of    statutes 

operative  only  in  cities  having  a 
certain  number  of  inhabitants. 

595.  Other   cases  illustrating  these  dis- 

tinctions. 

596.  Corporations  carrying  on  operations 

in  specific  localities. 

597.  Creation  of  a  park  district  outside 

of    the    corporate    limits    of     a 
city. 

598.  What  statutes  have  been  held  local 

or  special. 

599.  Instances  of  statutes  held  not  local 

or  special. 

GOO.  Special  statutes  granting  "exclu- 
sive privileges,  immunities,  or 
franchises." 

GOl.  Conferring  certain  public  police 
powers  upon  existing  corpora- 
tions. 

602.  Empowering  existing  municipal 
corporations  to  subscribe  for 
stock  in  private  corporations. 


Article  III.     Restraints  as  to  the  Titles  of  Laws 


Section 

607.  Constitutional  restraints  as  to  the 

titles  of  statutes. 

608.  .Such  provisions  mandatory. 

609.  Judicial  expressions  as  to  the  design 

of  these  provisions. 

610.  Construed   liberally  in  support   of 

legislation:    general    expressions 
of  tliis  doctrine. 

611.  The  result  of  the  cases. 

612.  Illustrations:  acts  granting  special 

charters. 

613.  Act    creating    a   cor[)oration,    etc., 

need  not  enumerate  powers  con- 
ferred. 


Section 

614.  Acts  "incorporating"  railway  com- 

panies and  providing  for  munici- 
pal aid. 

615.  Setting  out  in  incorporating  act  the 

entire  constitution    of   the    com- 
pany. 

616.  Acts  relating  to  municipal  corpora- 

tions. 

617.  Instances  of  statutes  embracing  more 

than  one  subject. 

618.  Instances  of  statutes  not  embracing 

more  than  one  subject,  and  hence 
valid. 


xlvi 


CONTENTS    OF    VOLUME    ONE. 


Section 

019.  Instances  of  statutes  containing  sub- 
jects not  expressed  in  their  titles. 

G'20.  Instances  of  statutes  not  subject  to 
tliis  constitutional  objection. 

C21.   General  acts  of  incorporation. 

622.   Illustrations. 

023.  Acts  purporting  to  amend  former 
acts. 

Article  IV.     Restraints  as 
Section 

632.  Constitutional  provisions  requiring 

assent    of    two-tliirds     of     each 
house. 

633.  Whether  provisions  as  to  passing 

bills  directory  or  mandatoi'y. 

634.  Whether  courts  will  go  behind  the 

enrollment. 

635.  Presumptions  in  favor  of  regularity 

of  passage. 


Skction 

624.  Illustrations  of  titles  of  amendatory 
acts. 

625.  Void  as  to  matter  not  expressed  in 
title,  though  valid  as  to  the  rest. 

626.  Distinctions  depending  upon  the 
use  of  the  words  "subject"  and 
"  ol)ject. " 

627.  L^ng  practical  constrnction. 

TO  THE  Mode  of  Passing  Laws. 

Section 

636.  Whether  parol  evidence  admissible 
on  the  question. 

637.  Signed  by  the  governor  or  no  law. 

638.  Constitutional  provisions  requiring 
amendments  of  charters  to  be  sub- 
mitted to  a  vote  of  the  people. 

639.  Tliat  no  law  shall  create,  renew,  or 
extend  the  charter  of  more  than 
one  corporation. 


Article  V.     Various   Other 

Section 

643.  Objections  on   the   ground  of  dele- 

gations of  legislative  power. 

644.  Grounds  on  which  this  question  to 

be  determined. 

645.  Prohibition  against  the  delegation 

of  municipal  powers  to  special 
commissions,  private  corpora- 
tions, etc. 

646.  Further  of  this  subject. 

647.  May  grant  exclusive  privileges   in 

the  absence  of  constitutional  re- 
straint. 

648.  Rule  under  constitutional  prohibi- 

tions. 

649.  Further  of  tliis  subject. 

650.  Holdings  under  other  constitutions. 

651.  Rights  which  the  legislature  cannot 

bargain  away. 


Restraints  and    Provisions. 

Section 

652.  Prohibition  against  granting  char- 

ters of  incorporation  to  churches 
or  religious   denominations. 

653.  Corporations  in  aid  of  rebellion. 

654.  Estoppel  to  raise  question  of  consti- 

tutionality of  act  creating  cor- 
poration. 

655.  Validity   of    a  statute   allowing   a 

depositor  to  appoint  a  person  to 
whom  his  deposit  shall  be  paid 
after  his  death. 

656.  Unconstitutional  law  may  operate 

as  a  legislative  license. 

657.  Cliarters     exempting    corporations 

from   general  laws. 

658.  Statutes  may  be  valid  in  part  and 

void  in  part. 

659.  Illustrations. 


Section 

665.  Definition — division — introduction. 

666.  Within  the  states:  historical  sketch: 

national  banks. 

667.  Transcontinental    railway     compa- 

nies. 


CHAPTER     XIII 

NATIONAL   CORPORATIONS. 

Section 


668.  Maritime  Canal  Company  of  Nica- 

ragua. 

669.  Other    corporations    chartered    by 

Congress. 

670.  Formation  of  national  corporations. 


CONTENTS    OF    VOLUME    ONE. 


xlvii 


Section 

671.  Power  of   Congress  to  confer   fran- 

chises on  them:  exemption  from 
state  control  and  taxation. 

672.  Power  to  confer   right  of   eminent 

domain  within  the  state. 

673.  May  confer  on  federal  courts  exclu- 

sive jurisdiction  of  suits  by  and 
against. 

674.  Protection    under    the    fourteenth 

amendment. 

675.  Status     of     national     corporations 

within    the    states:    jurisdiction 
over  them. 


Section 

670.   Further  of  this  subject. 
677.  How  dissolved. 

078.  Power  of  Congress  to  revoke  their 
charters. 

679.  Effect   of    reservation   of    right   to 

amend. 

680.  Not  dissolved  by  state  action. 

681.  Corporations  of  the  territories. 

682.  Corporations    of     the    district     of 

Columbia. 

683.  State  corporations  holding  federal 

franchises. 


CHAPTER     XIV. 

PLACE  OF  HOLDING  CORPORATE  MEETINGS  AND  OF  DOING  CORPO- 
RATE ACTS. 

Section 


Section 

686.  Scope  of  this  chapter. 

687.  Corporations    anciently    named    as 

of  some  place. 

688.  A    corporation    cannot    liave    two 

domiciles. 

689.  Resides  where  it  exercises  its  func- 

tions. 

690.  Power  to  establish  agencies  at  other 

places. 

691.  Wliether  loses  its  corporate  charac- 

ter by  migrating. 

692.  Distinction  between  citizenship  and 

residence  of  a  corporation. 


693.  Enjoining   a   corporation    from   re- 

moving   its    assets    out    of    the 
state. 

694.  Constituent     acts    must     be    per- 

formed within  the  state  of   crea- 
tion. 

695.  Corporation    when    estopped    from 

raising  the  question. 

696.  Validity  of  corporate  election  held 

outside  the  state. 

697.  Meetings  held  at  what  place  within 

the  state. 


CHAPTER    XV. 

CORPORATE    ELECTIONS. 

Art.    I.  AssEMULiNG  the  Meeting. 

II.  The  Quorum. 

III.  Right  to  Vote. 

IV.  Conduct  of  the  Election. 

V.     Right  to  the  Office:  Contesting  the  Election. 

Article  1.     Assembling  the  Meeting. 


Section 

700.  Mandamus  to  compel  the  holding  of 

a  corporate  election. 

701.  Time    of    holding    corporate    elec- 

tions. 


Section 

702.  Statutory  provisions  as  to  time  of 

liolding  corporate  meetings. 

703.  Statutory  provisions  as  to  place  of 

holding  corporate  meetings. 


xlviii 


CONTENTS    OF    VOLUME    ONE. 


Section 

704.  Who  may  call  the  meeting. 

705.  Statutory  provisions  as  to  who  may 

call. 
70o.    Necessity  of  having  meeting  duly 

assembled. 
707.    Corporate  meetings  invalid    unless 

duly  notified. 
70S.   If  the  meeting  is  special  all  must 

be  summoned. 

709.  And  in  the  statutory  mode. 

710.  Requisites  of  the  notice. 

711.  Statutory  provisions  as  to  manner  of 

giving  notice,  length  of  time,  etc. 

712.  Waiver  of  notice  by  appearance. 

713.  Illustrations  of  the  foregoing  rule. 


Section 

714.  Notice  dispensed   with    by   unani- 

mous written  consent. 

715.  When  personal  notice  required. 
710.   Must    be    given    for  the  statutory 

time. 

717.  When  notice  must  state  objects  of 

meeting. 

718.  Meeting  when  confined  to  subjects 

expressed  in  notice. 

719.  Illustrations. 

720.  Adjournment  to  a  subsequent  day. 

721.  Statutes  providing  for  adjourned  or 

special  elections. 

722.  Statutes  under  which  elections  fixed 

and  regulated  by  by-laws. 


Article  II. 

Section 

725.  Quorum  where  body  is  composed  of 
an  indefinite  number. 

720.  Where  composed  of  definite  num- 
ber. 

727.  Statutory  provisions  as  to  the 
quorum. 


The  Quorum 

Section 

728.  Election  by  a  majority  of  those  who 

actually  vote,  though  not  a  ma- 
jority of  the  quorum. 

729.  Delegating  power  of  selection  to  a 

select  body. 


Section 

730.  llight  to  vote  at  such  elections. 

731.  Execution,  surviving  partners,  trus- 

tees, assignees,  etc. 

732.  Right  to  vote  in  respect  of  shares 

pledged  or  mortgaged. 

733.  Further  of  this  subject. 


Article  III.     Right  to  Vote. 

Section 


737.  Validity  of  by-law  which  provides 

for  voting  by  proxy. 

738.  Statutes  conferring  the  right  to  vote 

by  proxy. 

739.  Further    of   the    right    to    vote    by 

proxy. 


734.  Right  to  vote  in  respect  of  shares  740.   E.iglit  to  vote  how  affected  by  by- 

held  or  owned  by  the  corporation  laws. 

itself.  741.   Injunction  to  restrain  fraudulent  or 

735.  Right    of    pledgor   to   proxy   from  ultra  vires  voting. 

pledgee.  742.   Statutory  provisions  as  to  who  en- 
v736.   No  right  to  vote  by  proxy  at  com-  titled  to  vote. 

mnn  law.  743.   Non-residents  and  aliens. 


Article   IV.     Conduct  of  the    Election. 


•5ECTI0N 

745.  Appointment  of  inspectors. 

746.  Statutory  provisions  as  to  the  ap- 

pointment of  inspectors. 

747.  Instances  of  an  election  void  because 

inspectors  illegally  appointed. 


SECTION 

748.  Their  duties  in  conducting  the  elec- 

tion. 

749.  Cannot   pass   upon    the  validity  of 

proxies. 

750.  Irregular  ballots. 


CONTENTS    OF    VOLUME    ONE. 


xlix 


Section 

751.  The  count. 

752.  Votes     for     ineligible     candidates 

thrown  away. 

753.  Cumulative  voting. 

754.  Constitutional  provisions  as  to  cu- 

mulative voting. 


Section 

755.  Statutory  provisions  as  to  cumula- 

tive voting. 

756.  Judicial  decisions  on  the  subject  of 

cumulative  voting. 

757.  Certificate  of  election. 

758.  Statutory  provisions  as  to  coiiduft 

of  elections. 


Article  V.  Right  to  the  Office:  Contesting  the  Election. 


Section 

761.  Inadequacy  of  the  remedy  by  cer- 
tiorari. 

7G2.  Inadequacy  of  the  remedy  by  vian- 
damns. 

763.  Instances  of  the  use  of  mandamus, 

764.  No  remedy  in  equity  except  when 

the  question  arises  collaterally. 

765.  Statutory  provisions  to  contest  cor- 

porate elections. 
706.   Information   in   the   nature  of   quo 
warranto. 

767.  A  civil  proceeding. 

768.  This  remedy  denied  in  the  case  of 

officers  who  are  mere  servants 
or  employees  and  removable  at 
pleasure. 

769.  Any  person  interested  may  be  re- 

lator. 

770.  Information  filed   by  the  attorney 

general  or  prosecuting  attorney. 

771.  What  the  information  must  allege. 

772.  The  plea. 

773.  Misjoinder  of  parties. 

774.  Leave    to    file    discretionary    with 

court. 

775.  When   the   relator  bound  to  show 

title. 

776.  Distinctions   as   to   the   burden   of 

proof. 

777.  The  rule  in  New  York. 


Section 

778.  Remedy  exists  only  against  a  party 

in  possession, 

779.  Matters  of  evidence. 

780.  Remedy   does  not  extend  to  mere 

irregularities,  mistakes,  etc. 

781.  Rules   of   decision   in   cases   where 

legal  votes  have  been  rejected  or 
illegal  votes  received. 

782.  Where    two    factions    organize  two 

meetings. 

783.  Party    receiving  the   next   highest 

number  of  votes,  where  success- 
ful candidate  disqualified. 

784.  Validity   of  election    where    wliole 

number  not  elected. 

785.  Judgment  where  term  of  ofhce  has 

expired. 

786.  Proceeding   against  an   incumbent 

who  is  disqualified. 

787.  Estoppel  to  raise  objection. 

788.  Title   to   corporate   office   not    im- 

peached   collaterally. 

789.  Presumptions  in    favor  of  regular- 

ity. 

790.  Eligibility  for  the  office  of  director. 

791.  Classification  of  directors. 

792.  Holding  over. 

793.  Statutory  provisions  that  directors 

shall  hold  over. 

794.  Resignation  of  a  corporate  office. 


CHAPTER   XAa. 

AMOTION   OF   OFFICERS. 

Secttion  Section 

799.  Distinction   between    amotion   and       801.  Those  observations  applicable  to  cor- 

disfranchisement.  j)orations  other  than  municipal. 

800.  Observations   of   Mr.    Willcock   on       802.   Power  of  amotion  inherent  in  cor- 

thid  question.  poralious. 


1 


CONTENTS    Ol'^    VOLUME    ONE. 


Section  Sect 

803.  Power  resides  iu  corporation  alone.       824. 

804.  Power  resides  iu  the  body  at  large,       8J5. 

not  in  the  trustees.  826. 

805.  Removal  of  officers  who  hold  at  will.        827. 
80(5.   Lord    Mansfield's    classification    of 

grounds  of  amotion. 
807.   In  what  case  there  must  be  a  pre-       828. 

vious  trial  and  conviction. 
80S.  Misappropriating       money:      false 

charges  of    money.  829. 

809.  Bribery.  830. 

810.  Misconduct    in    respect   of    duties 

toward  the  corporation.  831. 

811.  Ofifenses  touching  the  corporate  rec-       832. 

ord. 

812.  Neglect  of  duty. 

813.  Non-attendance  at  corporate  meet-       833. 

ings.  834. 

814.  Ineligibility:  subsequent  election  to 

another  office.  835. 

815.  Other  grounds  of  removal. 

81G.   Statutory  or  charter  power  of  re-       836. 
moval. 

817.  What  corporate  action  necessary.  837. 

818.  Power  must  be  exercised  at  a  cor- 

porate meeting.  838. 

819.  And  by  a  majority  vote. 

820.  Necessity  of  notice  and  a  judicial       839. 

inquiry.  840. 

821.  Exception  iu  the  case  of  continued 

desertion  and  non-residence.  841. 

822.  Conduct  of  the  trial:  the  evidence. 

823.  Assembling    the    meeting    for    the 

trial:  notifying  the  members. 


Instances  under  the  foregoing  rule. 
Review  of  proceedings  by  certioraru 
Extent  of  relief  in  equity. 
Illustration:    dismissal    of     school- 
master   under     English     public 
school  act   of    1868. 
Where  the  power  to  remove  is  dis- 
cretionary in  the  due  exercise  of 
the  powers  of  the  trustees. 
Mandamus  to  reinstate. 
Several  writs  where  there  are  sev- 
eral officers. 
Allegations  of  the  writ. 
Wliat  if  directed  to  the  individuals 
by  name,  and  not  to  the  corpora- 
tion. 
The  return  to  the  mandarmis. 
Return  may  show  any  number  of 

causes. 
When  not  necessary  to  aver  power 

of  removal. 
Instances  of  good  returns   in   such 

cases. 
Sufficient  if  made  by  proper  officer 

until  falsified. 
Whether  the  return  should  be  un- 
der corporate  seal. 
Variance  between  writ  and  return. 
Other  points  of  practice  in  proceed- 
ings by  matidamns. 
Principles  upon  which  the  judicial 
courts  review  sentence  of  amo- 
tion. 


CHAPTER    XVII. 

EXPULSION    OF    MEMBERS. 

Art.  I.     Power  to  Expel:     Grounds  of  Expulsion. 
II.     Corporate  Proceedings  to  Expel. 
III.     Judicial  Proceedings  to  Reinstate. 


Article  I 

Section 

84G.  Preliminary  observations:    distinc 
tions. 


Power  to  Expel:     Grounds  of  Expulsion. 

Section 

848.  This  power  exercised  by  the  corpo- 
ration— not  by  the  directors. 


847.  Power  of  expulsion  incident  to  cor- 
poration. 


849.  By-laws  authorizing  the  expulsion 
of  members. 


CONTENTS    OF    VOLUME    ONE. 


li 


Section 

S50.  Illustrations  of  good  and  bad  by- 
laws providing  for  the  expulsion 
of  members. 

851.  Validity  of   by-laws  providing    for 

expulsion  for  the  nonfulfillment 
of  commercial  contracts. 

852.  By-law  prohibiting   members  from 

gathering  in  public  places  to  buy 
and  sell  "  futures"  outside  of  the 
exchange  room. 

853.  By-laws   when  not   enforceable    by 

forfeiture  of  membership. 

854.  Grounds  of   expulsion  at   common 

law:  Bagg's  case. 

855.  Further  of  Bagg's  case:    how    and 

by  whom  and  in  what  manner 
disfranchised. 

856.  Grounds  of  disfranchisement  under 

rule  of  Lord  Mansfield. 

857.  Cases  within  these  principles. 

858.  Cases  not  within  these   principles. 

859.  Expulsion     for    infamous     crimes: 

whether  a  previous  conviction 
necessary. 

860.  Oflenses  against  the  member's  duty 

as  a  corporator. 

861.  Acts  injurious  to  the  society  or  to 

its  reputation. 

Article  II.     Corporate 

Section 

881.  Must  proceed  upon  notice,  inquiry, 

and  hearing. 

882.  What  this  principle  includes. 

883.  Right  to  notice  exists,  altiiough  the 

evidence  against  the  accused  may 
be  very  cogent. 

884.  Instances  showing  the  right  to  no- 

tice. 

885.  Analogous   principle  that  a  public 

officer  is  not  removable  without 
notice. 

886.  Denying  the  privilege  of  cross-ex- 

amination. 
SS7.  Right    to    an    opi)ortunity    to    be 

heard  on  an  ecclesiastical  appeal. 
888.   Expulsion   after   an    acquittal   and 

without  a  second  trial. 
88').   Expulsion  aftor  first  trial  which   is 

a  nullity. 


Section 

862.  Illustrations:     "conduct    injurious 

to  the  character  and  interests  of 
the  club." 

863.  Frauds  upon  the  society. 

864.  Expulsion     from     merchants'    ex- 

change for  dishonest  conduct. 

865.  Suspension   for   bankruptcy  or  in- 

solvency. 

866.  Contempt  against  corporate  officer. 

867.  Criticising  the  management. 

868.  Ofi'enses  against  other  members. 

869.  Refusal  to  submit  to  arbitration  or 

to  comply  with  award. 

870.  Illustration. 

871.  Appealing  to  the  judicial  courts. 

872.  "Negligence,  misconduct  in  office, 

or  any  other  reasonable  causes." 

873.  Expulsion  of  members  of  incorpo- 

rated medical  societies. 

874.  Members  of  trades  union  working 

for  parties  against  whom  a  strike 
had  been  ordered. 

875.  Enlisting  in  the  volunteer  army  in 

time  of  war. 

876.  Trial  under  an  act  of  the  legislature 

passed  subsequently  to  the  of- 
fense. 

Proceedings  to  Expel. 

Section 

890.  When    second    notice    not    neces- 

sary. 

891.  Incidents    of     the   notice   and    its 

service. 

892.  Efl'ect    of    change    of   residence  in 

connection  with  by-law  requir- 
ing members  to  notify  their  resi- 
dence to  the  society. 

893.  Of  the  corporate  tribunal  and   its 

constitution. 

894.  Illustrations:  expulsion  by   a  two- 

thirds  vote. 

895.  Jurisdiction  of  standing  committee 

of  brokers'  board. 

896.  Illustration. 

807.  Of  the  trial  and  the  evidence. 
898.  Necessity    of   a  sentence  of  expul- 
sion. 
8'.)'.).   lliglit  of  ap[)cal. 


lii 


CONTENTS    OP    VOLUMP:    ONE. 


Article  III.     Judicial  Proceedings  to  Reinstate. 


906. 
907. 
90S. 


9n. 


912. 


Section 

904.  Mandamus  to  restore  member. 

905.  Mandamus  to  compel  corporation  to 

admit  a  member. 
The  return. 

Practice  under  the  writ. 
Visitorial  powers  exercised  by  the 

courts. 

909.  Remedy  by  injunction. 

910.  Injunction   in   case    of    unincorpo- 

rated societies. 

Injunction  in  case  of  religious  so- 
cieties. 

Member  must  first  exhaust  his 
remedy  within  the  society. 

913.  Injunction  not  granted  to  restrain 

proceedings  before  corporate  ju- 
dicatories. 

914.  Principles  on  which  courts  proceed. 

915.  Further  of  this  subject. 
Contract  to  exercise  judgment  bona 

fide. 
Another  statement  of  the  principle: 
corporation  not  permitted  to  ex- 
ercise trust  corruptly. 
918.  Courts  do  not  sit  as  courts  of  ap- 
peal from  decisions  of  committee 
or  club  in  such  cases. 


916. 


917. 


Section 

919.  Not  sufficient  that  the  decision  con- 

trary to  reason. 

920.  Regularity  of  suspension  presumed 
until  contrary  appears. 

Effect  of  acquiescence. 

Jurisdiction  of  corporate  commit- 
tee not  ousted  by  fact  of  judicial 
investigation. 

Doctrine  that  courts  will  not  inter- 
fere except  where  property  rights 
are  involved. 

Courts  will  not  enforce  decisions  of 
judicatories    of     unincorporated 
societies. 
925.  Suspension  of   a  lodge,  when  void 
and  when  voidable. 

Action  for  damages  for  the  expul- 
sion. 

Action  for  damages  against  religious 
corporation. 

928.  Criminal   information   for   disfran- 

chisement of  members. 

929.  Articles  of  the  peace  by  one  part- 

ner against  another. 

930.  Action  against  judge  for  condemn- 

ing without  notice 


921, 
922 


923. 


924. 


926. 


927. 


Art.  I. 
II. 


CHAPTER   XVIII. 

BY-LAWS. 

Nature  and  Interpretation. 

Power  to  Enact  and  Mode  op  Enacting. 


SUBDIV.      I.     At  Common  Laio. 

SUBDI  V.     II.     Statutes  Vesting  Power  in  Corporation  or  Members. 

SUBDIV.  III.     Statutes  Vesting  Power  in  the  Directoi-s  or  Other  Officers. 

Art.  III.     Requisites  and  Validity. 


Article  I.     Nature  and  Interpretation. 


Section 

935.  What  is  a  by-law. 

936.  Distinguished  from  a  resolution. 

937.  Distinguished  from  a  regulation. 

938.  Municipal  ordinances. 


Section 

939.  To  what  extent  a  law. 

940.  May  operate  as  a  contract   among 

the  members. 

941.  Members  charged  with    knowledge 

of  by-laws. 


CONTENTS    OP    VOLUME    ONE. 


liii 


Sectioii 

942.  To  what   extent   binding  on  third 

persons. 

943.  Formalities  required  in  enacting. 

944.  Not  noticed  judicially,  but  must  be 

proved. 

945.  Waiver  of. 
94(5.   Not  retroactive. 


Section 

947.  Where  enacted:  no  extraterritorial 

force. 

948.  Interpretation  of  by-laws. 

949.  Actions  upon  by-laws. 

950.  Action  on  by-law  making  members 

liable  for  debts  of  corporation. 


Article  II.     Power  to  Enact  and  Mode  of  Enacting. 


SUBDIVISION  I.     At  Common  Law. 


Section 

955.  Inherent  power  to  make. 

956.  Must  be  made  by  the  corporators, 

not  by  the  directors. 

957.  Charters  conferring  this  power  on 

the  directors. 


Section 

958.  What  quorum  of  a  select  body  may 

adopt. 

959.  Delegation  of  power  to  .select  body 

does  not  necessarily  divest  power 
of  general  body. 

960.  Amendment  and  repeal  of  by-laws. 


SUBDIVISION  II.     Statutes  Vesting  Power  in  the  Corporation  or  Members. 


963. 


964. 


965. 
966. 

967. 


Section 

962.  General  statutory  power  to  make 
by-laws  not  inconsistent  with 
law,  etc. 

For  management  of  property  and 
regulation  of  affairs. 

For  the  regulation  of  its  property, 
management  of  its  affairs,  and 
transfer  of  its  stock. 

And  as  to  corporate  meetings. 

Corporate  meetings  and  voting,  for- 
feiture of  shares,  penalties,  etc. 

Concerning  officers,  meetings,  elec- 
tions, etc. 
908.   Management  of  property,  regulation 
of  affairs,  transfer  of  stock,  duties 
of  officers. 

SUBDIVISION  III.     Statutes  Vesting 

Section 

978.  Enacted  by  the  directors,  etc. 

979.  Academies,     colleges,     seminaries, 

universities. 

980.  Banks  of  (li.scount. 

981.  Breeding  associations. 

982.  Bridge  companies. 

983.  Building     and     construction     com- 

panies. 

984.  Canal  companies. 


Section 

969.  Same  as  preceding:  also  number  of 

directors,    penalties,    liens   upon 
shares,  etc. 

970.  Provisions  applicable  to  benevolent, 

religious,    educational,    literary, 
social,  and  other  societies. 

971.  Provisions    applicable    to    railroad 

companies. 

972.  Provisions  applicable  to  boom  and 

navigation  companies. 

973.  Various  other  provisions. 

974.  As  to  forfeiting  shares. 

975.  How  enacted. 

976.  How  amended,  repealed,  etc. 


Power  in  the  Directors  or  Other  Officers. 

Section 

985.  Gaslight  companies. 

986.  Guano  companies. 

987.  Guaranty  companies. 

988.  Homestead  companies. 

989.  Hotel  companies. 

990.  Industrial,    co-operative,    and   mu- 

tual benefit  societies. 

991.  Inland  navigation  companies. 

992.  Insurance  companies. 


liv 


CONTENTS    OF    VOLUMK    ONE. 


Section 

993.  Library  companies. 

994.  Maimfacturing  companies. 

995.  Minini;  and  smelting  companies. 
99(5.  Navigation      improvement      com- 
panies. 

997.  Plank-road     and     turnpike    com- 
panies. 


Section 

998.  Railroad  companies. 

999.  Religious  corporations. 

1000.  Safe  deposit  companies. 

1001.  Savings  l)anks. 
lOO'J.  Telegraph  companies. 
1003.  Trust  companies. 


Article  III. 

Section 

1010.  General  statements  of   the   requi- 

sites of  good  by-laws. 

1011.  Must    not     be    contrary    to    the 

charter. 

1012.  Illustrations. 

1013.  Must  not  be  contrary  to  law. 

1014.  Limitations  of  the  foregoing  rule. 

1015.  Must  not  be  contrary  to  the  arti- 

cles of  incorporation. 

1016.  Must  not  be  contrary  to  common 

right. 

1017.  Illustrations    of    municipal    ordi- 

nances    contrary     to     common 
right. 

1018.  Must  operate  equally. 

1019.  Must  not  disturb  vested  rights. 

1020.  Must  not  be  unreasonable,  oppress- 

ive, or  extortionate. 

1021.  Must  be  reasonable. 

1022.  Reasonableness   of    corporate   by- 

laws a  question  of  law. 

1023.  Illustrations  of  by-laws  held  void 

because  unreasonable. 

1024.  Instances    of    municipal    by-laws 

held    unreasonable    and    hence 
void. 

1025.  Illustrations  of  municipal  by-laws 

held  not  unreasonable. 

1026.  By-laws  touching  the  admission  of 

persons  to  the  freedom  of  a  place. 

1027.  By-law  compelling   elected   mem- 

ber  to   wear    livery,    and    pay 
initiation  fee  or  a  forfeiture. 

1028.  Must  not  be  in  restraint  of  trade. 

1029.  Tiie  ancient  law  on  this  subject. 

1030.  By-laws  establi.shing  combinations 

among    workmen    to    maintain 
prices. 

1031.  Regulating  or  restraining  transfers 

of  shares. 


Requisites  and  Validity. 

Section 

1032.  Creating  a  lien  upon  shares. 

1033.  Releasing  shareholders  from  their 
obligation  of  payment. 

1034.  Restricting  the  right  to  sue  in  the 
courts. 

1035.  Compelling  members  to  submit 
their  disputes  to  arbitration. 

1036.  Power  to  enforce  by  pecuniary 
fines. 

1037.  Cannot  be  enforced  by  a  forfeiture 
of  property. 

1038.  Nor  by  a  forfeiture  of  shares. 

1039.  Otherwise  where  power  expressly 
conferred  by  charter. 

1040.  The  fine  or  penalty  must  be  certain. 

1041.  Making  the  corporation  a  judge  in 
its  own  case. 

1042.  Views  as  to  the  proper  measure  of 
such  fines. 

1043.  Illustrations:  by-laws  of  building 
associations  imposing  excessive 
fines. 

1044.  Imposing  fine  for  non-acceptance 
of  a  corporate  office. 

1045.  Imposing  fines  for  non-attendance 
at  corporate  meetings. 

1046.  By-laws  regulating  the  conduct  of 
corporate  members. 

1047.  Disinclination  of  the  courts  to 
interfere  with  the  by-laws  of 
societies. 

1048.  Valid  in  part  and  void  in  part. 

1049.  Establishing  a  quorum  of  the  board 
of  directors. 

1050.  Regulating  corporate  elections. 

1051.  Forbidding  secret  societies  in  Cdl- 
leges. 

1052.  Instances  of  by-laws  which  have 
been  held  valid. 

1053.  Conclusion  of  Title  One. 


CONTENTS    OF    VOLUME    ONE. 


Iv 


TITLE  TWO. 

CAPITAL   STOCK   AND   SUBSCRIPTIONS  THERETO. 


CHAPTER    XIX. 

NATURE  OF   CAPITAL   STOCK  AND   SHARES   IN  GENERAL. 


Section 

1059.  Scope  of  this  chapter. 


Definitions  of  "capital  stock." 

Difference    between    actual    stock 
and  potential  stock. 

Distinction  between  capital  stock 
and  tangible  property. 

What  is  capital  stock  viewed  as  a 
trust  fund  for  creditors. 

When  capital  includes  profits  and 
surplus. 
1065.   Shares  sometimes  inappropriately 
called  "stock." 

Shares  are  personal  property. 

So  are    shares   in    unincorporated 
joint  stock  companies. 

Not  goods,   wares,    and   merchan- 
dise. 

Not  "moneys." 

Are  choses  in  action. 

Shareholders  not  co-owners. 

Execution  against  interest  in  cor- 
porate property. 
1073.   Shareholders  cannot  convey  corpo- 
rate  property,   though  all   join 
in  the  deed. 


1060 
1061 


1062. 


1063. 


1064. 


1066. 
1067. 

1068. 

1069. 
1970. 
1071. 
1072. 


Section 

1074.  Incorporating  a  partnership:  mode 

of  succeeding  to  the  partnership 

assets. 
Cannot  act  for  the  corporation,  or 

bind  it  by  admissions. 
Not   in   a   trust   relation    towards 

the  corporation. 
Cannot      sue      the     directors     at 

law. 
Not  responsible  for  its  torts. 
Not  in  privity  with  each  other. 
Not  necessary  parties  to  suits   in 

respect  of  corporate  rights. 
Not  affected  with  notice,  etc. 
To  what  extent  in  privity  with  the 

corporation. 
No  distinction    in    these    respects 

between  incorporated  and  unin- 
corporated companies. 
A   comparison  between   shares   in 

a  partnership  and   shares  in   a 

company. 
1085.   Capital   stock   a   liability    of    the 

corporation. 


1075. 

1076. 

1077. 

1078. 
1079. 
1080. 

1081. 
1082. 

1083. 


1084. 


CHAPTER   XX. 

WHO  MAY  BECOxME  SHAREHOLDERS  IN   CORPORATIONS. 

Art.  I.     Natural  Persons. 

II.     Private  Corporations. 
III.     Municipal  Corporations. 

Article  I.    Natural  Persons. 

Section  Section 

1090.  Persons  capable  of  contracting.  1092.  Alien  friends. 

1091.  By    what    law    the    subject    gov-        1093.  Ambassadors     of     foreign     couQ- 

erned.  tries. 


Ivi 


CONTENTS    OV    VOLUME    ONE. 


Section 

1094.  Alien  enemies. 

1095.  Infants. 

109G.    Married  women. 


Skction 

1097.  Where  the  married  woman   lia3  an 

eqnitable  separate  estate. 

1098.  Husband's  liability  for  calls  in  re- 

sDect  of  wife's  shares. 


Article  II.     Private  Corporations. 


.Section. 

110*2.   One  corporation  cannot  become  a 
stockl'-older  in  another. 

1 103.  Reason  of  the  rule. 

1104.  Illustrations:  railroad  companies. 

1105.  Further     illustrations:      banking 

companies. 

1106.  Other  illustrations. 

1107.  Cannot  subscribe  for  its  own  stock. 


Section 

1  lOS.  Limited  view  that  one  corporation 
can  invest  in  the  shares  of  an- 
other. 

1109.  Illustrations. 

1110.  Consequences  which  flow  from  this 

view. 

1111.  Undoing  such  transaction:  estop- 

pel— laches. 


Article  III.     Municipal  Corporations. 


iiu;. 


Ill- 


Section 

1115.  Validity  of  municipal  subscrip- 
tions to  private  corporations. 
Illustrations  of  the  principle:  aid 
to  railroad  companies  valid — to 
manufacturing  companies  not. 
Rule  in  the  absence  of  direct  con- 
stitutional restraints. 

1118.  Validity   of    statutes    authorizing 

municipal  subscriptions  to  corpo- 
rations. 

1119.  Power  to  grant  .such  aid  by  way  of 

subscription  settled. 

1120.  V^'^hether    power   exists   to    make 

donations  to  such  companies. 

1121.  Right  to  municipal  aid  not  created 

by  general  words. 

1 122.  Right  to  municipal   aid  passes  to 

new  company  on  consolidation. 

1123.  Statute     repealed     before     right 

vested. 

1 124.  An  illustration  of  this  principle. 


Section 

1125.  Another  illustration  of  the  same 

principle. 

1126.  Invalidity   of    state    statutes    at- 

tempting to  take  away  the  rem- 
edy on  such  subscriptions. 

1127.  Validity   of   statutes   transferring 

benefit  of  subscription  from  the 
county  to  the  taxpayers. 

1128.  Instances  of  such  statutes  impair- 

ing the  obligation  of  contracts. 

1129.  Invalidity    of    statute   compelling,' 

town  to  subscribe  to  a  railwa}'. 

1130.  Injunction    to    prevent    issue    of 

bonds  where  terms  of  subscrip- 
tion not  complied  with. 

1131.  Release  of   subscription  by  aban- 

donment of  the  work. 

1132.  Petitions  "representing  a  majority 

of  the  taxpayers,"  etc. 

1133.  Subscriptions  by  a  sovereign  state 


CHAPTER   XXI. 

THE   CONTRACT   OF   SUBSCRIPTION. 

Article  I.     Theories  as  to  Nature  and  Formation  of  the 
Contract. 
II.     Theories  as  to  the  Consideration. 


CONTENTS    OF    VOLUME    ONE. 


Ivii 


Article  III.     Theories  as  to  the  Necessity  of  Paying  the 
Statutory  Deposit. 
IV.     Theory  That  the  Full  Amount  of  the  Capi- 
tal Must  Be  Subscribed. 
V.     Other  Theories  and  Holdings. 


Article  I.     Theories   as   to 
OF  the 

Section 

1136.  Relation   of    stockholders   to   the 

corporation  rests  in  contract. 

1137.  Governing  statute  forms  part  of 

the  contract. 

1138.  General  views  as  to  what  consti- 

tutes one  a  stockholder. 

1139.  Subscription     constitutes     one    a 

member. 

1140.  Certificate  not  necessary. 

1141.  Circumstances  under  which  neces- 

sary. 

1142.  Contract  of  subscription  when  not 

necessary. 

1143.  If    no    certificate    issued,    written 

agreement  necessary. 

1144.  View  that  a  contract  of  subscrip- 

tion necessary  in  some  form. 

1145.  Such     contract     not    created    bj' 
'  recitals  in  a  bond. 

1146.  View  that  a  contract  of  subscrip- 

tion must  be  in  writing. 

1147.  A  writing  not  in  strictness  neces- 

sary. 
1 14S.   Oral  promise  to  subscribe  for  shares 
and  note  given  therefor. 

1149.  Subscription  not  varied   by  parol 

evidence. 

1150.  When  explainable  by  parol. 

1151.  Form  of  the  subscription. 

11.52.   In  wiiat  kind   cf  book — on    what 
kind  of  papei-. 

1153.  Signing  in  blank. 

1154.  Effect  of  erasure. 

1155.  Explanatory      memorandum      an- 

nexed. 

1156.  Receipt  on  margin  of  subscription 

book. 

1157.  Rule  which  requires  a  subscription 

to  thf!  articles  of  association. 


THE   Nature  and  Formation 
Contract. 

Section 

1158.  Reasons  which  support  this  rule. 

1159.  Consequence  of  this  rule:  no  con- 
tract if  subscriber  dies  before 
corporation  formed, 

1 160.  Other  consequences  of  this  rule. 

1161.  Doctrine  that  subscription  not 
binding  unless  regularly  made. 

1162.  View  that  a  subscription  to  the 
shares  of  a  corporation  not 
formed  creates  no  liability. 

1163.  Further  of  this  view:  reasoning  of 
Chief  Justice  Black. 

1164.  Distinction  between  a  subscription 
and  an  agreement  to  subscribe. 

1165.  The  infirmity  of  this  distinction. 

1166.  Unsoundness  of  the  view  that  the 
proposal  is  bad  unless  made  in 
strict  compliance  with  the  stat' 
ute. 

1167.  Difficulty  avoided  by  subsecjuent 
ratification. 

1168.  Subscription  and  payment  nf  de 
posit. 

1 169.  Another  road  out  of  this  difficulty. 

1170.  Rule  that  subscriptions  made  be- 
fore organization  are  good. 

1171.  Reasons  in  support  of  this  rule. 

1172.  Nature  of  such  an  ofier  before 
acceptance. 

1173.  Instance  under  this  rule. 

1174.  Rights  and  liabilities  of  sub- 
scribers to  a  common  fund  for 
a  common  purpose. 

1175.  Subscription  must  be  accepted  or 
acted  upon. 

1176.  Action  against  one  member  of 
building  committee  by  the  other 
members. 


Iviii 


CONTENTS    OF    VOLUME    ONE. 


SECflON 

1177.  Acceptance  necessary   if  corpora- 

tion in  existence. 

1178.  Manner  in  which  acceptance  mani- 

fested. 

1179.  Distinction    between    cases  where 

the  proposition  conies  from  the 
company  and  where  it  is  made 
to  the  company. 

1180.  Revocation  of  offer  before  accept- 

ance. 
IISI.   Whether  presumable  in   the    case 
of  a  subscription  to  a  future  cor- 
poration. 

1182.  A  case  in  illustration. 

1183.  Locus  penitenlice   where    subscrip- 

tion illegal. 

1184.  Other  instances  of  subscription. 

Article  II.     Theories  as 

Section 

1200.  Theories  as  to  the  consideration  of 

the  contract. 

1201.  Rights  and  interests  acquired  by 

the  subscriber. 

1202.  Obligation  of  the  company  to  i.ssue 

tlie  shares. 

1203.  Franchises  granted  by  the  charter. 

1204.  Failure    of    the   commissioners    to 

reject  the  subscription. 

1205.  Mutuality    of    promise    as    among 

subscribers. 

1206.  Labor  or  money  expended  on  the 

faith  of  the  promise. 

1207.  Illustrations  of  this  principle. 

1208.  Contrary    view    that    money    not 


Section 

1 185.  Subscriptions  enforceable  by  action 
witliout    an  express  promise  to 

pay- 

1180.   Illustrations  of  the  foregoing. 

1187.  Doctrine  that  an  express  promise 
to  pay  is  necessary. 

1188.  The  absurdity  and  immorality  of 
this  doctrine. 

11 89.  When  contract  to  take  shares  com- 
plete under  the  English  statute. 

1190.  What  facts  amount  to  a  contract 
to  pay  shares 

1191.  Continued. 

1192.  Continued. 

1193.  Continued. 

1194.  Continued. 


TO  THE  Consideration. 

Section 

deemed  expended  on  the  faith 
of  the  subscription:  formation 
of  corporation  not  authorized 
thereby. 

1209.  Consideration  where  the  corpora- 

tion is  in  existence. 

1210.  Efifect    of    the    words    "value   re- 

ceived." 

1211.  Subscription  a  good  consideration 

for  other  undertakings. 

1212.  Subsequent   failure    of    considera- 

tion. 

1213.  No  consideration  where  the  com- 

pany, and  not  the  subscriber, 
gets  the  shares. 


Article  III.     Theories    as  to    the    Necessity    of    Paying 
the  Statutory  Deposit. 

Section 

1220.  A  contrary  view. 

1221.  Whether  payment  by  bank  cliecU 
autlicient. 

1222.  Simulated  payments  by  giving 
checks  which  are  not  col- 
lected. 

1223.  Further  as  to  the  manner  of  pay- 
ment. 

1224.  View  that  the  payment  of  such  a 
deposit  is  not  necessary. 


Section 

1216.  View  that  payment  of  cash  deposit 

is  necessary  to  tlie   validity  of 
the  subscription. 

1217.  Reasons  given  in  support  of   this 

view. 

1218.  Rule  that  payment  of  deposit  must 

be  made  in  specie  or  its  equiva- 
lent. 

1219.  Statute  not  complied  with  by  giv- 

ing a  note. 


CONTENTS    OF    VOLUME    ONE. 


lix 


Section 

1225.  A  similar  view  in  England. 

1226.  Subscription  valid  though  payment 

at  a  subsequent  time. 

1227.  Invalidity  of  secret  agreement  that 

the  check  shall  not  be  paid. 
1238.  Subscription  void  for  non-payment 
of    deposit   made   good  by   es- 
toppel. 


Section 

1229.  Where  subscription  made  after  the 

organization. 

1230.  What  if  the  question  arises  under 

a  by-law  merely. 

Illustration  in  case  of  surrender 
and  reissue  of  shares. 

Effect  of  statutes  requiring  a  cer- 
tain amount  to  be  paid  in  before 
commencing  business. 


1231. 


1232. 


Article  IV.     Theory    That    the    Full    Amount    of    the 
Capital  Must  Be  Subscribed. 


Section 

1235.  Shareholder   not  liable   until   full 

amount  subscribed. 

1236.  Illustration:  subscription  on  con- 

dition  that  "sufficient   ia  sub- 
scribed for  the  purpose." 

1237.  Instance  of  a  faulty  instruction  sub- 

mitting this  question  to  the  jury. 

1238.  Subscriptions   by  insolvents,  per- 

sons not  sui  juris,  etc. 


Section 

1239.  Subsequent     declaration    of    sub- 

scriber inadmissible. 

1240.  View   that   the   judgment   of  the 

commissioners  is  conclusive. 

1241.  Taking  subscription  in  property  at 

excessive  valuation. 

1242.  Waiver  of  right  to  object  on  this 

ground. 


Article  V.     Other  Theories   and  Holdings. 


Section 

1245.  What  agents  can  receive  subscrip- 

tions. 

1246.  Nature  of  the  authority  of  com- 

missioners. 

1247.  Apportionment   of    stock    by   the 

commissioners. 

1248.  Proportion  allowed  to  the  commis- 

sioners themselves. 

1249.  Remedy  of  the  subscriber  for  re- 

fusal to  issue  shares. 

1250.  Apportionment  upon  incorporating 

a  mining  property. 

1251.  Subscription  void  after  all   stock 

taken. 

1252.  Instances  of  insuflBcient  subscrip- 

tions. 

1253.  Subscriptions  delivered  as  on  es- 

crow. 


Section 

1254.  Distinction  between  subscriptions 

and  purchases  of  shares. 

1255.  Promise  to  take  and  pay  for  stock 

in    unincorporated  company  ac- 
tionable. 

1256.  Each      subscription     several,    not 

joint. 

1257.  Subscription     by    a     partnershi]) 

name. 

1258.  Subscriptions    construed    by    tli. 

court. 

1259.  Construed  according  to  what  law. 
12G0.  Taking  shares  to  qualify  as  direct- 
ors. 

1261.  Continued. 

1262.  Limit  of  option  to  take  shares  on 

reorganization. 


Ix 


CONTENTS    OF    VOLUME    ONE. 


CHAPTER   XXII. 

ALTERATION   OF  THE   CONTllACT. 


SFfTTTOW 

li267.   I'reliminary. 

1268.  Breach  by  the  corporation  of  its 

contract  with  the  subscriber, 

1269.  Alteration  of  the  subscription  pa- 

per. 

1270.  Making  radical  changes  in  the  pur- 

poses of  the  corporation. 

1271.  Directors  departing  from  the  char- 

ter. 

1272.  Abandonment  of  the  enterprise. 

1273.  Discharged  by  legislative  alteration 

,of  the  contract. 

1274.  Change  must  be  material,  funda- 

mental, or  radical. 

1275.  Increasing  capital  stock. 
J 276.   Reducing  capital  stock. 

1277.  Increasing  the  number  of  shares. 

127S.  Enlarging  powers  and  privileges, 
and  adding  new  responsibilities. 

1279.  Illustrations:  authorizing  exten- 
sion of  road — buildingof  branch. 

12S0.  Illustrations  continued:  empower- 
ing a  slack  water  company  to  ex- 
tend its  dams  and  incur  ad- 
ditional expense. 

1281.  Changing  the  nature  of  the  enter- 

prise. 

1282.  View  that  change   sanctioned  by 

majority  binds  minority. 


Section 

1283.  Changing  the  name, 

1284.  Changing  the  termini  of  a  railroad. 

1285.  Material   change  of  a  location  or 

route  will  release  subscriber. 
128G.   Reasons  of  the  rule. 

1287.  What  changes  of  route  or  location 

do  not  release  subscriber. 

1288.  What  change  of  route  by  directors 

will  release  the  subscriber. 

1289.  How  the  defendant  must  plead  the 

change. 

1290.  Consolidation  with  another  corpo- 

ration. 

1291.  Changes   authorized    by    existing 

statutes. 

1292.  Alteration  material  to  the  particu- 

lar subscriber. 

1293.  Changes  affecting  the  payment  of 

stock  subscriptions. 

1294.  Other  changes  in  the  internal  ar- 

rangements of  the  corporation. 

1295.  Selling  out. 

1296.  Extending  time  for  completing  the 

enterprise. 

1297.  Elements  of  estoppel. 

1298.  Burtlen  of  showing  dissent. 

1299.  When  validity  of  amendment  sub- 

mitted to  jury. 


[Title  II  is  continued  in  Volume  II.] 


TITLE  ONE.    ORGANIZATION  AND  INTERNAL 
GOVERNMENT. 

Chapter 

1.  Nature  and  Kinds  of  Corporations      .      .  §§1       -29 

2.  Creation  by  Special  Charters      .      .      .      .  §§35     -48 

3.  Acceptance  of  Special  Charters      .     .      .  §§52     -63 

4.  Amendment  of  Charters §§66     -105 

5.  Charters  Granted  by  the  Courts     .      .      .  §§110-127 

6.  Organization  under  General  Laws        .      .  §§132  -249 

Article  I.     Purposes  for  wMcb  Incorporation 

Permitted §§132-210 

Subdiv.  I.     Examples  from  Various  Statutes  .  §§  132     -  192 
II.     Decisions    Construing    Particular 

Statutes §§200-210 

Article  II.     Steps  Necessary   to  Perfect  Or- 
ganization      §§215    -249 

7.  Keorganization        §§255  -279 

8.  Kames  of  Corporations §§284  -300 

9.  Consolidation §§305  -410 

Article  I.     In  General §§305-337 

II.     Effect  Upon  Shareholders       .      .  §§343    -360 

III.  Transmission  of  Rights  and  Lia- 

bilities   of     Constituent     Com- 
panies        §§365    -390 

IV.  Effect  on  Remedies  and  Procedure  §§395    -410 

10.  Promoters §§415  -490 

Article  I.     Liability  on  their  Contracts     .      .  §§415    -437 

11.     Liability  to  Subscribers     .      .      .  §§410    -453 

III.  Liability  to  the  Company .      .       .  §§456    -476 

IV.  Non-liability  of  the  Company  for 

Contracts  of  Promoters      .       .  §§480    -490 

11.  Irregular  and  De  Facto  Corporations  .      .  §§495  -533 

Article  I.     De  Facto  Corporations     .      .      .  §§495    -513 

II.      Corporations  by  Estoppel        .       .  §§518    -533 

1 


1  Thomp.  Corp.]  title  one. 

12.  Con-stitutional  Restraints  upon  the  Crea- 

tion of  Corporations  and  the  Granting 

of  Corporate  Pririleges §§538  -659 

Article  I.     Provisions  of  Yarious  State  Con- 
stitutions        §§538    -508 

II.  Restraints  upon  the  Passing  of 
Special  Acts  Conferring  Corpo- 
rate Privileges      §§573    -602 

III.     Eestraints  as  to  the  Titles  of  Laws      §§607    -627 
lY.     Restraints   as    to    the    Mode    of 

Passing  Laws §§632    -639 

V.  Various  other  Restraints  and  Pro- 
visions       §§643    -659 

13.  ^National  Corporations §§665  -683 

14.  Place  of  Holding  Corporate  Meetings  and 

of  Doing  Corporate  Acts §§686-697 

15.  Corporate  Elections §§700  -794 

Article  I.  Assemhling  the  Meeting    .      .      .  §§700    -722 

n.  TheQuorum §§725    -729 

III.  Eight  to  Vote §§730-743 

IV.  Conduct  of  the  Election    .      .      .  §§745    -758 
V.  Right   to  the  Office:    Contesting 

the  Election §§761-794 

16.  Amotion  of    Officers         §§799-841 

17.  Expulsion  of  Members §§846-930 

Article  I.     Power  to  Expel :   Grounds  of  Ex- 
pulsion       §§846    -876 

II.     Corporate  Proceedings  to  Expel  .      §§881    -899 
III.     .Judicial  Proceedings  to  Reinstate      §§904    -930 

18.  By-Laws §§935-1053 

Article  I.     Nature  and  Interpretation      .      .      §§935    -950 
II.     Power  to  Enact  and  Mode  of  En- 
acting   §§955    -  1003 

Subdiv.  I.     At   Common  Law §§  955      -  960 

II.     Statutes  Vesting  Power  incorpo- 
ration or  Members  .       .       .       .      §§  962     -  976 
III.     Statutes    Vesting  Power    in     the 

Directors   or  Other  Oflacers  .       .      §§978      -1003 

Article  III.     Requisites  and  Vahditj'     .      .      .     §§1010-1053 
2 


CHAPTER    I. 


NATURE  AND  KINDS    OF  CORPORATIONS. 


Section 

1.  What  is  a  corporation? 

2.  Judicial  definitions  of  a  corpora- 

tion. 

3.  A  collection  of    incidents  which 

make  a  corporation. 

4.  None  the  less  a  corporation  be- 

cause   members    liable  for   its 
debts. 

5.  Nor  because  it  cannot  sue  or  be 

sued  in  its  corporate  name. 

6.  Nor  because  acts  of    parliament 

declare  that  it  shall  not  be  a 
corporation. 

7.  A  collection  of  natural  persons. 

8.  Corporation  sole. 

9.  Ordinary  powers  of  a  corporation. 

10.  Immortality  — *'  Perpetual  succes- 

sion." 

11.  In  what  sense  a  "  person." 

12.  In  what  sense  a  "  citizen." 

13.  Distinction  between  a  corporation 

and  a  partnership. 

14.  Differences  between  corporations 

and  joint-stock  companies. 


Section 

15.  Distinction  between  a  corporation 

and  a  guild,  fraternity  or  so- 
ciety. 

16.  Composed  of  what  body  or  con- 

stituency. 

17.  Further  of  this  subject. 

18.  Illustrations  of  this  distinction. 

19.  Sense  in  which  the  state  may  be  a 

corporation. 

20.  Quasi-corporations. 

21.  OtQcial  boards  of  municipal  cor- 

porations. 

22.  Kinds  of  corporations. 

23.  The  definition  given  by  Chancellor 

Kent. 

24.  Public  and  private  corporations. 

25.  Public  school  corporations. 

26.  Corporations  to  promote  charities 

of  a  public  nature. 

27.  Corporations   formed  to  promote 

public  objects  for  private  gain. 

When  municipal  corporations 
deemed  private. 

Illustrations  of  public  corpora- 
tions. 


28. 


29. 


§  1.  What  is  a  Corporation  ?  —  The  most  usual  conception  of 
a  corporation  is  that  it  is  a  collection  of  natural  persons,  joined 
together  by  their  voluntary  action  or  by  legal  comi)ulsion,  by  or 
under  the  authority  of  an  act  of  the  legislature,  to  accomplish  some 
purpose,  pecuniary,  ideal,  or  governmental,  authorized  by  the  leg- 
islature, under  a  scheme  of  organization  and  by  methods  thereby 
prescribed  or  permitted :  with  the  faculty  of  having  a  continuous 
succession  during  the  period  prescribed  by  the  legislature  for  its 
existence,  of  having  an  individual  name  by  which  it  may  make 

3 


1  Thomp.  Corp.  §  3.]     nature  and  kinds  of  corporations. 

and  take  contracts  and  sue  and  be  sued,  and  of  acting  as  a  unit 
in  respect  of  all  matters  within  the  scope  of  the  purposes  for 
which  it  was  created. 

§  2.  Judicial  Definitions  of  a  Corporation.  —  A  corporation  ag- 
gregate has  been  detiued  to  be,  "  au  artilieial  beiug  created  by  law,  and 
composed  of  individuals  who  subsist  as  a  body  politic  under  a  special 
denomination,  with  the  capacity  of  perpetual  succession,  and  of  acting, 
within  the  scope  of  its  charter,  as  a  natural  person."  i  The  following 
is  the  definition  given  by  Chief  Justice  Marshall  in  the  Dartmouth  Col- 
lege case:  "A  corporation  is  an  artificial  being,  invisible,  intangible, 
and  existing  only  in  contemplation  of  law.  Being  the  mere  creature  of 
law,  it  possesses  only  those  properties  which  the  charter  of  its  creation 
confers  upon  it,  either  expressly,  or  as  incidental  to  its  very  existence. 
These  are  such  as  are  supposed  best  calculated  to  effect  the  object  for 
which  it  was  created.  Among  the  most  important  are  immortality  and, 
if  the  expression  may  be  allowed,  individuality ;  properties  by  which 
a  perpetual  succession  of  many  persons  are  considered  as  the  same, 
and  may  act  as  a  single  individual. "  ^  Jq  \;^q  early  cases  in  New  York, 
the  question,  what  is  a  coi'poration  was  discussed  with  exhaustive  re- 
search. On  one  of  these  cases  the  court,  speaking  through  Nelson,  C. 
J. ,  said :  ' '  We  may,  in  short,  conclude  by  saying,  with  the  most  ap- 
proved authorities  at  this  day,  that  the  essence  of  a  corporation  consists 
in  a  capacity  (1)  to  have  perpetual  succession  under  a  special  name  and 
in  an  artificial  form ;  (2)  to  take  and  grant  propertj'^,  contract  obhga- 
tions,  sue  and  be  sued  by  its  corporate  name  as  an  individual ;  and  (3) 
to  receive  and  enjoy,  in  common,  grants  of  privileges  and  immunities,"  '^ 
In  the  same  case*  Cowen,  J.,  summed  up  the  incidents  of  a  corporation 
mentioned  by  Blackstone,  as  follows:  "  These  are,  in  short,  the  receiv- 
ing of  peculiar  laws,  and  the  making  of  by-laws  for  itself ;  perpetual 
succession  both  as  to  its  privileges  and  property;  the  having  one  will, 
as  collected  from  the  power  of  the  majority  to  make  by-laws  ;  and  the 
being  but  one  person  in  law,  —  a  person  that  dies  not,  but  continues  the 
same  individual  though  its  parts  may  change."  The  definition  of  Kyd 
has  been  frequently  quoted :  "Though  many  things  be  incident  to  a 
corporation,  yet,  to  form  the  complete  idea  of  a  corporation  aggregate, 
it  is  sufficient  to  suppose  it  vested  with  the  three  following  capacities  : 
(1)  To  have  perpetual   succession  under  a  special  denomination,  and 

1  Fietsam  v.  Hay,  122  111.  293;  s.  '  Thomas  v.  Dakin,  22  Wend.  (N. 
c.  3  Am.  St.  Rep.  4'.)2,  493.  Y.)  71. 

2  Dartmouth  CoHege  v.  Woodward,  *  Thomas  v.  Dakin,  22  "Wend.  (N. 
4  Wheat.  (U.  S.)  636.  Y.)  91. 

4 


JUDICIAL    DEFINITIONS.        [1  TllOmp.  Coip.    §   2. 

under  an  artificial  form;  (2)  to  take  and  grant  property,  to  contract 
obligations,  and  to  sue  and  be  sued  by  its  corporate  name  in  the  same 
manner  as  an  individual;  (3)  to  receive  grants  of  privileges  and  im- 
munities, and  to  enjoy  them  in  common.  These  alone  are  sufficient  to 
the  essence  of  a  corporation."  ^  In  the  other  case  above  referred  to  this 
definition  was  given :  "A  corporation  aggregate  is  a  collection  of  in- 
dividuals united  in  one  body  under  such  a  grant  of  privileges  as  secures 
the  succession  of  members  Avilhout  changing  the  identity  of  the  body, 
and  constitutes  the  members  for  the  time  being  one  artificial  person, 
or  legal  being,  capable  of  transacting  some  kind  of  business  like  a 
natural  person."  ^  In  the  former  case,  where  the  subject  was  thoroughly 
considered,  it  was  said  by  Cowen,  J. :  ' '  It  has  been  impossible  for 
me  to  see  the  force  of  the  argument  that,  because  the  legislatiure  have 
constantly  avoided  to  caU  these  associations,  or  any  of  their  machinery, 
a  corporation,  therefore  we  cannot  adjudge  them  to  be  so.  If  they 
have  the  attributes  of  corporations,  ii  they  are  so  in  the  nature  of 
things,  we  can  no  more  refuse  to  regard  them  as  such  than  we  could 
refuse  to  acknowledge  John  or  George  to  be  natural  persons  because 
the  legislature  may,  in  making  provisions  for  their  benefit,  have  been 
pleased  to  designate  them  as  belonging  to  some  other  species.  Should 
the  legislature  expressly  declare  each  of  them  to  be  corporations,  with- 
out giving  them  corporate  succession  or  other  artificial  attributes,  the 
declaration  would  not  make  them  so.  On  the  other  hand,  even  an  ex- 
press legislative  declaration  that  certain  associations  are  not  included 
in  the  definition  of  corporations  would  not  chan  ge  their  character,  pro- 
vided they  should  in  fact  be  clothed  with  all  the  essential  powers  of 
corporations."  ^  It  should  be  added  that  the  fact  that  the  legislature  has 
designated  a  given  body  as  a  corporation,  or  refused  the  application  of 
such  a  designation,  is  not  conclusive  upon  the  question  whether  or  not 
it  is  to  be  deemed  a  corporation  by  the  com-ts.^  It  was  held  by  Mr. 
Justice  McLean  at  circuit  in  a  case  of  great  importance  that  an  associa- 
tion authorized  by  a  general  law  providing  the  mode  in  which  associa- 
tions shall  be  organized,  conferring  upon  them  the  ordinary  powers  of 
corporations,  and  expressly  providing  that  such  an  association,  when 
formed,  shall  "  constitute  a  body  corporate  and  politic  in  fact  and  in 
name,"  is  a  corporation ;  ^  and  such  is  now  the  universally  accepted  rule. 

1  I  Kyd  on  Corp.  70.  Mass.  531 ;  s.   c.  sub  nom.     Liverpool 

2  Bronson,  J.,  in  People  v.  Asses-      Ins.  Co.  v.  Massachusetts,   10  WaU. 
sors  of  Watertown,   1    Hill  (N.  Y.),      (U.  S.)  566  po.s«;  §  6. 

620.  s  Falconer  v.  Campbell,  2  McLean 

3  Thomas  v.  Dakin,  22  Wend.    (N.      (U.  S.),  195;  s.  c.  10  Myer  Fed.  Dec,  § 
Y-)  lf^3.  8.     In  a  proceeding  by    mandamus   to 

^  Oliver  v.  Liverpool,  &c.,  Co.,  100      restore  a  person  to  the  place  of  alder- 

f) 


1  Thonip.  Corp.  §  5.]    nature  and  kinds  of  corporations. 

§  3.  A  Collection  of  Incidents  which  make  a  Corporation. — 

An  English  joint-stock  company  possessing  the  following  characteristics 
was  held  to  create  a  corporation,  in  the  sense  in  which  the  word  is  nsed 
in  America,  and  so  as  to  be  a  subject  of  taxation  under  a  statute  of  one 
of  the  American  States,  in  which  it  maintained  an  office  and  carried  on 
its  business:  "1.  It  has  a  distinctive  fxnd.  artificial  name ^  by  which  it 
can  make  contracts.  2.  It  has  a  statutory  provision,  by  which  it  can 
sue  and  be  sued  in  the  name  of  one  of  its  officers  as  the  representative 
of  the  whole  body,  which  is  bound  by  the  judgment  rendered  in  such 
suit.  3.  It  has  a  pro\ision  for  loerpetual  succession  by  the  transfer  and 
transmission  of  the  shares  of  its  capital  stock,  whereby  new  members  are 
introduced  in  place  of  those  who  shall  die  or  sell  out.  4.  Its  existence 
as  an  entity,  apart  from  the  shareholders,  is  recognized  by  the  act  of 
Parliament  which  enables  it  to  sue  its  shareholders  and  he  sued  by  them.' ^ 
"  It  is  beheved,"  said  Mr.  Justice  Miller,  "  that,  in  all  the  States,  the 
articles  of  association  of  this  company  would,  if  adopted  with  the  usual 
formalities,  constitute  it  a  corporation  under  the  general  laws,  or  it 
would  become  so  by  such  legislative  ratification  as  is  given  by  the  acts 
of  Parliament  we  have  liientioned. ' '  ^ 

§  4.  None  the  less  a  Corporation  hecause  Members  Liable 
for  its  Debts.  —  "To  this  view,"  continued  Mr.  Justice  Miller,  "it 
is  objected  that  the  association  is  nothing  but  a  partnership,  because  its 
members  are  liable  individually  for  the  debts  of  the  company.  But, 
however  the  law  on  this  subject  may  be  held  in  England,  it  is  quite  cer- 
tain that  the  principle  of  personal  liability  of  the  shareholders  attache? 
to  a  very  large  proportion  of  the  corporations  of  this  country,  and  it  is 
a  principle  which  has  warm  advocates  for  its  universal  apphcation  when 
the  organization  is  for  pecuniary  gain."  ^ 

§  5.  Nor  because  it  cannot  Sue  nor  be  Sued  in  its  Corporate 
Name.  — "  So  also,"  continued  Mr.  Justice  Miller,  "it  is  said  that 

man  of  the  City  of  London,  Serjeant  when    a    quo    warranto    is    brought 

Pemberton  in  argument  gave  this  defl-  against  a  corporation  the  writ  calls  it 

nition  of  a  corporation:  "That  a  cor-  a  franchise,  which  is  very  properly." 

poration  is  an  artificial  body  composed  Sir  James   Smith's  Case,   Carth.  217; 

of  divers  constituent  members  ad  in-  s.  c.  Skin.  293,  310;  4  Mod.  52;  1  Show., 

star  corporis  humani,  and  that  the  liga-  263,  274. 

ments  of  this   artificial  body  politic  ^  Liverpool  Ins.  Co.  v,  Massachu- 

or  artificial   body  are   the  franchises  setts,  10   Wall.   (U.  S.)    5G6,  s.   c.    10 

and  liberties  thereof,  which  bind  and  Myer  Fed.  Dec,  §  17. 
unite  all  its  members  together,  and  ^  Liverpool   Ins.   Co.    v.  Mass.,  10 

the  whole  frame  and  essence  of   the  Wall.   (U.   S.)  566;  s.  c.  10  Myer  Fed. 

corporation      consist     therein;     and  Dec,  §  18. 
(1 


INCIDENTS    OF    CORPORATIONS.        [1  Thomp.   Coip.    §  6. 

the  fact  that  there  is  no  provision,  either  in  the  deed  of  settlement  or 
the  act  of  ParUament,  for  the  company  suing  or  being  sued  in  its  ar- 
tificial name,  forbids  the  corporate  idea.  But  we  see  no  real  distinc- 
tion in  this  respect  between  an  act  of  Parhament  which  authorized  suits 
in  the  name  of  the  Liverpool  &  London  Fire  and  Life  Insurance  Com- 
pany, and  that  which  authorized  suit  against  that  company  in  the  name 
of  its  principal  officer.  If  it  can  contract  in  the  artificial  name  and 
sue  and  be  sued  in  the  name  of  its  officers  on  those  contracts,  it  is  in 
effect  the  same ;  for  process  would  have  to  be  served  on  some  such 
officer,  even  if  the  suit  were  in  the  artificial  name."  ^ 

§  6.  Nor  because  Acts  of  Parliament  Declare  tliat  it  shall  not 
be  a  Corporation.  —  Nor  is  an  English  joint  stock  company,  doing 
business  in  America,  to  be  regarded  as  an  unincorporated  association 
within  the  meaning  of  our  laws,  from  the  mere  fact  that  the  acts  of  Par- 
liament under  which  it  is  organized  expressly  declare  that  they  shall 
not  be  held  to  constitute  the  body  a  corporation.  "  Whatever  may  be 
the  effect  of  such  a  declaration  in  the  courts  of  that  country,  it  cannot 
alter  the  essential  nature  of  a  corporation,  or  prevent  the  courts  of  an- 
other jurisdiction  from  inquiring  into  its  true  character,  whenever  that 
may  come  in  issue.  It  appears  to  have  been  the  policy  of  the  English 
law  to  attach  certain  consequences  to  incorporated  bodies,  which  ren- 
dered it  desirable  that  such  associations  as  these  should  not  become 
technical  corporations.  Among  these,  it  would  seem  from  the  pro\'is- 
ions  of  these  acts,  is  the  exemption  from  indi\idual  liability  of  the 
shareholder  for  the  contracts  of  the  corporation.  Such  local  policy  can 
have  no  place  here  in  determining  whether  an  association,  whose  powers 
are  ascertained  and  its  pri\41eges  conferred  by  law,  is  an  incorporated 
body.  The  question  before  us  is,  whether  an  association,  such  as  the 
one  we  are  considering,  in  attempting  to  carry  on  its  business  in  a  man- 
ner which  requires  corporate  powers  under  legislative  sanction,  can 
claim,  in  a  jurisdiction  foreign  to  the  one  which  gave  those  powers,  that 
it  is  only  a  partnership  of  individuals.  We  have  no  hesitation  in  hold- 
ing that,  as  the  law  of  corporations  is  understood  in  this  country,  the 
association  is  a  corporation,  and  that  the  law  of  Massachusetts,  which 
only  permits  it  to  exercise  its  corporate  function  in  that  State  on  the 
condition  of  payment  of  a  specific  tax,  is  no  violation  of  the  Federal 
constitution,  or  of  any  treaty  protected  by  said  constitution. ' '  ^ 

1  Liverpool  Ins.  Co.  v.  Mass.,  10  10  Mycr  Fed.  Dec,  §  19.  Mr.  Justice 
Wall.  (U.  S.)  566,  575;  s.  c.  10  Myer  UnuUcy  agreed  with  the  general  re- 
Fed.  Dec,  §  19.  suit  reached,  but  held  that  the  com- 

2  Liverpool  Ins.  Co.  v.  Massachu-  pany  was  a  special  partnership,  and 
setts,  10  Wall.    (U.  S.")  5CC,  576;       c.  could  not  maintain  an  action  or  be 

7 


1  Tbomp.  Corp.  §  7.]    nature  and  kinds  of  corporations. 

§  7.  A  CoUcctiou  of  Natural  Persons.  —  "  Corporations," 
said  Lumpkin,  J.,  "  are  but  associations  of  individuals. "^  In 
joint-stock  companies  these  individuals  are  called  the  stock- 
holders;^ in  municipal  corporations  they  pass  under  the  various 
names  of  citizens,  burgesses,  freemen,  etc. ;  and  in  private  cor- 
porations formed  for  social,  religious,  benevolent  or  other  ideal 
purposes  they  are  commonly  called  members.  It  is  not,  how- 
ever, strictly  necessary  to  the  legal  existence  of  a  stock 
corporation  that  its  shares  should  be  held  by  individuals.  As 
will  be  seen  hereafter,  its  shares  may  be  held  by  partnerships,'' 
by  other  corporations,*  or  even  by  the  State.  About  fifty  years 
ago  several  of  the  States  created  banking  corporations  known  as 
State  hanks,  in  which  the  State  was  a  holder  of  all  or  a  portion 
of  the  shares.  The  fact  that  the  State  was  the  sole  stockholder 
in  such  a  bank  did  not  change  the  relation  which  the  bank,  as  a 
corporation,  sustained  to  its  creditors.^  In  such  a  case  the 
State,  by  becoming  a  stockholder  in  a  business  corporation, 
divests  itself,  pro  hac  vice,  of  its  attributes  of  sovereignty,  and 
places  itself  on  the  same  footing  which  a  private  person,  holding 
shares  of  stock  in  such  a  corporation,  would  occupy  in  respect  of 
its  creditors,  so  far  as  the  question  of  priority  is  concerned.^ 


sued  as  a  corporation  in  this  country  dend,  although  the  fund  from  which  it 

without  legislative  aid.  was  declared  was  earned  in  great  part 

1  Hightower    v.   Thornton,    8   Ga.  before    they    became      stockholders. 

492.  Phelps  V.  Farmers'  &c.  Bank,  26  Conn. 

-  "Who,   in  law,    constitutes  the  269. 
company,    if    it    be    not    the    stock-  ^  State  v.  Bank  of  the  State,  1  S.  C. 

holders?  "     Lowe,  J.,  in   Gelpcke  v.  63.     In  this  ca^e  it     was   held    that 

Blake,  19  la.  268.  although  the  capital  of  a  bank  is  f  ur- 

3  Post,  §  lO'JO,  et  seq.  nished  by  the  State  under  the  laws  of 

^  Post,  §  1108.    Where  the  charter  which  it  was  incorporated,   and  the 

of    a  bank  provided    that   charitable  profits  ther.of  inure  to  the  benefi^t  of 

societies  might,   from   time    to  time,  that  State,  and  the  faith  of  that  State 

subscribe  for  stock  of  the  bank  in  ad-  is  pledged  to  its  support,    yet    such 

dition  to  its  fixed  capital,  which  stock  bank  is  a  distinct  corporation,  having 

was  not  transferable,   and  might  be  the  ordinary  powers  and  rights,  and 

withdrawn  at  par  on  certain  notice,  subject  to  the  ordinary  obligations  of 

and  the  bank  had  declared  a  dividend  banking  corporations,    with  liability 

from  its  surplus  earnings,  —  it  was  to  suits  by  creditors,  and  holding  its 

held    that    the  socif'ties    subscribing  property  subject  to  the  claims  of  these 

were  shareholders,  Avith  all  the  right  of  in  preference  to    the    claims   of    the 

individual  shareholders,  and  entitled  State  as  the  only  stockholder, 
to  receive  their  proportion  of  the  divi-  ^  United  States  v.  Planters'  Bank, 

8 


CORPORATIONS    SOLE.        [1  ThoUip.  Coip.    §  8. 

§  8.  Corporations  Sole.  —  The  conception  of  a  corporation  com- 
posed of  a  single  person  seems  to  be  passing  out  of  the  American  law. 
The  usual  illustration  of  a  corporation  sole,  such  as  a  bishop  of  the 
church  of  England,  conveys  to  the  mind  the  idea  of  an  official  or  trustee 
who  possesses  certain  powers  which  he  transmits  to  his  successor  in 
office  or  trust.  A  minister  seized  of  parsonage  lands  in  right  of  the 
parish  has  been  regarded  as  a  corporation  sole,  for  the  purpose  of  hold- 
ing such  lands,  so  that  his  title  passes  to  his  successors  in  the  office.^ 
It  has  been  said  that  a  supervisor  of  a  town  is,  sub  modo,  a  sole  corpora- 
tion.2  In  England  this  character  has  been  ascribed  to  the  king,  ' '  to 
prevent,  in  general,  the  possibility  of  an  interregnum,  or  vacancy  of  the 
throne,  and  to  preserve  the  possession  of  the  crown  entire."  ^  On  a 
similar  conception  this  quality  has  been  ascribed  to  the  governor  of 
a  State. ^  But  it  is  not  perceived  why  the  same  quaUty  might  not, 
upon  equal  grounds,  be  ascribed  to  any  public  official.  Even  where 
the  corporation  is  composed  of  more  than  one  person,  the  legislature 
have  power  to  permit  one  person  or  his  successor  to  exercise  all  the 
corporate  powers,  and  to  make  his  acts,  when  acting  upon  the  subject- 
matter  of  the  corporation,  and  within  its  sphere  of  action  and  grant  of 
powers,  the  acts  of  the  corporation.^  It  has  been  held  that  the  grant  of 
corporate  powers  to  a  person  named,  "  and  his  associates,"  virtually 
confers  upon  him  alone  the  powers  so  granted,  and  does  not  make  it 
necessary  that  he  should  take  any  associates. ^  A  peculiar  quality  of 
corporation  sole  at  common  law  was  that  it  had  perpetual  succession,  so 

9  Wheat.  (U.  S.)  907.     Compare  Cur-  name   of  a  successor.     McDowell  v. 

ran  v.  Arkansas,  15  How.  (U.  S.)  304.  Hemphill,  1  Wiust.  (N.  C.)  96. 

^  Brunswick  v.  Dunning,  7  Mass.  3  i   Black.    Com.  470. 

447;    Weston  v.   Hunt,  2   Mass.   501.  ^  Governor    v.    Allen,    8     Humph. 

A    Roman    Catholic    archbishop   has  (Tenn.)  176,  per  Turley,  J.     See  also 

been  held  in  respect  of  land  held  by  Polk  v.  Plummer,  2  Humph.  (Tenn.) 

lilm  for  the  church,  a  corporation  sole,  500. 

and  hence  not  liable  to  be  proceeded  s  Penobscot  Boom  Corp.   v.  Lam- 

aiiainst  personally  for  street  improve-  sou,  16  Me.  224. 

ments.     Roman   Catholic  Archbishop  «  Day  v.  Stetson,  8   Me.  365;  Pen- 

V.  Shipman,  79  Cal.  288.  obscot  Boom  Corp.  v.  Lamson,  16  Me. 

2  Jausen  v.  Ostrander,  1  Cow.  (N.  224.     The  rule  is  of  course  the  same 

Y.)  670,  684.    But  an  officer  or  agent  where    the    corporate    powers      are 

of    a  corporation,   appointed    by    its  granted  to  several  persons  named  in 

board  of    directors  or  trustees,  does  the  grant  and  "  to  their  associates  and 

not  possess  the  faculties  of  a  corpora-  assigns;"    here    the    persons   named 

tion  sole.    The  treasurer  of  the  trust-  may  exercise   the    corporate   powers 

ces  of  Davidson  College  is  not  a  cor-  without  taking  to   themselves  associ- 

poration    sole.     Hence,   a  suit    on  a  ates.     Hughes  v.  Parker.  20  N.  H.  58. 

bond  payable  to  liiiu  as  such,  and  his  See  post,  §  43. 
successors,  cannot  be  brought  in  the 


1  Thomp.  Corp.  §  10.]      naturk  and  kinds  of  corporations. 

to  speak,  as  to  real  jyroj^ei'ty,  but  not  as  to  personal  inoperly,  —  that  is 
to  say,  real  property  would  descend  to  the  successor  in  corporate  right 
of  the  person  who  constituted  the  sole  corporation,  but  personal  property 
would  pass  to  his  next  of  kin  by  the  ordinary  law  of  distribution.  Black- 
stone  gives  the  inconclusive  reason  for  this  anomaly  that,  as  movable 
pi'operty  is  hable  to  be  lost  or  embezzled,  a  rule  that  would  keep  it  in 
the  line  of  corporate  succession  would  raise  endless  disputes  between 
the  corporate  successor  and  the  executor.^ 

§  9.  Ordinary  Powers  of  a  Corporation. —  *' The  ordinary 
powers  of  a  corporation  are:  1.  Perpetual  succession.  2.  To 
sue  and  be  sued,  and  to  receive  and  grant,  by  their  corporate 
name.  3.  To  purchase  and  hold  lands  and  chattels.  4.  To 
have  a  common  seal.  And,  5.  To  make  by-laws.  Some  of 
these  powers  are  incident  to  a  corporation,  but  they  are  all,  gen- 
erally, expressly  given  by  statute  in  this  country."  ^ 

§  lO.  Immortality — "Perpetual  Succession."  —  It  is  fre- 
quently said  that  one  of  the  attributes  of  a  corporation  aggregate 
is  immortality.^  Most  of  the  charters  of  private  corporations 
provide  in  terms  that  they  shall  have  "perpetual  succession," 
and  general  statutes  governing  the  organization  of  corporations 
frequently  contain  the  same  provision.  This  means,  in  a  general 
sense,  that  the  corporation  is  endowed  with  the  faculty  of  exist- 
ing forever,  unless  the  same,  or  another  statute,  or  the  constitu- 
tion has  fixed  a  limit  to  the  term  of  its  existence.  In  other 
words,  the  term  *'  perpetual  succession"  is  understood  to  mean 
indefiniteness  of  duration.*     Another  court  has  reasoned  that  the 

1  2  Bla.  Com.  432.     Where   a  stat-  but  who  merely  subscribed  for  stock 

ute  incorporated  three  persons  named,  in    the  same,   in    sundry  books  pre- 

their  associates  and  successors,  by  the  pared  and  circulated  at  the  meeting 

name  of  "  the  president,  directors  and  when  the  enterprise  originated,  and 

company  of  the   Lechmere  Bank," —  where  the  petition  to  the  legislature 

it  was  held  that,  by  the  word  "  asso-  was  drawn  up  and  signed.     Lechmere 

ciates,"  the  legislature  prma /fzcie  in-  Bank  ■».  Boynton,    11    Cush.    (Mass.) 

tended  those  who  were  associated  with  309. 

the  three  persons  named  as  petitioners  ^  Mr.  Justice  McLean,  in  Falconer 

for  the  bank,  praying   that  they  might  v.  Campbell,  2   McLean  (U.  S.),  195, 

be  so  incorporated,  and  that  upon  the  IDS;   s.  c.  10  Myer  Fed.  Dec,  §  8. 

evidence  in  the  case,  could  not  have  ^  Fu  ler    v.    Academic     School,    G 

intended  to  include  other  persons  who  Conn.  532,  543. 

did  not  sign  the  petition  for  the  bank,  *  Fairchild  v.   Masonic  Hall  Asso- 

10 


IN    WHAT    SENSE    A    "  PERSON."        [1  Thomp.  Corp.    §   11. 

words  do  not  refer  to  length  of  time,  but  rather  convey  the  idea 
of  regularity  or  unbroken  continuity  of  existence.^ 

§  11.  In  what  Sense  a  "  Person."  —  For  many  —  perhaps 
most  purposes,  a  corporation  is  in  law  an  ideal  person.  It  is 
regarded  as  a  unit  for  most  purposes  of  legal  procedure.  It 
makes  and  takes  contracts  by  its  corporate  name,  and  in  that 
name  it  sues  and  is  sued.  The  word  "person"  in  a  statute 
may  be  construed  to  refer  to  a  corporation,  as  well  as  to  a 
natural  person. ^  Accordingly,  a  corporation  has  been  held  to 
be  embraced  within  the  words  of  the  statute  of  Anne,  re-enacted 
in  the  various  American  States,  which  provides  that  "  all  notes 
in  writing  made  and  signed  by  any  person,  whereby  he  shall 
promise  to  pay  to  another  person,  or  his  order,"  etc.,  "  shall  be 
negotiable,"  etc.  Here  the  word  "  person  "  includes  a  corpo- 
ration, and  accordingly  a  note  made  payable  to  a  corporation  is, 
by  force  of  this  statute,  negotiable.* 


ciation,  71  Mo.  526;  State?;.  Stormont, 
24  Kan.  686. 

i  Scanlan  v.  Crawshaw,  5  Mo.  App. 
337.  While  this  conception  of  the 
meaning  of  the  term  perpetual  suc- 
cession seems  to  be  sound,  the  decis- 
ion was  unsound.  By  a  general  law 
ofthe  State  of  Missouri  itwasprovided 
that  corporations,  whose  charters  did 
not  otherwise  provide,  should  expire 
upon  the  limitation  of  twenty  years. 
Many  corporations  in  that  State  were 
created  by  special  charters,  and  the 
only  duration  prescribed  therein  was 
found  in  the  words  "perpetual  suc- 
cession." It  was  held,  on  the  reason- 
ing stated  in  the  text,  tliat,  where  a 
corporation  was  created  at  a  time 
when  this  general  law  was  in  force, 
having  no  other  period  of  limitation 
prescribed  than  such  as  was  found  in 
the  words  "perpetual  succession"  in 
its  charter,  it  expired  by  limitation  in 
twenty  years.  Scanlan  v.  Crawshaw,  5 
Mo.  App.  337.  This  decision,  which 
had  the  effect  of  abolishing  many  of 
the  alleged  business  corporations  of 
the  State,  was  followed  by  the  same 


court  in  Fairchild  v.  Hunt,  5  Mo.  App. 
583,  but  the  point  was  overruled  by 
the  Supreme  Court  in  same  case  on 
appeal,  s?i6  nom.  Fairchild  v.  Mechan- 
ics' Hall  Association,  71  Mo.  52G.  In 
Krutz  V.  Paola  Town  Company,  20 
Kan.  397,  the  same  view  was  taken  as 
that  taken  in  the  Missouri  Court  of 
Appeals,  —  that.  In  the  absence  of  a 
special  period  of  limitation  in  the 
charter,  the  period  of  the  general  law 
governs.  See  post,  Ch.  153.  Under 
Texas  act  of  187-t,  relating  to  corpo- 
rations, as  under  the  act  of  1871,  a 
corporation  is  entitled  to  succession 
by  its  corporate  name  for  twenty 
years  where  its  charter  does  not  limit 
the  time.  Steadman  v.  Merchants' 
and  Planters'  Bank,  69  Tex.  50. 

2  People  V.  Utica  Insurance  Co., 
15  Johns.  (N.  Y.)  338 ;  s.  c.  8  Am.  Dec. 
243;  Cary  v.  Marstou,  56  Barb.  (N.  Y.) 
29;  U.  S.  Tel.  Co.  v.  Western  Uuiou 
Tel.  Co.,  Id.  53.  Compare  Aheru  v. 
National  Steamship  Co.,  11  Abb.  Pr. 
(N.  s.)  fN.  Y.)  356. 

*  State  of  Indiana  v.  Woram,  6 
Hill  (N.  Y.) ,  33  ;  s.  c.  40  Am.  Dec.  378. 
11 


IThomp.  Corp.  §  13.]      nature  and  kinds  of  coupokations . 

§  12.  In  what  Sense  a  "  Citizen." — A  corporation  is  a  citi- 
zen within  the  meaning  of  the  act  of  Congress,^  which  allows 
a  citizen  of  one  State  to  bring  an  action  against  a  citizen  of  an- 
other State,  in  a  circuit  court  of  the  United  States.  For  the 
purposes  of  Federal  jurisdiction  a  foreign  corporation  is  a  citizen 
of  the  State  by  which  it  is  created  and  within  which  it  doesbusi- 
ness.2  When  sued  in  a  State  court  it  may,  therefore,  as  a  citi- 
zen of  the  State  of  its  creation,  remove  the  cause  to  the  Circuit 
Court  of  the  United  States,  in  like  manner  as  a  non-resident  citi- 
zen might.^  But  it  is  a  settled  principle  of  constitutional  law 
that  it  is  not  a  citizen,  within  the  meaning  of  that  clause  of  the 
constitution  of  the  United  States*  which  declares  that  "  the  citi- 
zens of  each  State  shall  be  entitled  to  all  'privileges  and  immunities 
of  citizen  in  the  several  States."  ^ 

§  13.  Distinction  between  a  Corporation  and  a  Partner- 
ship.   A  corporation  differs  from  a  general  partnership  in  the 

following  particulars:  1.  Its  members  may,  in  general,  with- 
out restraint,  by  transferring  their  shares,  introduce  other  per- 
sons in  their  stead ;  ^  but  the  members  of  a  general  partnership 
contribute  to  the  common  enterprise,  not  only  their  respective 
shares  of  the  partnership  capital,  but  also  their  personal  skill  and 
individual  credit,  and  cannot,  hence,  retire  from  the  partnership. 

The  statute  of  New  York  under  this  Me.  417.  In  this  last  case  the  qualifl- 
head,  out  of  abundant  caution,  con-  cation  is  added,  if  there  is  nothinsc  in 
tains  the  provision  that  the  word  the  legislation  of  the  State  to  prevent 
person,  as  therein  used,  "  shall  be  it.  To  the  same  effect  is  Morton  v. 
construed  to  extend  to  every  corpora-  Mutual  Life  Ins.  Co.,  105  Mass.  145; 
tion  capable  by  law  of  making  con-  s.  c.  7  Am.  Rep.  505;  Knorr  v.  Home 
tracts."  1  R.  S.  N.  Y.  768.  So  a  Ins.  Co.,  25  Wis.  143;  s.  c.  3  Am. 
corporation  is  a  "  person  "  within  the  Rep.  26.  But  this  qualification  is  un- 
meaning of  the  mill  dam  act  of  Wis-  derstood  to  be  not  the  law.  Tost^ 
consin.  Fisher  v.  Horicorn  &c.  Co.,  Ch.  178,  Art.  III. 
10  Wis.  351.  ^  Const.  U.  S.,  Art.  4,  §  2. 

1  Judiciary  Act  of  1789,  §  11 ;  Rev.  «  People  v.  Imlay,  20  Barb.  (N.  Y.) 
Stat.  U.  S.,  §  629.  68;  Wheedenu.  R.  Co.,  2  Phil.   (Pa.) 

2  Minot  r.  Philadelphia  &c.  R.  Co.,  23;  Ducat    v.    Chicago,    48  111.    172; 
2  Abb.    (U.  S.)   323;  Hatch    v.    Chi-  Tatem  u.  Wright,  23  N.  J.  L.  429. 
cago  &c.   R.  Co.,   6  Blatchf .    (U.  S.)  «  Chouteau  Spring  Co.  v.  Harris,  20 
105;  Stevens  v.   Phrenix  Ins.   Co.,  41  Mo.    382;    Moore    v.    Bank  of  Com- 
jj_  Y.  149.  merce,  52  Mo.  377;  'post^  §  2300. 

'  Hobbs  V.  Manhattan  Ins.  Co.,  56 
12 


CORPORATIONS — JOINT-STOCK  COMPANIES.     [IThomp.  Corp.  §  14. 

and  introduce  other  persons  in  their  stead,  without  the  consent 
of  their  copartners.  2.  The  members  of  a  general  partnership 
are,  by  virtue  of  their  status  as  such,  agents  of  the  partnership 
firm,  and  of  each  other,  in  all  matters  within  the  scope  of  the 
partnership  business.^  Not  so  the  members  of  a  corporation. 
They  can  only  act  about  the  business  of  the  corporation  in  their 
ao-gregate  capacity,  through  the  agency  of  a  committee,  com- 
monly called  a  board  of  directors  or  a  board  of  trustees,  whom 
they  have  chosen  to  represent  them,  and  through  such  other 
officers  as  this  committee  may  appoint. ^  3.  The  members  of  a 
general  partnership  are  jointly  and  severally  liable  to  pay,  out 
of  their  private  estates,  all  the  debts  of  the  partnership  firm."^ 
But  in  the  United  States  the  members  of  a  corporation  are  not, 
in  general,  liable  to  pay  any  of  the  corporate  debts,^  unless  (1) 
they  have  received  or  withheld  some  of  the  assets  of  the  corpora- 
tion, or  (2)  unless  they  are  otherwise  made  liable  by  the  terms 
of  the  charter  of  the  corporation  or  by  statute. 

§  14,  Differences  between  Corporations  and  Joint-stock 
Companies.  —  An  English  joint-stock  company  resembles  a  cor- 
poration, in  respect  of  the  fact  that,  by  reason  of  the  number  of 
its  members,  it  acts  by  a  board  of  directors  or  trustees,^  and  sues 

1  This,  however,  is  not  a  necessary  viduals  carrying  on  business  jointly 
incident  of  a  partnership ;  I  am  merely  under  an  ordinary  deed  of  partnership 
describing  the  more  common  inci-  or  by  a  parol  agreement  among  them- 
dents.  See  Gallway  v.  Matthew,  10  selves  of  which  the  world  is  ignorant, 
East,  264.  in  which  case  what  is  said  or  done  by 

2  Dayton,  etc.,  R.  Co.  v.  Hatch,  1  any  one  partner  respecting  the  partner- 
Disney  (Ohio),  84;  Dana  v.  Bank  of  ship  business  affects  all  the  partners, 
United  States,  5  Watts  &  S.  (Pa.)  247;  although  in  violation  of  their  agree- 
Conro  t?.  Port  Henry  Iron  Co.,  12  Barb,  ment  inter  se.  But  why  is  this  so? 
(N.  Y.)  27.  Because,  carrying  on  business  jointly 

3  Post,  §  2815.  under  a  common    firm,  they  hold  out 

*  Post,  §  2816.  to   the   world   that  each  of  them  has 

*  Burnes  v.  Pennell,  2  H.  L.  520.  authority  to  manage  the  partnership 
"We  are  told,"  said  Lord  Campbell  concerns.  Therefore  all  are  bound  by 
in  this  case,  <«  that  a  joint-stock  com-  what  each  does  in  conducting  the 
pany  (at  least  if  not  incorporated,  and  partnership  business.  All  the  mem- 
only  empowered  by  a  public  act  of  bers  of  the  firm  are  liable  to  the  bona 
Parliament,  as  this  is,  to  sue  and  be  ytdeholdcrof  a  bill  of  exchange,  drawn, 
sued  by  its  officers),  is  in  the  same  accepted,  or  indorsed  by  any  one  of 
situation  as  any  mercantile  partner-  them.  But  supposing  that,  A.,  B., 
ship  consiating  of  two  or  three  indi-  and  C.  entering  into  partnership,  it  is 

13 


1  Tlioinp.  Corp.  §  14.]      nature  and  kinds  of  corporations. 

and  is  sued  as  one  person,  or  in  the  name  of  an  oflScer;  ^  but,  in 
respect  of  tlie  liability  of  its  members  for  its  debts,  a  corpora- 
tion, in  general,  differs  from  a  joint-stock  company  as  it  differs 
from  a  partnership:  the  members  of  a  joint-stock  company  are, 
in  general,  liable  as  partners. ^     A  corporation  and  an  English 


expressly  stipulated  that  A.  shall  not 
draw,  accept,  or  indorse  bills  in  the 
partnership  name,  and  this  stipulation 
is  known  to  X.,  he  would  have  no 
remedy  against  B.  and  C.  on  a  bill  of 
exchange  which  he  had  induced  A.  to 
draw,  accept,  or  indorse.  Therefore, 
on  the  principle  which  regulates  the 
liability  of  common  parties,  a  distinc- 
tion must  be  made  between  a  member 
of  a  common  mercantile  partnership 
and  a  shareholder  in  a  joint-stock 
company.  No  one  will  contend  that  a 
joint-stock  company  would  be  liable 
on  a  bill  of  exchange,  drawn,  accepted, 
or  indorsed  by  any  one  shareholder. 
Why?  Because  it  is  known  that  the 
power  of  carrying  on  the  business  of 
the  company,  and  of  drawing,  accept- 
ing, and  indorsing  bills  of  exchange,  is 
vested  exclusively  in  the  directors. 
This  shows  that,  although  a  joint- 
stock  company  is  a  partnership,  it  is 
a  partnership  of  different  description, 
and  attended  with  different  incidents 
and  liabilities,  from  a  partnership 
constituted  between  a  few  individuals 
who  carry  on  business  jointly,  with 
equal  powers  and  without  transfera- 
ble shares.  All  who  have  dealings 
with  a  joint-stock  company  know  that 
the  authority  to  manage  the  business 
is  conferred  upon  the  directors,  and 
that  a  shareholder,  as  such,  has  no 
power  to  contract  for  the  company. 
For  this  purpose,  it  is  wholly  imma- 
terial whether  the  company  is  incorpo- 
rated or  unincorporated."  See  also 
the  observation  of  Earl,  J.,  in  Bray  v. 
Farwell,  81  N.  Y.  000,608. 

1  Wordsworth  on  Joint-stock  Co. 
66;  Oliver  v.  Liverpool,  etc.,  Co.,  100 
Mass.  539;  Wormwell  v.  Hailstone,  6 

14 


Bing.  668;  Harrison  v.  Timmins,  4 
Mee.  &  W.  510;  Cape's  Executors' 
Case,  2  De  G.  M.  &  G.  573;  Bartlett  v. 
Pentland,  1  Barn.  &  Adol.  704;  Taft  v. 
Ward,  100  Mass.  518. 

2  Aug.  &  Ames  on  Corp.,  §  591; 
Morton,  J.,  in  Hoadley  v.  County  Com- 
missioners, 105  Mass.  526;  Williams 
V.  Bank  of  Michigan,  7  Wend.  (N. 
Y.)  542;  Townsend  v.  Goewey,  19 
Wend.  (N.  Y.)  424;  Whitman  v. 
Porter,  107  Mass.  522;  Oliver  v.  Liver- 
pool &c.  Co.,  100  Mass.  539;  Dow 
V.  Sayward,  12  N.  H.  271;  Taft  v. 
Ward,  106  Mass.  518;  Tappan  v. 
Bailey,  4  Mete.  (Mass.)  529;  Tyrell 
V.  Washburn,  6  Allen  (Mass.),  472; 
Bodwell  V.  Eastman,  106  Mass.  625; 
Frost  V.  Walker,  60  Me.  468.  The 
contrary  was  held  by  Chancellor  Kent 
in  Livingston  v.  Lynch,  4  Johns.  Ch. 
(N.  Y.)  573,  592.  "  Joint-stock  com- 
panies," says  Sir  Nathaniel  Lindley, 
in  his  work  on  Partnership,  "  are  not 
pure  partnerships,  for  their  members 
are  recognized  as  an  aggregate  body; 
nor  are  they  pure  corporations,  for 
their  members  are  more  or  less  liable 
to  contribute  to  the  debts  of  the  col- 
lective whole.  Incorporate  compa- 
nies are  intermediate  between  cor- 
porations known  to  the  common  law 
and  ordinary  partnerships,  and  par- 
take of  the  nature  of  both."  1  Lindley 
on  Part.  (Ist.  ed.)  0.  The  liability  or 
non-liability  of  members  constitutes 
the  most  frequent  test  by  which  to 
determine  whether  a  particular  com- 
pany is  a  corporation  or  a  joint-stock 
company.  Thus,  various  acts  of  Par- 
liament conferred  upon  an  insurance 
company  most  of  the  incidents  of  a 
corporation,   but    declared  that  such 


CORPORATIONS JOINT-STOCK  COMPANIES.      [1  Thomp.  Corp.  §   14. 

joint-stock  company  likewise  resemble  each  other  in  respect  of 
the  transferability  of  their  shares,  and  the  incident  of  "  perpet- 
ual succession  "  of  their  members. ^  In  the  United  States,  how- 
ever, an  unincorporated  joint-stock  company,  although  it  may 
possess  a  capital  stock,  divided  into  shares  and  transferable  at  the 
will  of  the  holders,  do  business  under  a  name  indicating  that  it 
is  a  corporation,  act  through  a  common  agency,  and  not  by  its 
individual  members ,2  and  hold   its   property  in  the  name  of  a 


company  should  not  be  deemed  to  be 
thereby  made  a  corporation.     It  was 
thought  by  an  American  court  that  the 
object  of  this  reservation  was  to  pre- 
serve the  individual  liability  of  mem- 
bers.   Oliver  v.   Liverpool    &c.   Co., 
100  Mass.  539.     So,  acts  of  Parliament 
which  provided,  in  substance,  that  a 
private  company  might  be  sued  in  the 
name  of  the  managing  director  as  a 
nominal  party,  for  and  on  behalf   of 
the  company,  that  execution  so  ob- 
tained should  be  levied  upon  the  sur- 
plus fund  and  other  property  of  the 
corpoi'ation,  ■  and  that  the  managing 
directors  should  not  be  personally  re- 
sponsible in  respect  of  contracts  made 
by  them  in  behalf  of  the  company, 
were  held  to  create  a  gwasi-corpora- 
tion,  and  the  court  had  no  power  to 
order  an  execution  against  a  director 
against  whom  a  judgment  had  been  tlaus 
recovered.      Harrison  v.  Timmins,  4 
Mee.  &  W.  510.     "  It  is  quite  clear," 
said  Lord  St.   Leonards,    "  that  the 
law  knows  no  difference  between   a 
common    partnership  of  two  people 
and  a  partnership  of  one    hundred. 
This  company  is  not  an  ordinary  part- 
nership,  but  one  formed    under  the 
act  of  7  Geo.  IV.  c.   46,  by  virtue  of 
which,  though  the  public  officer  only 
can  be  sued,  yet  all  the  members  at 
the  time  when  the  judgment  is  ob- 
tained   may  in  the    result  be  made 
liable.    There   is,   therefore,  a  great 
difference  between  a  company  such  as 
this  taking  the  benefit  of  the  Winding- 
up  Act,  and  the   case  of  a  common 


partnership  so  doing.  This  does  not, 
however,  exclude  from  consideration 
the  provisions  of  the  deed  of  partner- 
ship." Cape's  Executors'  Case,  2  De 
G.  M.  &  G.  573.  A  joint-stock  com- 
pany is  not  such  a  corporation  as  to 
entitle  one  of  its  officers  to  refuse  to 
produce  documents  in  his  custody  when 
required  by  subpoena.  Woods  v.  De 
Figaniere,  1  Robt.  (N.  Y.)  659. 

1  Burnes  v.  Pennell,  2  H.  L.  520. 

2  Tappau  V.  Bailey,  4  Mete.  (Mass.) 
529.  But  see  The  People  v.  Assessors 
of  Watertown,  where  the  free-banking 
companies  of  New  York  were  held  to 
be  corporations.  In  this  case  Bronson, 
J.,  declared:  "  Whether  a  corporation 
or  not,  does  not  depend  upon  the  num- 
ber or  magnitude  of  its  powers  nor 
the  manner  in  which  they  were  con- 
ferred. An  association  under  our 
general  laws,  for  a  village  library  or 
to  tan  hides,  possesses  all  the  essen- 
tial attributes  of  a  corporation  in  as 
great  perfection  as  the  Bank  of  En- 
gland or  the  East  ludia  Company.  Nor 
is  it  important  in  what  mode  or  by 
what  particular  agency  this  artificial 
being  transacts  its  business.  It  is 
enough  that  it  has  a  capacity  to  act  in 
some  form  as  a  legal  being."  The 
People  V.  Assessors  of  Watertown,  I 
Hill  (N.  Y.),  622.  See  Hoadley  v. 
County  Commissioners,  105  Mass.  519 ; 
Tyrrell  v.  Washburn,  6  Allen  (Mass.), 
406;  Taft  v.  Ward,  lOG  Mass.  518;  Bul- 
lard  V.  Kinney,  10  Cal.  60.  "  Com- 
panies and  societies  which  are  not 
sanctioned  expressly  by  the   legisla- 

15 


1  Thomp.  Corp.  §  15.]      natukk  and  kinds  of  corporations. 

trustee, — is  deemed  to  be  an  ordinary  partnership  with  respect  of 
its  relations  with  the  public,  such  as  the  manner  in  which  it  may 
sue  and  be  sued,^  its  liability  to  taxation,  and  the  liability  of  its 
members  to  its  creditors.  Non-liability  of  members  to  creditors 
will  not,  of  itself,  however,  determine  whether  an  association  is 
a  corporation  or  not ;  since,  as  we  shall  see  hereafter,  the  mem- 
bers of  some  American  corporations  are  liable,  as  partners,  to 
its  creditors. 2  Thus  an  English  joint-stock  company,  possess- 
ing the  general  incidents  of  an  American  corporation  except  the 
non-liability  of  its  members,  and  organized  under  acts  of  Parlia- 
ment expressly  declaring  that  it  is  not  a  corporation,  will  never- 
theless be  deemed  a  corporation  in  this  country,  for  the  pur- 
poses of  taxation.^  Indeed,  there  seems  to  be  no  substantial 
difference  between  an  American  joint-stock  corporation  and  an 
English  "company,"  organized  under  recent  statutes.* 

§  15.  Distinction  between  a  Corporation  and  a  Guild, 
Fraternity  or  Society.  —  Distinctions  have  been  taken  between 
a  corporation  and  a  guild,  f  .-aternity  or  society.  It  has  been 
said  that  a  guild,  a  fraternity  or  a  society  is  not  a  corporation."^ 
The  distinction  was  that  a  corporation  could  only  be  created  by 
the  crown  or  by  Parliament,  but  that  a  guild  was  nothing  more 

tare,  pursuant  to  some  geueral  or  spe-  ^  Oliver  v.  Liverpool  &c.  Co.,  100 
ciallavr,  are  nothing  more  than  ordinary  Mass.  531;  affirmed  sub  nom.  Liver- 
partnerships,  and  the  laws  respect-  pool  Ins.  Co.  v.  Massachusetts,  10 
ing  them  are  the  same."  Wells  u.  Wall.  566;  ante,  I  3. 
Gates,  18  Barb.  (N.Y.)  557,  per  Gierke,  ^  Dr.  Brice,  in  his  work  on  Ultra 
J.  Compare  Opdyke  v.  Marble,  18  Vires,  enumerates  these  statutes 
Abb.  Pr.  (N.Y.)  2G6;  s.  c.  affirmed,  Id.  under  the  head  of  "Corporations  by 
375;  1  Thomp.  Tr.,  §  747  Act  of  Parliament,"  and  says:    "The 

1  "Whatever  name,"  said  Wal-  above  statutes,  and  especially  the 
worth,  C,  "  such  a  company  may  as-  Companies  Acts  of  1862  and  1867, 
sume  and  use,  ia  the  transaction  of  enable  persons,  by  a  very  simple  and 
its  business,  it  is  a  partnership  aid  speedy  process,  to  unite  themselves 
not  a  corporate  designation,  and  every  into,  and  thereby  create,  a  corpora- 
suit  upon  a  contract  with  the  company  tion,  for  almost  any  and  every  purpose 
must  be  brought  in  the  names  of  the  of  life,  commercial  or  otherwise." 
several  per.-^ons  composing  the  firm."  Green's  Brice's  Ultra  Vires,  24.  In 
WilliamsT.  Bank  of  Michigan,  7  Wend,  the  United  States,  corporo-tions  are 
(N.  Y.)  542.  Local  statutes  may  ex-  now,  for  the  most  part,  organized  un- 
ist  allowing  such  bodies  to  sue  in  the  der  similar  statutes.  Post,  Ch.  VI. 
name  of  an  officer.  ^  Year  Book,  49  Edw.  3,  4b;  Res  v. 

«  Post,  Ch.  50.  Beardwell,  2  Keb.  52. 
IG 


COMPOSED    OF    WHAT    BODY.        [1  Thomp.   Coip.    §  17. 

than  a  fraternal  society,  wliich  might  be  created  by  an  ordinance 
or  a  by-law  of  a  municipal  corporation.  Thus,  it  was  said  by 
Lord  Holt  in  one  case,  with  reference  to  a  by-law  of  the  city  of 
London,  that  "  the  city  might  make  a  guild  or  fraternity  of 
dancing  masters,  though  they  cannot  make  a  corporation."  ^ 

§  16.  Composed  of  what  Body  or  Constituency.  —  The  most 
usual  conception  of  a  corporation  aggregate  is  that  it  is  a  collect- 
ive body  composed  of  its  largest  constituency.  But  this  is  not 
a  universal  conception.  Sometimes  only  the  board  of  trustees 
or  other  representative  body  is  incorporated.  This  is  frequently 
so  in  the  case  of  religious  societies,  as  will  appear  hereafter. ^ 
The  trustees  in  wiiom  are  vested  the  temporalities  of  the  church 
are  frequently  incorporated,  but  the  body  of  communicants  are 
not.  So,  in  respect  of  municipal  corporations,  the  legal  con- 
ception of  such  a  body  is  believed  to  be  that  it  consists  not  of 
the  aggregate  body  of  inhabitants  within  the  prescribed  territory, 
or  even  of  the  aggi-egate  body  of  inhabitants  within  such  terri- 
tory who  are  entitled  to  vote  at  municipal  elections ;  but  rather 
that  it  consists  of  the  governing  body,  usually  the  mayor  and 
common  council.^ 

§  17.  Further  of  this  Subject.  —  The  writer  ventures  the 
opinion  that,  for  the  purposes  of  substantial  right,  though  not 

^  Robinson  v.  Groscot,  Comb.  372.  rated,  especially  a  donation  by  the  city 

Whether  the  Iims  of  Court  at  West-  of  Louisville  sanctioned  by  the  legis- 

minster  Hall    were    corporations    or  lature.     City    of    Louisville    v.    Unl- 

merely    voluntary    societies,    in    the  versity  of  Louisville,  15  B.  Mon.  (Ky.) 

nature  of  guilds, —  Cd<n  of  Clement's  642. 

Inn,  1  Keh.  1 35.  ^  In  an  old  case  this  talk  is  found, 

2  Post,  §  44.     Thi!  trustees  of  a  col-  where  the  question  concerned  the  legal- 

lege,    bein^    iucorporated,    may    sue  ity  of  the  removal  of  a  burgess :"  They 

by  their  corporate  title,  without  set-  say  he  was  removed  in  common  council, 

ting    out    their    individual      names,  which  is  but  a  part  of  the  corpora- 

Legrand  v.  Hampden  Sidney  College,  tion;  but  that    was    soon  overruled, 

6  Munf.  (Va.)    324.    The  trustees  of  for  Holt  said,  the  power  is  laid  in  the 

the  university  of  Louisville,  as  origi-  mayor  and  burgesses  to  remove,  and 

nally  incorporated,  constituted  in  law  it  cannot  be    worse  for  being    done 

a  person    capable    of    receiving    any  in    common    council.      Northy:    But 

grants  of  real  or  personal  property,  the    common    council    is    a    distinct 

which  miglit  be  made   to  it  for  the  body.     Holt:  It  may  be  not."     Rexu. 

purposes  for  which  it  was  incorpo-  Chalk,  Comb.  39G. 

2  17 


1  Thomp.  Corp.  §  19.]      nature  and  kinds  of  corporations. 

for  the  conveniences  of  legal  i-)rocediire,  the  aggregate  body  of 
shareholders  in  a  joint-stock  company  should  be  deemed  the 
corporation.  This  is  the  view  which  the  English  courts  appear 
to  be  now  taking  of  the  registered  joint-stock  companies  of  that 
country,  formed  under  recent  statutes,  which  do  not  differ  in 
substance  from  American  corporations.  Those  courts  have, 
accordingly,  held  that  fraudulent  and  ultra  vires  acts  of  the 
directors  of  a  company,  assented  to  by  the  members  in  general 
meeting,  became  the  acts  of  the  company  itself.  And,  as  we 
shall  see  hereafter,^  the  individual  stockholder  is  for  many  pur- 
poses of  substantial  justice  deemed  to  be,  not  a  stranger  to  the 
corporation,  but  in  privity  with  it.  But,  by  a  fiction  of  law,  re- 
sorted to  chiefly  for  the  convenient  administration  of  justice, 
the  corporation  is  deemed  to  be  one  person,  whilst  the  stock- 
holders—  even  the  whole  of  them  taken  collectively  —  are  other 
persons. 

§  18.  Illustrations  of  this  Distinction. —  A  private  business  cor- 
poration, at  the  annual  meeting,  if  there  be  no  restriction  in  the  charter 
or  by-laws,  may  transact  any  business  incident  to  the  corporate  inter- 
ests. ^  But  in  its  dealings  with  third  persons,  its  acts  can  only  assume 
legal  form  when  done  by  the  hand  of  its  appropriate  agents.  Thus, 
a  corporation  can  convey  its  lands  only  by  deed,  executed  by  its  agent, 
legally  authorized  thereunto  by  vote  of  the  corporation,  and  reciting  the 
vote  conferring  the  power  to  convey;  the  shareholders,  as  such, 
cannot  convey  the  real  estate  of  the  corporation,  although  they  all 
join  in  the  deed ;  ^  though  effect  might  be  given  to  such  a  deed  in 
equity.  This  distinction  is  also  well  illustrated  and  discussed  by  Lord 
Langdale,  M.  R.,  in  a  case  where  all  the  corporators,  four  in  number, 
by  mutual  assent,  divided  the  capital  stock  of  the  corporation  among 
themselves  without  fully  paying  for  it,  and  the  corporation  afterwards 
sustained  a  bill  in  equity  against  them  to  recover  the  deficiency.^ 

§   19.  Sense  in  which  the  State  may  be  a  Corporation.  —  It 

is  obvious  that  a  State  of  the  Union  may,  for  some  purposes,  be 
regarded  as  a  corporation.     "  It  is    a  legal  being,  capable    of 

'  Post,  §  1082.  ■*  Society  of  Practical    Knowledge 

2  Warner  v.  Mower,  11  Vt.  385.  v.  Abbott,  2  Beav.  559, 

3  Wheelocku.  Moultoii,  15  Vt.  519; 
post,^^  1075,  3740. 

18 


QUASI-CORPORATIONS.     [1  Tliomp.  Coi'p.  §  20. 

transacting  some  kinds  of  business  like  a  natural  person,  and 
such  a  being  is  a  corporation."  ^  A  State  is  not,  however,  in- 
cluded in  the  term  "  corporation,"  as  used  in  the  internal  revenue 
acts  of  Congress.  Therefore,  the  income  derived  from  a  rail- 
road, owned  and  managed  by  the  State  of  Georgia,  was  not 
liable  to  taxation. ^ 

§  20.  Quasi-corporations. —  Distinctions  have  been  taken 
between  proper  aggregate  corporations  and  the  inhabitants  of 
any  district  who  are  by  statute  invested  with  particular  powers 
without  their  consent.  These  latter  have  been  called  quasi-cor- 
porations.  They  include  counties,  towns,  parishes,  school  dis- 
tricts, etc.^  Thus,  it  has  been  held  that  towns  in  New  York 
are  corporations,  as  far  as  corporate  powers  are  granted,  or  are 
incidental  to  express  grants.^  In  like  manner  school  districts, 
in  some  of  the  New  England  States,  are  regarded  as  quasi-cor- 
porations,^  and  may  be  sued  as  such  without  any  express 
statute  giving  the  right  of  action.^  In  a  celebrated  case  in 
Pennsylvania,  in  which  the  character  of  the  General  Assembly 
of  the  Presbyterian  church  was  called  in  question,  some  of  the 
features  of  a  quasi-corporation  were  pointed  out  by  Chief  Jus- 
tice Gibson.  He  said  that  the  Assembly  had  no  feature  of 
such  a  corporation.  "  A  quasi-corporation  has  capacity  to 
sue  and  be  sued  as  an  artificial  person,  which  the  assembly 
has  not.  It  is  also  established  by  law,  which  the  assembly 
is  not.  Neither  is  the  Assembly  a  particular  order  or  rank 
in  the  corporation,  though  the  latter  was  created  for  its  con- 
venience,—  such,  for  instance,  as  the  shareholders  of  a  bank 
or  joint-stock  company,  who  are  an  integrant  part  of  the 
body.     It  is  a  segregated  association,  which,  though  it  is  the 

•  State  of  Indiana  v,  Woram,  6  Hill  Adams  v.  Wiscasset  Bank,  1  Me.  363; 

(N.  Y.),  33  (1843)  ;  s.  c.  40  Am.  Die.  Mower  v.  Lcicesler,  9  Mass.  250. 

378,  per  Bronson,  J.     See  also  People  ^  North  Hempstead  v.  Hempstead, 

V.  Assessors  of  Watertown,  1  Hill  (N.  2  Wend.  (N.  Y.)  109. 

Y.),  «20.  5  Gaskill  v.  Dudley,  6  Met.  (Mass.) 

2  Georgia  v.  Atkins,  35  Ga.  315.  546    (1843);  s.   c.   39   Am.    Dec.    750; 

"  Riddle  v.  Proprietors  of    Locks,  Andrews  v.  Estes,  11  Me.  267  (1834); 

&.C.,   7  Mass.  187;  School  District  iu  s.  c.  26  Am.  Dec.  521. 

Rumford    v.    Wood,    13    Mass.    198;  e  McLoud  ».    Selby,    10  Conn.  390 

Damon  v.  Granby,  2  Pick.  (Mass.)  352;  (1835)  ;  s.  c.  27  Am.  Dec.  689. 

ID 


1  Thomp.  Corp.  §  32.]      nature  and  kinds  of  corporations. 

productive  organ  of  corporate  succession,  is  not  itself  a  member 
of  the  body,  and  in  that  respect  it  is  anomalous.  Having  no 
corporate  quality  in  itself,  it  is  not  a  subject  of  our  corrective 
jurisdiction,  or  of  our  scrutiny,  further  than  to  ascertain  how 
far  its  organic  structure  may  bear  on  the  question  of  its  per- 
sonal identity  or' individuality."  ^ 

§  21.  OflQcial  Boards  of  Municipal  Corporations.  —  In  the 

machinery  of  municipal  government,  the  legislatures  of  the 
States  have  frequently  had  occasion  to  create  boards  of  officers  for 
the  performance  of  particular  duties.  These  boards  are  not  in 
general  corporations,  but  are  agencies  of  the  municipal  corpora- 
tion in  the  sense  which  makes  the  latter  liable  for  their  contracts 
and  torts.  Thus,  the  water  commissioners  of  the  city  of  New 
York,  who  possessed  about  the  same  powers  and  were  charged 
with  about  the  same  duties  in  relation  to  the  construction  of 
works  for  supplying  the  city  of  New  York  with  water,  as  those 
possessed  by  the  canal  commissioners  in  that  State  in  the  con- 
struction of  State  canals,  were  held  not  to  be  a  corporation  nor 
liable  to  be  proceeded  against  as  such.  If  they  had  contracted 
as  public  officers  within  the  scope  of  their  powers,  the  remedy 
on  the  contract  was  against  the  city  of  New  York.^  On  the 
other  hand,  such  a  board  may  be  a  corporation,  if  such  is  the 
will  of  the  legi^^lature,  as  manifested  by  the  statute  creating  it. 
Such,  for  instance,  is  the  board  of  public  schools  of  the  city  of 
St.  Louis. ^ 

§  22.  Kinds  of  Corporations. — In  the  English  law  corpora- 
tions are  divided  into  ecclesiastical  andZa?/;  and  lay  corporations 
are  again  divided  into  eleemosynary  and  civil.'^  It  is  doubtful 
how  far  clear  conceptions  of  the  law  are  promoted  by  keeping 
in  mind  these  divisions.  They  seem,  for  us  at  least,  to  have  an 
historical,  rather  than  a  practical  value.     In  a  country  where  the 

1  Com.  V.  Green,  4  Whart.  (Pa.)  ^  Heller  v.  Stremmel,  52  Mo.  309, 
531,  598.  A  fire-engine  company  has  where  it  was  held  that  this  board  was 
been  regarded  as  a  gwasi-corporation.      not  a  municipal  corporation. 

Cole  V.  East  Greenwich  Fire  Engine  *  2  Kent  Com.  274;  IBla.Cora.  471; 

Co.,  12  R.  I.  202.  1  Kyd  Corp.  25,  27. 

2  Appleton  V.  Water  Commission- 
ers, 2  Hill  (N.  Y.),  432. 

20 


Kent's  definition.     [1  Thomp.  Corp.  §  23. 

church  is  totally  dissociated  from  the  state,  there  is  little  room 
for  a  division  of  corporations  into  ecclesiastical  and  lay;  and 
while  charitable  corporations  have  many  features  which  distin- 
guish them  from  other  private  corporations,  as  will  hereafter 
appear,  it  is  very  seldom  that  the  word  "  civil  "  is  used  in  our 
American  books  of  reports  in  order  to  distinguish  corporations 
other  than  charitable.  A  more  practical  conception  of  the  sub- 
ject, and  one  more  in  consonance  with  the  state  of  our  laws 
and  institutions,  has  divided  corporations  into  these  three 
general  classes :  public  municipal  corporations,  the  object  of 
which  is  to  promote  the  public  interests;  corporations  tech- 
nically private,  but  of  quasi-public  character,  having  in  view 
some  public  enterprise  in  which  the  public  interests  are  involved, 
such  as  railroad,  turnpike  and  canal  companies;  and  corpora- 
tions strictly  private?  Each  of  these  divisions  is  capable  of 
several  subdivisions,  having  reference  chiefly  to  the  purposes 
for  which  corporations  may  be  organized. 

§  23.  The  Definition  given  by  Chancellor  Kent.  —  "Public 
corporations,"  according  to  Kent,  "  are  such  as  are  created  by  the 
government  for  pohtical  purposes,  as  counties,  cities,  towns,  and  vil- 
lages ;  they  are  invested  with  subordinate  legislative  powers,  to  be  exer- 
cised for  local  purposes  connected  with  the  public  good;  and  such 
powers  are  subject  to  the  control  of  the  legislature  of  the  State.  They 
may  also  be  empowered  to  take  or  hold  private  property  for  public 
uses ;  and  such  property  is  invested  with  the  security  of  other  private 
rights.  So,  corporate  franchises  attached  to  public  corporations  are 
legal  estates  coupled  with  an  interest,  and  are  protected  as  private 
property.  If  the  foundation  be  private,  the  corporation  is  private,  how- 
ever extensive  the  uses  may  be  to  which  it  is  devoted  by  the  founder, 
or  by  the  nature  of  the  institution.  A  bank,  created  by  the  government, 
for  its  own  uses,  and  where  the  stock  is  exclusively  owned  by  the  gov- 
ernment, is  a  public  corporation.  So,  a  hospital  created  and  endowed 
by  the  government,  for  general  purposes,  is  a  public  and  not  a  private 
charity.  But  a  bank  whose  stock  is  owned  by  private  persons,  is  a  pri- 
vate corporation,  though  its  object  and  operations  partake  of  a  public 
nature,  and  though  the  government  may  have  become  a  partner  in  the 
association  by  sharing  with  the  corporators  in  the  stock.  The  same 
thing  may  be  said  of  insurance,  canal,  bridge,  turnpike  and  railroad 

^  Miner's  Ditch  Co.  v.  Zellerbacli,  37  Cal.  543. 

21 


1  Thomp.  Corp.  §  24.]     nature  and  kinds  of  corporations. 

companies.  The  uses  may,  in  a  certain  sense,  be  called  public,  but  the 
corporations  are  private,  equally  as  if  the  franchises  were  vested  in  a 
single  person.  A  hospital  founded  by  a  private  benefactor  is,  in  point 
of  law,  a  private  corporation,  though  dedicated  by  its  charter  to  general 
charity.  A  college,  founded  and  endowed  in  the  same  manner,  is  a 
private  charity,  though  from  its  general  and  beneficent  objects  it  may 
acquire  the  character  of  a  public  institution.  If  the  uses  of  an  eleemos- 
ynary corporation  be  for  general  charity,  yet  such  purposes  will  not  of 
themselves  constitute  it  a  public  corporation.  Every  charity  which  is 
extensive  in  its  object  may,  in  a  certain  sense,  be  called  a  public  charity. 
Nor  will  a  mere  act  of  incorporation  change  a  charity  from  a  private  to 
a  public  one.  The  charter  of  the  Crown,  said  Lord  Hardwicke,  can 
not  make  the  charity  more  or  less  pubhc,  but  only  more  pei'manent. 
It  is  the  extensiveness  of  the  object  that  constitutes  it  a  public  charity. 
A  charity  may  be  public,  though  administered  by  a  private  corporation. 
A  de\ase  to  the  poor  of  a  parish  is  a  public  charity.  The  charity  of 
almost  every  hospital  and  college  is  public,  while  the  corporations  are 
private.  To  hold  a  corporation  to  be  public,  because  the  charity  was 
public,  would  be  to  confound  the  popular  with  the  strictly  legal  sense  of 
terms,  and  to  jar  with  the  whole  current  of  decisions  since  the  time  of 
Lord  Coke."  1 

§  24.  Public  and  Private  Corporations. —  Perhaps  the  most 
general  division  of  corporations  is  into  public  and  private.  In 
this  work  it  is  proposed  to  treat  only  those  of  the  latter  class. 
A  public  corporation  is  said  to  be  one  which  cannot  carry  out  the 
purposes  of  its  organization  without  chartered  rights  from  the 
common  wealth. 2  On  the  other  hand,  it  is  said  that  a  mere  private 
corporation  needs  no  franchise  from  the  State  in  order  to  carry 
on  its  business.^  These  definitions  are  not  satisfactory.  A  rail- 
way company,  as  hereafter  seen,  is  regarded  for  most  purposes 
as  a  private  corporation,  and  yet  it  could  not  build  its  road  with- 
out the  aid  of  the  power  of  eminent  domain,  which  is  an  incident 
of  sovereign  power  and  must  be  conferred  by  the  State.*  Pub- 
lic corporations   have  been  said  to  be  such  as  are  created  tor 

1  2  Kent  Cora.  276,  276.  3  Pittsburgh's  Appeal,    123  Pa.  St. 

2  Allegheny  County  v.  McKeesport  374;  46  Phila.  Leg.  Int.  211;  19  Pitts. 
Diamond  Market,  123  Pa.  St.  164;  s.c.  L.  J.  (n.  s.)  282;  23W.  N.  C.  91;  16 
46  Phila.  Leg.  Int.  212;   19  Pitts.  L.  J.  Atl.  621. 

(N.  s.)    280;  23  W.   N.  C.  89;   16  Atl.  ^  Post,  Ch.  122. 

619. 

22 


PUBLIC    AND    PUIVATE    CORPORATIONS.       [1  Thomp.  Coi'p.    §   24. 

political  purposes,  with  powers  to  be  exercised  for  the  public 
good.^  This  statement  is  another  illustration  of  the  difficulty  of 
conveying  an  exact  idea  of  a  complicated  subject  by  a  definition 
couched  in  few  words.  There  are  many  corporations  created 
for  political  purposes,  which  are  not  public  corporations, —  such, 
for  instance,  as  the  Tammany  Society  in  New  York.  It  is  easy  to 
understand  that  corporations  created  for  governmental  purposes, 
to  which  the  legislature  delegates  a  limited  portion  of  its  govern- 
mental powers,  are  to  be  regarded  as  public  corporations.  The 
most  usual  illustration  of  this  is  furnished  by  the  case  of  munic- 
ipal corporations,  —  those  incorporated  cities  and  towns  to 
which  the  legislature  delegates  a  portion  of  the  police  power  of 
the  State,  to  be  exercised  within  certain  prescribed  territorial 
limits.  Equally  unsatisfactory  is  the  statement  that  a  corpora- 
tion is  private,  as  distinguished  from  public,  unless  the  wJtole 
interest  belongs  to  the  government,  or  the  corporation  is  created 
for  the  administration  of  political  or  municipal  power. ^  In 
the  line  of  this  theory  it  has  been  observed;  *' A  corporation 
is  public  wiien  it  has  for  its  object  the  government  of  a  portion 
of  the  State ;  and  although  in  such  a  case  it  involves  some  pri- 
vate interests,  yet  as  it  is  endowed  with  some  portion  of  political 
power,  the  term  public  has  been  deemed  appropriate.  Another 
class  of  public  corporations  are  those  which  are  founded  for 
public  —  although  not  political  or  municipal — purposes,  anc^ 
the  whole  interest  in  which  belongs  to  the  government.  Thus, 
a  bank,  organized  by  the  government  for  public  purposes,  is  a 
public  corporation,  if  the  whole  of  the  stock  and  all  interest  in 
it  reside  in  the  government."  ^  But  this  was  inaccurate ;  for  cor- 
porations may  exist  for  purposes  public  in  their  nature  in  which 
the  whole  interest   belongs  to  the  State,  which  will   yet   be  re- 


»  Tinsman  v.  Belvidere  &c.  R.  Co.,  52   Mo.   309,     A   private    corporation 

26  N.  J.  L.  148.  may   have  charge  of  an  interest   of 

2  Bundle  v.  Delaware  &c.    Canal,  so    public    a    concern  as    to    render 

Wall.  Jr.    (U.  S.)  275.    The  Board  of  its  charter  a  public  act,  and  such  an 

Public   Schools  of    St.  Louis  is  un-  act  was  the  Indiana  act  of  1838,  re- 

doubtedly  a  public  corporation;  but  lating  to  the    Viucennes  University. 

It  has  been  held  that  it  is  not  a  raunic-  State  v.  Trustees    of  the    Vincennes 

ipal  corporation  because  it  does  not  University,  5  Ind.  77. 
exercise    any    political    or    govern-  3  Cleaveland  v.  Stewart,  3  Ga.  283, 

mental  power.     Heller  v.  Stremmel,  291. 

23 


1  Thomp.  Corp.  §  25.]     nature  and  kinds  of  corporations. 

garded  as  private  corporations.  Thus,  it  was  held  that  the  bank 
of  the  State  of  South  Carolina,  though  wholly  owned  by  the  State, 
had  only  the  same  powers  and  privileges  as  other  corporations, 
and  therefore  could  claim  no  priority  on  the  ground  that  a  debt 
due  to  the  bank  was  a  debt  due  to  the  State. ^  The  former  State 
bank  of  North  Carolina  was  also  regarded  as  a  private  corpora- 
tion, though  the  several  acts  by  which  such  a  bank  in  North  Caro- 
lina was  created  and  its  powers,  duties  and  duration  defined,  were 
declared  public  acts.^  So,  it  was  held  that  the  former  State 
bank  of  Alabama  was  a  private  corporation,  not  invested  with 
the  attributes  of  sovereignty,  and  that,  where  it  had  a  claim 
against  the  estate  of  a  deceased  person,  it  must  present  it  within 
the  period  of  limitation  prescribed  for  any  private  creditor,  or  be 
forever  barred.  The  court  said;  "It  cannot  be  endured,  that 
the  legislature,  which  is  but  the  mere  machinery  of  government, 
should  be  allowed  to  confer  upon  a  moneyed  corporation,  estab- 
lished by  itself,  any  portion  of  the  sovereign  power,  which  was 
inherent  in  the  body  politic."  ^  These  cases  proceed  upon  the 
view  expressed  by  the  Supreme  Court  of  the  United  States, 
speaking  with  reference  to  the  Planters'  Bank  of  Georgia,  — 
"  that  the  State  does  not,  by  becoming  a  corporation,  identify 
itself  with  the  corporation.  The  Planters'  Bank  of  Georgia  is 
not  the  State  of  Georgia,  althouo;h  the  State  holds  an  interest  in 
it."  *  They  proceed  upon  the  further  principle,  stated  by  the 
same  court,  that  "  when  a  government  becomes  a  partner  in  a 
trading  company,  it  divests  itself,  so  far  as  concerns  the  transac- 
tions of  that  company,  of  its  sovereign  character,  and  takes  that 
of  a  private  citizen."^ 

§  25.  Public  School  Corporations.  —  Where  the  State  pur- 
sues the  policy  of  maintaining  at  the  public  charge  a  system  of 

»  Bank    &c.    v.  Gibbs,  3    McCord  advanced  the  untenable  view  that  a 

(S.  C),  377.  bank  which  issues  bills  for  circulation 

2  State  Bank  v.   Clark,    1    Hawks  as  money  is  a  public  corporation;  but 
(N.  C),  36.    And  see  ante,  §  23.  that  a  bank  which,  beyond  a  power  to 

3  Bank  v.  Gibson,  6  Ala.  814,  816.  contract  in  its  corporate  name,  has  no 
*  United  States  v.  Planters'  Bank,      powers    beyond    those  which    every 

9  Wheat.  (U.  S.)  907.  other    person    possesses,    must    be 

^  Ibid.     See  also  Bank  of  Kentucky      deemed  a  private  corporation.     State 
V.  Wister,  2  Pet.    (U.    S.)   318.     The      v.  Simonton,  78  N.  C.  57. 
Supreme  Court  of  North  Carolina  has 
24 


PUBLIC  SCHOOL  coRPOKATioNS.     [1  Thomp.  Corp.  §  25. 

education,  consisting  of  common  schools,  seminaries,  colleges  or 
universities,  the  corporations  through  the  agency  of  which  this 
is  done  are  generally  regarded  as  public  corporations,  whether 
created  by  general  or  special  laws.  Thus,  it  has  been  held  that  a 
board  of  school  commissioners  for  a  particular  county,  created 
by  special  act  of  the  legislature,  authorized  to  devise  a  system 
of  public  instruction  for  such  county,  to  establish  public  schools 
therein,  and  to  raise  money  for  the  support  of  the  same,  etc.,  is 
a  public  corporation,  created  for  great  public  educational  pur- 
poses, and  the  charter,  being  public  in  its  character,  may  be  al- 
tered and  amended  at  the  will  and  pleasure  of  the  general 
assembly.!  go^  it  is  held  in  Illinois  that  the  trustees  of  schools 
are  public  corporations,  and,  as  such,  subject  to  be  controlled 
and  regulated  by  the  legislature. ^  So,  the  trustees  of  the  Uni- 
versity of  Alabama  compose  a  public  corporation,  entirely  within 
the  control  of  the  legislature,  so  that  the  latter  has  the  authority, 
by  the  passage  of  any  statute,  to  alter,  amend,  or  enlarge  the 
original  acts  of  incorporation.^  Oa  grounds  equally  obvious,  a 
school  district  township  is  a"  political  or  municipal  corporation," 
within  the  meaning  of  a  constitutional  provision,^  inhibiting 
such  corporations  from  incurring  indebtedness  exceeding  five  per 
cent,  on  the  taxable  property  of  the  corporation.^  On  the 
other  hand,  upon  grounds  not  made  obvious  by  the  court,  an 
incorporated  academy  in  Georgia  was  held  to  be  a  private  cor- 
poration, notwithstanding  it  derived  its  support  in  part  from  the 
State. « 

1  School  Comraissioaers  v.  Put-  University  of  Iowa  canuot  be  sued  as 
nam,  44  Ala.  506.  a  corporation;  persons  aggrieved  by 

2  Bradley  v.  Case,  3  Scam.  (111.)  the  official  acts  of  its  officers  can  only 
585;  Bushu.  Shipman,  4  Scam.  (111.)  apply  to  the  legislature:  Weary  v. 
186;  Trustees  v.  Tatman,  13  III.  28;  State  University,  42  lovra,  335.  Corn- 
Compare  State  V.  Springfield  Town-  pare  Bracken  v.  William  &  Mary  Col- 
ship,  6Ind.  83.  lege,   1  Call  (Va),  161;  s.  c.   3   Call 

3  Trustees  u.  Winston,  5  Stew.   &  (Va.),    573;   Louisville  v.   Louisville 
Port.    (Ala.)  17.     So  of  the  Agricul-  University,  15  B.  Monr.  (Ky.)  642. 
tural  College  of    Florida:     State    v.  ^  jowa  Const.,  art.  2,  §  3. 
Knowles,  16  Fla.  577.     So  of  the  Uni-           «  Winspear    v.  Holman,   37    Iowa, 
versity  of  Missouri :  Head  v.  Curators,  542 . 

47  Mo.  220.     So  of  the  University  of  «  Cleaveland     r.    Stewart,    3     Ga. 

North  Carolina:  University  u.  Maults-      283. 
by,  8  Ired.  Eq.  (N.  C)  257.     But  the 

25 


1  Thomp.  Corp.  §  26.]      nature  and  kinds  of  corpokations. 

§  3G.  Corporations  to  Promote  Charities  of  Public  Na- 
ture. —  The  fact  that  a  charity  which  a  corporation  is  chartered 
to  foster  is  a  charity  of  a  public  nature,  that  is,  a  charity  in- 
tended for  the  benefit  of  all  the  members  of  the  public,  of  a 
designated  class,  who  may  apply  for  or  be  entitled  to  the  bene- 
faction, does  not  make  the  corporation  a  public  corporation. 
Thus,  where  a-coUege  was  endowed  by  private  individuals  the 
fact  that  its  objects  were  of  a  public  nature  did  not  give  the  cor- 
poration the  quality  of  a  public  corporation,  so  as  to  subject  it 
to  governmental  control,  —  the  trustees  and  professors  not  being 
public  oflScers,  invested  with  any  portion  of  the  political  power 
of  the  State,  and  the  institution  not  partaking  in  any  degree  in 
the  administration  of  civil  government,  or  performing  any  of 
the  duties  which  flow  from  the  sovereign  authority. ^  In  other 
words,  an  eleemosynary  corporation  upon  a  private  foundation 
is  a,  private  and  not  a  public  corporation,  in  the  sense  that  it  is 
not  subject  to  regulation  by  the  State  contrary  to  its  charter. ^ 
But  it  has  been  held  that  a  corporation,  the  object  of  which  is  to 
provide  a  general  hospital  for  sick  and  insane  persons,  having 
no  capital  stock  nor  provision  for  making  dividends  or  profits, 
deriving  its  funds  mainly  from  public  and  private  charity,  and 
holding  them  in  trust  for  the  object  of  sustaining  the  hospital, 
conducting  its  affairs  for  the  purpose  of  administering  to  the 
comfort  of  the  sick,  without  the  expectation  or  right  on  the  part 
of  those  immediately  interested  in  the  corporation  to  receive 
compensation  for  their  own  benefit, —  is  a  public  charitable  in- 
stitution in  the  sense  that  it  is  not  liable  for  the  negligence  of  a 
surgeon  selected  by  its  trustees  with  due  care  ;  and  this  although 
patients  are  required  to  pay  for  their  board,  according  to  their 
circumstances  and  the  accommodations  which  they  receive.^ 

1  Dartmouth  College  ??.  Vfoodward,  whomsoever  the  government  might 
4  Wheat.  (U.  S.)  518,  034.  appoint  to  administer  them?     If    we 

2  Ibid.  671,  per  Story,  J.  "Who  were  to  establish  such  a  principle,  it 
ever  thought  before,"  said  the  learned  would  extinguish  all  future  eleemosy- 
justice,  "that  the  munificent  gifts  of  nary  endowments,  and  we  should 
private  donors  for  general  charity  be-  find  as  little  of  public  policy  as  we 
came  instantaneously  the  property  of  now  find  of  law  to  sustain  it."  Ibid. 
the  government,  and  that  the  trustees  672.  To  the  same  effect  see  Allen  v. 
appointed  by  the  donors,  whether  cor-  McKeen,  1  Sumn.  (U.  S.)  276;  State 
porate  or    unincorporated,   might  be  v.  Adams,  44  Mo.  570. 

compelled  to  yield  up    their  rights  to  ^  McDonald  v.  Massachusetts  Hos- 

26 


PUBLIC    OBJECTS    FOR    PKIVATE    GAIN.       [1  Thomp.  Corp.    §   27. 

§  27.  Corporations  formed  to  Promote  Public  Objects  for 
Private  Gain. —  Recurring  to  the  principle^  that  corporations 
are  not  public  because  they  are  formed  to  promote  objects  of  a 
public  character,^  we  find  that  corporations  which  are  formed 
primarily  for  the  private  emolument  of  their  members,  do  not 
become  public  corporations  from  the  mere  fact  that  the  employ- 
ment from  which  they  expect  to  derive  such  emolument  is  public 
in  its  nature;  ^  though  they  may  possess  some  of  the  powers  and 
be  subject  to  some  of  the  liabilities  of  public  corporations. 
Thus,  a  canal  company  is  none  the  less  a  private  corporation, 
from  the  fact  that  its  canal  is  constructed  for  the  public  benefit.* 
So,  a  railway  company ^  although  equally  with  a  canal  company, 
it  may  receive  by  delegation  from  the  State  the  power  of  emi- 
nent domain,  which  is  strictly  a  sovereign  power, ^  and  may,  on 
the  other  hand,  be  subject  to  the  police  regulation  of  the  State 
in  the  conduct  of  its  business  within  certain  constitutional 
limits,® — is  yet  regarded  for  most  purposes  as  a  private  corpo- 
ration.^ So,  although  the  business  of  banking  is  subject  to  the 
police  supervision  of  the  State,  j'Ct  a  bank  whose  stock  is  owned 
by  private  persons  is  a  private  corporation,  in  the  sense  that  the 
legislature  cannot  control  or  alter  the  grant  without  the  consent 
of  the  corporators.^  So,  where  the  objects  of  the  creation  of  a 
corporation  were  not  declared  in  the  statute  creating  it,  other  than 
to  superintend  the  construction  of  a  levee  on  a  certain  river,  but 
it  appeared  that  its  purpose  was  to  advance  the  private  interests 
of  land-owners   within    the    district  incorporated,  and  that    no 

pital,   120   Mass.   433;    s.   c.   21    Am.  *  Ten  Eyck  u.  Delaware  &c.  Canal, 

Rep.  529.     The  Board  of  Education  of  18  N.  J.  L.  200. 

the   State   of    Illinois    (Act  Feb.    18,  &  Post,  Ch.  122. 

1857,  L.  1857,  p.  298),  is  an  eleemosy-  «  Post,  Chs.  118,  119. 

nary,   and  not  a  public   corporation.  ^  Tinsman  v.  Belvidere  &c.  R.  Co., 

Board  of  Education  v.  Bakewell,  122  26  N.  J.  L.  148.     They  are  such  within 

111.  339.  the  rule  that  their  charters  are  pro- 

*  Ante,  §  26.  tected    by    the    constitution     of    the 

'  Tinsraan  v.  Belvidere  &c.  R.  Co.,  United  States  from  legislative  altera- 

26  N.  J.  L.  148;  Directors  u.  Houston,  tion.     Thorpe  v.   Rutland  &c.  R.  Co., 

71  111.  318.  27  Vt.  140;  s.  c.  62  Am.  Dec.  625,  and 

3  Tinsman  v.   Belvidere  &c.  R.  Co.,  note;  Beach  on  Railways,  §  23. 

26  N.  J.  L.  148;  Whiting  u.  Sheboygan  *  Logwood    v.     Iluntsville     Bank, 

fee.  R.  Co.,  25  Wis.  167.  Minor  (Ala.) ,  23 ;  State  v.  Tombeckbee 

Bank,  2  Stew.  (Ala.)  30. 

27 


1  Thomp.  Corp.  §  28,]      natuue  and  kinds  of  corporations. 

other  purposes  were  embraced  in  its  provisions,  although  it 
might  accidentally  enhance  the  general  prosperity  of  the  whole 
community, —  yet  it  was  held  to  be  none  the  less  a  private  cor- 
poration, in  the  sense  that  the  legislature  had  no  constitutional 
power  to  clothe  it  with  the  power  of  taxation.^ 

§  28.  Wlien  Municipal  Corporations  deemed  Private.  —  A 

class  of  decisions  exist,  chiefly  in  New  York,  which  proceed 
upon  the  ground  that  a  municipal  corporation  may  haye  a  private 
character,  that  is,  may  own  certain  kinds  of  property  in  a  pri- 
vate capacity,  as  to  which  it  is  to  be  deemed  a  private  corpora- 
tion and  subject  to  the  liabilities  of  a  private  proprietor.  The 
leading  case  on  the  subject  is  Bailey  v.  Neio  York."^  The  prin- 
ciple there  declared  was  that  a  municipal  corporation  is  liable  to 
pay  damages  for  injuries  inflicted  in  the  management  of  property 
which  it  holds  in  its  private  or  corporate  capacity,  the  profits  of 
which  inure  directly  to  its  benefit  as  a  corporation,  and  indirectly 
to  the  benefit  of  the  public,  —  in  the  same  manner  as  an  indi- 
vidual is  so  liable.  A  dam  erected  by  a  city  for  supplying  its 
inhabitants  with  water,  for  which  the  city  received  compensa- 
tion distributively,  from  the  inhabitants  thus  supplied,  was 
deemed  private  or  corporate  property  within  the  meaning  of  this 
rule. 2  Under  this  rule  a  city  has  been  held  liable  for  an  injury 
sustained  by  the  plaintiff  in  falling  into  a  dangerous  excavation 
on  the  grounds  of  a  city  building,  used  in  part  for  municipal 
purposes  and  in  part  rented  to  private  persons ;  *  for  the  sinking 
of  a  vessel  in  consequence  of  the  city  negligently  permitting  an 
iron  cylinder  to  remain  concealed  under  water  near  one  of  its 
wharves  ;  ^  for  the  loss  of  a  horse  arising  from  the  non-repair  of 
a  wharf  for  the  use  of  which  it  receives  tolls;  ^  and  for  the  neg- 
ligence of  persons  employed  by  the  officers  of  the  corporation  in 

1  Directors  &c.  v.  Houston,  71  lU.  2  3  Hill  (N.  Y.),  531,  and  2  Denio 

318.     That  the  power  of  taxation  can-  (N.  Y.),  433;  s.  c.  2  Thomp.  Neg.  652. 

not,  under  the  constitution  of  Illinois,  ^  Ibid. 

be  bestowed  upon  private  persons  or  *  Oliver  u.  Worcester,  102  Mass.  489. 

private  corporations,  see  Harward  v.  ^  Memphis  v.  Kimbrough,  12  Heisk. 

St.  Clair  &c.  Drainage  Co.,  51  111.  130;  (Tenn.)  133. 

South  Parlj    Commissioners   v.  Salo-  <=  Macauley  v.   New  York,  67  N.  Y. 

mon,  51  111.  37.  602. 

28 


ILLUSTRATIONS  OF  PUBLIC  COKPOKATIOKiS.     [1  Thoill[).  Coip.  §  29. 

the  repair  of  its  public  sewers.^  This  rule  in  its  operation 
creates  a  marked  exception  to  the  general  rule  that  no  action 
lies  against  a  municipal  corporation  for  damages  sustained  in 
consequence  of  its  neglect  to  perform  b.  public  duty? 

§  29.  Illustrations  of  Public  and  Private  Corporations. — Over- 
seers of  the  poor  in  New  York  are  held  to  be  a,ptiblic  corporation  for  certain 
purposes.'  _  -  -  -  Trt(5ieeso/i/ie  poor  in  Mississippi  have  been  held 
to  be  a  public  corporation,  and  subject  to  the  control  of  the  legislature ; 
so  that  a  statute  giving  a  stay  of  execution  on  a  judgment  recovered  by- 
such  corporation  was  not  unconstitutional.*  -  -  -  -  Overseers  of  the 
poor  in  Boston  were  held  to  be  a  coi-poration  aggregate  under  a  statute  giv- 
ing them  many  powers  usually  incident  to  a  corporation,  although  they 
were  chosen  annually  by  the  inhabitants  of  the  town.^  -  -  -  ,  -  In 
Illinois,  the  commissioners  created  under  an  act  of  the  legislature  for  lay- 
ing out  and  inaintaining  a  suburban  2)a?'A;  are  a  public  corporation,  in  the 
sense  which  gives  the  legislature  the  right  to  modify  their  powers  and  du- 
ties, without  submitting  the  supplemental  act  to  a  popular  vote,  ^  -  -  _  - 
There  is  judicial  authority  to  the  effect  that  a  corporation  created  for  the 
purpose  of  improving  the  navigation  of  a  river,  so  as  to  make  it  suitable 
for  driving  logs,  is  a  public  corporation ;  since  such  a  river  is  a  public 
highway,  and  since  the  power  of  taking  tolls,  vested  in  it  by  its  charter, 
is  itself  a  governmental  power.''  -  -  -  -  A  levee  district,  organized 
under  the  laws  of  CaUfornia,  to  construct  works  for  preventing  portions 
of  the  territory  from  overflow,  and  clothed  with  powers  for  this  J3urpose, 
to  issue  bonds,  levy  and  collect  assessments,  construct  and  repair  high- 
ways, open  canals,  etc.,  is  a  public  corporation. ^  .  .  -  .  A  bank 
in  which  the  stock  is  owned  *  by  individuals  is  a  private  corpora- 
tion. ^     -     -    -     -     A  private  banker,  though  carrying  on  business  under 

»  Lloyd  ».  New  York,  5  N.  Y.  369.  ••Governor    v.    Gridley,    1  (Walk.) 

2  Sussex  County  v.   Strader,  18  N.      Miss.      328. 

J.  L.  108;  Cooley  v.  Essex,  27  N.  J.  L.  ^  Overseers  of  the  Poor  of  Boston 

415;  Liverraoreu.  Camden,  31  N.  J.  L.  u.  Sears,  22  Pick.  (Mass.)  122. 
507;   s.   c.  29    N.   J.  L.  245;  Pray  v.  «  Andrews   v.   People,  83   111.   529; 

Jersey  City,  32  N.   J.  L.  395;  Union  v.  Andrews  v.  People,  84  111.  28. 
Durkes,  38  N.  J.  L.  21 ;  Richmond  v.  '  Bennett's    Branch    Improvement 

Long,   17   Gratt.    (Va.)  375.      For  a  Company's  Appeal,  65  Pa.  St.  242. 
further  discussion  of  this  distinction,  ^  Dean  v.  Davis,  51  Cal.  406.     See 

with  illustrations,  see  2  Thomp.  also  People  v.  Williams,  56  Cal.  647^ 
Neg.  734;   Darlington  v.   New  York,  ^  Miners'  Bank  v.  United  States,  1 

31  N.  Y.  1C4,  198.  Greene  (Iowa),  553. 

3  Rouse  V.  Moore,    18   Johns.    (N. 
Y.)  407;  s.  c.  1  Cow.  (N.  Y.)  861. 

29 


1  Thomp.  Corp.  §  29.]      nature  and  kinds  of  corporations. 

the  New  York  Act  of  1838,  was  not  a  corporation  at  all.i  -  -  -  - 
A  corporation  constituted  for  the  purpose  of  improving  a  special  breed 
of  cattle,  and  keeping,  preparing,  publishing  and  supplying  a  herd- 
book  thereof,  and  for  promoting  the  "  interest  of  the  importers,  breed- 
ers and  owners  of  said  cattle,  and  thereby  the  public  generally,"  is 
neither  a  public  nor  a  gwasi-public  corporation,  but  a  private  one ;  and 
hence  mandamus  will  not  lie  to  compel  it  to  admit  an  importer  of  such 
cattle  to  membership,  or  to  register  his  cattle,  even  though  by  not 
being:  so  registered  their  value  is  diminished  one-half.  ^ 


1  Cayler  v.  Sanford,  8  Barb.  (N.  Y.)  2  people  v.  Holstein-Frtesian  Assoc, 

225;  Hallett  v.  Harrower,  33  Id.  537;  48  N.  Y.  Supm.  (41  Hun)  439;  3  N.  Y. 

Codd  V.  Rathbone,  19  N.  Y.  37.  St.  Rep'r  142. 

30 


CREATION   BY   SPECIAL    CHARTERS.      [1  Thomp.  Coip.   §  35. 


CHAPTER    11. 


CREATION  BY  SPECIAL  CHARTERS. 


Section 

35.  Corporations  are  created  by  legis- 

lative power. 

36.  To  what  extent  this  power  may  be 

delegated. 

37.  Exercised   by    judicial    or    min- 

isterial   action    under   general 
laws. 

38.  To  what  extent  exempt  from  judi- 

cial review. 

39.  Corporation  need  not  be  declared 

such  in  express  words. 

40.  Theories  as  to  when  charters  take 

effect. 

41.  Creation  by  reference  to  another 

act. 


Sectiox 

42.  Legislative  deviations  from  rules 

of  the  common  law. 

43.  Wlio  included  in  the  word  *<  asso- 

ciates." 

44.  How  legislative  grant  made  and 

corporation  organized. 

45.  What  if  the  commissioners  refuse 

to  act. 

46.  When  charter  provisions  deemed 

a  substitute  for  provisions  of 
a  general  act. 

47.  Whether  corporations  created  by 

concurrent  action  of  two  states. 

48.  Decisions  adhering  to   the    view 

that  this  cannot  be  done. 


§  35.  Corporations  are  Created  by    Legislative    Power.  — 

Nothing  less  than  sovereign  power  can  create  a  corporation. 
One  corporation  cannot  create  another.  It  was  held  that  the  city 
of  London  could  not  create  a  corporation,  though  they  mio-ht 
create  a  guild  o-c  fraternity^  which  was  something  in  the  nature 
of  a  social  cZm6.^  In  England  corporations  were  formerly  cre- 
ated, in  most  instances,  by  royal  charter.  They  are  now 
generally  created  in  that  country  by,  or  under  the  authority 
of  acts  of  Parliament.  In  this  country  they  are  created  l)y 
authority  of  the  legislature,  and  not  otherwise.^  Companies  or 
societies  which  are  not  expressly  sanctioned  by  the  legislature  in 
the  form  of  some  general  or  special  hiw,  are,  in  respect  of  third 


1  Robinson  v.  Groscot,  Comb.  372. 
"  A  corporation  can  only  be  created 
and  exist  by  sanction  of  the  legisla- 
ture." Morton,  J.,  In  Hoadley  v. 
County  Commissionery,  105  Mass.  526. 
A  corporation   cannot   be   constituted 


by  the  mere  agreement  of  parties ;  it 
can  only  be  created  by  legislative  en- 
actment. Stowe  V.  Flagg,  72  111.  397. 
2  Franklin  Bridge  Co.  v.  Wood,  14 
Ga.  80. 

31 


1  Thomp.  Corp.  §  36.]     creation  by  special  charters. 

parties,  generally  regarded  as  no  more  than  ordinary  ^ar^?ie/-- 
shijps;^  though,  as  among  their  own  members,  the  rights  and 
obligations  created  by  their  private  statutes,  not  opposed  to  pub- 
lic policy  or  to  express  law,  may  be  different  from  those  of 
partners.^ 

§  36.  To  what  Extent  tliis  Power  may  be  Delegated.  —  In 

the  absence  of  constitutional  restraints,  no  reason  is  perceived 
for  holding  that  the  legislature  can  not  delegate  to  subordinate 
ao-encies  the  power  of  creating  corporations,  —  prescribing  the 
manner  in  which  the  power  shall  be  exercised.     In  several  of 
the  States  the   power  of  approving  the  charters  of  corporations 
formed  for  certain  ideal  purposes  is  vested  in  the  judicial  courts.^ 
It  has  been  pointed  out  that  in  England  the  king  might  grant  a 
general  power  to  create  corporations,  and  that  a  similar  power 
has   been  delegated  by  the  legislature   of   Pennsylvania  to  the 
judicial   courts.*     The   chancellor   of  the  university  of  Oxford 
had  the  power  by  charter  to  erect  corporations.'"^     But  Columbia 
College,  in  the  State  of  New  York,  although   created  by  royal 
charter  under  the  name  of  King's  College,  has  been  adjudged  to 
have  no  such  power.     The  court,  speaking  through  Bronson,  C. 
J.,  said  :  "  Although  it  is  now  settled  that  the  king  may  delegate 
his  authority  to  create  corporations,  or,  in   other  words,  may 
exercise  the  power  by  another  as  his  instrument,  on  the  principle, 
qui  facit  per  alium  facit  per  se,  I  find  no  authority  for  the  posi- 
tion that  a  general  power  to  erect  corporations  has  ever  been 
delegated  to   either  of  the  English   universities.     But  however 
that  may  be,  I  think  there  is  no  color  for  saying  that  such  a 
power  has  been  conferred  upon  any  of  our  colleges."  *'    The  power 
which  is  able  to  prescribe  the  formalities  to  be  observed  in  order  to 
create  a  corporation,  may  of  course  dispense  with  them.^     In  the 

1  Wells  V.  Gates,  18  Barb.  (N.  Y.)      judged  was  that  the  so-called  "  stat- 
554  ;  post,  §  2859.  utes  of  the  trustees  of  Geneva  College 

2  Post,  §  940.  for  the  formation  of  a  medical  faculty 
^  Post,  §  110.  et  seq.  thereof,  to  be  denominated  the  medi- 
*  Observations  in  Franklin  Bridge     cal  institution  of   Geneva  College," 

Co.  V.  Wood,  14  Ga.  80;  post,  §        .  did  not  create  that  body  a  corpora- 

s  1  Kyd  Corp.  50 ;    1  Bla.  Com.  474.  tiou. 

6  Medical  Institution  v.  Patterson,  '  Black  River  &c.  E.  Co.  u.  Barnard, 

1  Denio  (N.  Y.),  61,  G8.    The  point  ad-  31  Barb.  (N.  Y.)  258. 
32 


UNDER    GENERAL    LAWS.       [1  Thoilip.  Coi'p.    §   37. 

United  States  the  power  of  creating  corporations  has  been  gen- 
erally, perhaps  universally,  exercised  by  the  legislatures  of  the 
States  respectively  ;  by  the  Congress  of  the  United  States  with- 
in the  sphere  of  its  powers;  and  by  the  legislatures  of  the 
territories  which  have  been  organized  under  acts  of  Congress. ^ 
Before  the  revolution,  charters  of  incorporation  were  granted  by 
the  proprietors  of  Pennsylvania  under  a  derivative  authority 
from  the  crown,  and  those  charters  have  been  since  recogrnized 
as  valid. 2 

§  37.  Exercised  by  Judicial  or  Ministerial  Action  under 
General  Laws.  —  Corporations  are  now  more  generally  created 
by  judicial  or  ministerial  action  under  general  laws.^  When  the 
legislature  has,  by  a  general  law,  prescribed  the  conditions  upon 
which  a  corporation  may  be  created,  it  is  no  objection  to  tke 
validity  of  such  law,  that  ministerial  duties,  such  as  the  issuing  of 
a  certificate  of  incorporation,  are  left  to  be  performed  by  some 
officer,  such  as  the  Secretary  of  State,  before  the  incorporation 
takes  effect.*     In  many  of  the  States,  subordinate    administra- 


1  It  has  been  held  that  an  act  of 
Congress  creating  a  territory,  estab- 
lishing a  legislature  for  such  territory, 
and  vesting  It  with  power  to  make  all 
laws  which  it  might  deem  conducive 
to  the  good  government  of  the  inhab- 
itants of  sucli  territory,  the  right  being 
reserved  by  Congress  to  disapprove 
and  thereby  revoke  any  law  passed  by 
such  legislature,  empowered  such  leg- 
islature to  create  corporations,  sub- 
ject to  revocation  by  Congress.  It 
was  so  held  concerning  the  territory 
of  Missouri.  Riddick  v.  Amelin,  1 
Mo.  8;  Douglas  v.  Bank  of  Missouri, 
Id.  20.  Under  the  first  constitution 
of  Missouri  the  General  Assembly  of 
that  State  had  power,  not  expressly 
granted  but  necessarily  Implied,  to 
incorporate  cities  and  towns,  and  to 
invest  thera  with  authority  to  legislate 
with  regard  to  matters  of  local  police. 
State  V.  Siraonds,  3  Mo.  4U.  See 
also  Ruggles  v.  County  of  Washing- 
ton, 3  Mo.  348. 


2  3  Wils.  Lect.  409,  as  cited  in 
Franklin  Bridge  Co.  v.  Wood,  14  Ga. 
84. 

3  Post,  §§  110,  132. 

4  Granby  Mining  &c.  Co.  v.  Rich- 
ards, 95  Mo.  106,  112.  In  this  case 
the  following  observation  of  a  recent 
writer  of  reputation  is  quoted  with  ap- 
proval: "A  general  power  to  confer 
corporate  franchises  can  not  be  dele- 
gated by  the  legislature  to  any  other 
agent.  However,  where  the  legisla- 
ture has  enacted  that  a  corporation 
may  be  formed  upon  compliance  with 
certain  conditions,  it  is  no  objection 
that  ministerial  duties,  such  as  the 
issuing  of  a  certificate  or  charter, 
must  be  performed  by  some  ofiicer 
before  the  incorporation  takes  effect." 
1  Mor.  Priv.  Corp.,  §  15.  Charters,  or 
articles  of  corporate  association,  are 
also,  in  some  States,  submitted  to  the 
judicial  courts  for  approval  (Post, 
§  110);  in  others  they  are  submitted 
to  the  court,  but  the  court  is  deemed 

33 


1  TllOnip.  Coip.    §    39.]       CUEATION    BY    SPECIAL    CIIAKTERS. 

tive  boards  charged  with  the  management  of  local  municipal 
affairs  have  received,  by  delegation  from  the  legislature,  the 
power  to  grant  frayichises  such  as  are  usually  granted  by  the  leg- 
islature to  corporations.  An  instance  of  this  is  afforded  by  the 
legislation  of  California.  In  that  State  a  franchise  to  collect 
tolls  on  roads,  &c.,  granted  by  a  subordinate  body  under  au- 
thority delegated  by  law,  is  a  grant  emanating  from  the  sovereign 
authority  of  the  State.  Such  a  grant  by  a  board  of  supervisors 
has  the  same  standing  in  respect  to  its  validity,  the  presumptions 
in  its  favor  and  the  mode  in  which  it  may  be  attacked,  as  any 
other  grant  made  by  any  department  of  the  government.  It 
cannot  be  attacked  by  a  private  person,  or  in  a  collateral  pro- 
ceeding, for  mere  error  in  the  exercise  of  the  authority  to  make 
the  grant. ^ 

§   38.  To  what  Extent  exempt  from  Judicial  Review.  —  The 

power  of  creating  corporations,  thus  possessed  by  the  legislatures 
of  the  States  and  Territories,  and,  within  its  constitutional  sphere 
of  action,  by  the  Congress  of  the  United  States,  is  obviously  a 
power  which,  like  any  other  subject  of  legislative  discretion,  is 
not  subject  to  judicial  review,^  except  on  constitutional  grounds. 
The  departments  of  our  national  and  State  governments  being 
independent  of  each  other,  it  necessarily  follows  that  each  de- 
partment must  give  full  faith  and  credit  to  the  acts  of  the  others, 
and  that  it  is  not  competent  for  a  judicial  court  to  investigate  tha 
question  whether  an  act  creating  a  corporation  has,  been  fraudu- 
lently obtained,'^  or  obtained  in  consequence  of  fraudulent  or 
improper  practices  on  the  part  of  some  of  the  members  of  the 
legislature  concerned  in  passing  it.* 

§  39.  Corporation  need  not  be  Declared  such  in  Express 
Words.  —  It  is  not  necessary  to  the  conclusion  that  a  body  ex- 

to  exercise  the  mere  ministerial  func-  ^  Clarlie  v.  Brooklyn  Bank,  1  Edw. 

tion  of  recording  them  and  of  giving  Ch.    (N.   Y.)    3G1.     The   charter  of  a 

publicity  to  the  fact  of  incorporation.  railroad  company  can  not  be  attacked 

Post,  §  110.  collaterally  for  bad  faith  in  obtaining 

1  Truckee    &c.     Turnpike     Co.    v.  it.     Garrett  v.  Dillsburgh  &c.  K.  Co., 
Campbell,  44  Cal.  89.  78  Pa.  St.  4G5. 

2  United  States  Trust  Co.  v.  Brady,  *  Ferguson  v.  Miners'  «Sbc.  Bank,  3 
20  Barb.  (N.  Y.)  119.  Sneed  (Tenn.),  609. 

34 


NOT    IN    EXPRESS    WORDS.       [1  Thoilip.  Coip.    §   39. 

ercising  corporate  powers  is  in  the  rightful  exercise  of  them, 
that  the  body  should  have  been  declared  a  corporation  by  the 
legislature,  in  express  words. ^  As  hereafter  seen,  a  corporation 
may  exist  by  legislative  recognition;'^  and,  for  stronger  reasons, 
where  there  is  a  statute  conferring  on  an  existing  collective  body 
powers  which  are  appropriate  to  a  corporation  alone,  it  is  a 
sound  conclusion  that  this  makes  it  a  corporation.^  Thus,  there 
were  no  statutes  to  be  found  in  which  the  original  proprietors  of 
townships  in  New  Humpshire  were  expressly  declared  to  be  cor- 
porations ;  but  there  were  several  statutes  prescribing  the  method 
of  calling  their  meetings,  authorizing  them  to  choose  officers,  to 
make  assessments  upon  the  proprietors,  to  appoint  collectors, 
etc.,*  and  there  were  other  statutes  giving  them  power  to  sue  and 
be  sued.  These,  it  was  held,  made  them  corporations.^  So,  a  grajit 
of  lands  to  individuals,  by  the  sovereign  authority  of  a  State,  to  be 
possessed  and  enjoyed  by  them  in  a  corporate  character,  in  itself 
confers  a  capacity  to  take  and  hold  in  that  character.^  So,  an 
act  authorizing  the  sale  of  State  cana?s,  and  providing  that  the 
grantees  "  shall  hold  and  enjoy  the  same,  together  with  all  the 
rights,  privileges,  and  franchises  of  their  grantors"  (who  were 
an  incorporated  company)  "  and  under  such  corporate  name  as 
the  said  grantees  may  adopt,"  has  been  held  to  invest  an  associ- 
ation of  individuals,  purchasing  the  property,  with  corporate 
powers.'  So,  an  act  of  the  legislature  which  requires  the  su- 
pervisors of  a  county,  upon  the  petition  of  persons  in  the  pos- 
session of  more  than  one-half  of  the  acres  of  any  specified 
portion  of  the  county,  to  erect  such  specified  portion  into  a  levee 
district,  for  the  purpose  of  reclaiming  the  same  from  overflow, 
and  then  provides  the  details  by  which  the  reclamation  shall  be 

1  Denton  v.  Jackson,  2  Johns.  Cli.      352;    Springfield  v.   Miller,  12  Mass. 
(N.  Y.)  324.  415.     It  followed  that  a  copy  of  such 

2  Post,  §  318.  vote  from   their  records  was,   prima 
3Com.    V.    West    Chester    Co.,    3     /acie,  record  of  title  against  thera  and 

Grant  Cas.  (Pa.)  200.  also  against  any  one  who  should  enter 
•*  Colburnv.  Ellenwood,4N.  H.  101.  as  a  mere  trespasser,  claiming  no  title. 
«  Atkinson  v.   Bemis,  11  N.  H.  44.  Atliiiisou  r.  Bemis,  swy^ra. 
Tliey  might,  therefore,  convey  or  make  •'  North  Hempstead  v.  Hempstead, 
partition  of  their  undivided  lands,  by  2  Wend.  (N.  Y.)  109. 
deed  or  by  a  vote  of  the  proprietors.  '  Delaware  &  •.  Canal  Co.  v.  Corn- 
Ibid.;  Colburn   v.   Elleuwood,  supra;  mouwealth,  50  Pa  St.  399. 
Adams     v.     Frothingham,     3     Mass. 

35 


1  Thoiiip,  Corp.  §  40.]     ckkation  by  special  charters. 

effected,  makes  a  leveo  district,  so  organized  by  the  supervisors, 
a  corporation,  and  a  public  corporation,  even  if  the  act  does  not 
in  terms  declare  it  a  corporation.^  So,  although  an  act  for  the 
formation  of  plank  road  and  turnpike  companies  denominated 
the  companies  which  might  be  formed  untler  its  provisions  as 
"  joint-stock  companies,"  they  were  nevertheless  held  to  be  cor- 
porations; since  it  appeared  that  the  powers,  rights  and  liabilities 
which  the  legislature  had  annexed  to  them  were  similar  to  those 
possessed  by  corporations. ^  On  the  other  hand,  words  establish- 
ing or  recognizing  the  existence  of  an  organized  body  of  persons, 
but  without  attributing  to  them  any  powers  necessary  to  corpo- 
rations, do  not  make  them  a  corporation.  Thus,  a  resolution  of 
the  Executive  Council  of  the  Commonwealth  of  Massachusetts 
which  ran  thus:  "Advised,  that  a  company  of  artillery  be 
established  by  Watertown,  agreeable  to  military  law,"  did  not 
make  the  company  so  established  a  corporation.^ 

§  40.  Theories  as  to  when  Charters  take  Effect.  —  It  is  not 

necessary  that  a  legislative  act,  granting  franchises  to  a  corpora- 
tion or  corporations,  should  in  form  extend  the  grant  to  a  person 
or  persons  in  esse.  On  the  contrary,  the  grant  may  be  extended 
to  any  members  of  the  public  possessing  the  qualifications  pre- 
scribed in  the  grant,  who  will  organize  the  corporation  in  com- 

'  Dean  v.  Davis,  51  Cal.  406.  In  other  powers  similar  to  tliose  con- 
seeming  opposition  to  the  principle  of  ferred  on  bodies  corporate,  —  did  not 
thetextjthe  Supreme  Court  of  Ohio  has  constitute  such  board  a  corporation, 
ruled  that  a  statute  of  that  State  "  reg-  because  it  did  not  assume  to  do  so. 
ulating  the  Commercial  College  of  Cin-  Neil  v.  Board  of  Trustees,  31  Ohio  St. 
cinnati,''^  did  not  constitute  the  board  15,  21.  The  decision  seems  to  be  un- 
of  trustees  therein  provided  for,  a  cor-  sound,  and  conti'ary  to  views  ex- 
poration,  nor  confer  any  additional  pressed  by  tlie  Supreme  Judicial  Court 
corporate  power  on  the  city  of  Cincin-  of  Massachusetts  and  by  the  Supreme 
nati.  State  v.  Davis,  23  Ohio  St.  434.  Court  of  the  United  States,  ^nfe,  §§  3-6. 
The  same  court  has  held  that  a  statute  The  Ohio  court  was,  however,  en- 
of  that  State  "  to  establish  and  main-  deavoring  to  uphold  the  validity  of 
tain  an  agricultural  college  in  Ohio,"  the  act,  in  view  of  the  constitutional 
which  created  a  board  of  trustees  to  inhibition  against  creating  corpora- 
be  appointed  by  the  governor,  com-  tions  by  special  laws, 
mitted  to  such  board  the  government  ^  Blanchard  v.  KauU,  44  Cal.  440. 
of    the    institution,    and   authorized  Ante,  §§  3-6. 

them  to  make  contracts  and  maintain  '  Sheltonu. Banks,  10 Gray  (Mass.), 

actions  for  its  benefit,  and  to  exercise  401. 

36 


WHEN    CHARTERS    TAKE    EFFECT.       [1  Thomp.  Corp.   §   41. 

pliance  with  the  terms  of  the  grant. ^  This  is  illustrated  by  the 
every-day  occurrence  of  the  organization  of  corporations  under 
general  laws.  Such  statutes  are  merely  permissive  to  the  public 
generally,  and  are  not  in  the  nature  of  a  grant  to  particular  in- 
dividuals. But  when  particular  individuals  avail  themselves  of 
the  privilege  thereby  extended  to  the  public,  and  organize,  them- 
selves into  an  association  in  conformity  with  the  statute,  they 
become  a  corporation,  and  the  statute  becomes  their  charter. ^ 
Moreover,  when  a  special  charter  is  granted,  and  the  corpora- 
tion is  to  be  brought  into  existence  by  some  future  acts  of  the 
corporators,  the  franchises  which  the  charter  grants  to  the  body 
remain  in  abeyance  until  such  acts  are  done;  and  when  the 
corporation  is  brought  into  life,  the  franchises  attach.^  But, 
for  the  purpose  of  saving  the  rights  conferred  by  special  char- 
ters and  preventing  the  implication  of  a  repeal  by  a  subsequent 
constitutional  prohibition  of  such  charters,  it  has  been  held  that, 
where  the  legislature  incorporates  a  body  of  adventurers  by  a 
special  act,  the  corporation  springs  into  existence  "  ipso  facto  et 
eo  instanli.'"  *  Again,  although  the  governing  statute  may  pro- 
vide that  no  act  of  incorporation  hereafter  granted,  with  certain 
exceptions,  shall  take  effect  until  the  persons  therein  incorporated 
have  paid  into  the  treasury  a  certain  sum  of  money,  the  failure 
to  pay  this  sura  of  money  will  not  prevent  the  associates  from 
becoming  a  corporation  de  facto.  Third  persons  cannot  take 
advantage  of  the  non-payment  of  the  money;  it  is  a  question 
which  can  alone  be  raised  by  the  State.^ 

§  41.  Creation   by    Reference    to   another   Act.  —  An    act 

creating  a  corporation  and  conferring  upon  it  all  the  rights  and 
advantages  which,  in  preceding  portions  of  the  same  act,  were 

^  Falconer  v.  Campbell,  2  McLean  declares  certain  persons  named  a  cor- 

(U.  S.),  195;  s.  c.  lOMyer  Fed.  Dec,  poration,  this  makes  it  such  ab  initioi 

§  10  (in  substance).  and  a  subsequent  requirement  of  the 

2  O'Brien  v.    Cummings,    13    Mo.  charter  as  to  the  election  of  directors 
App.  197.  is  merely  directory.    Stoops  v.  Greens- 

3  Dartmouth  College «.  Woodward,  burgh  &c.  Plank  Boad  Co.,  10  Ind.  47. 
4  Wheat.  (U.  S.)  791.  See  also  Judah  v.  American  Live  Stock 

*  Little  Rock  &c.  R.   Co.  v.  Little      Ins.  Co.,  4  Ind.  333. 
Rock,  Mississippi   River  &c.   R.  Co.,  ^  IIujj;hesdale  Man.  Co.  v.  Vanner, 

36  Ark.  663,  684.     Where  the  charter      12  R.  I.  491;  post,  §  247. 

37 


1  Thomp.  Corp.  §  43.]     creation  by  special  charters. 

conferred  upon  another  corporation  named,  and  further  declar- 
ing that  all  of  the  provisions,  sections  and  clauses  in  the  charter 
of  the  first  named  company,  not  inconsistent  with  the  particular 
provisions  of  the  charter  of  the  second  company,  should  be  fully 
extended  to  the  president  and  directors  of  the  latter  corporation, 
is  a  sufficient  charter  for  such  company,  in  the  absence  of  con- 
stitutional restraints  upon  this  mode  of  legislative  action.  ^  It  is 
not  unusual  or  objectionable  to  grant  vast  corporate  powers  in  a 
short  act,  by  referring  to  and  adopting  provisions  of  other  in- 
corporating acts. 2 

§  42.  Legislative  Deviations  from  the  Rules  of  the  Com- 
mon Law.  — Corporations  originating  according  to  the  rules  of 
the  common  law  must  be  governed  by  it  in  their  mode  of  or- 
ganization, in  the  manner  of  exercising  their  powers,  and  in  the 
use  of  the  capacities  conferred  ;  and  where  one  claims  its  origin 
from  such  source,  its  rules  must  be  regarded  in  deciding  upon 
its  legal  existence.  But  the  legislature  have  power  to  create  a 
corporation,  not  only  without  conforming  to  such  rules,  but  in 
disregard  of  them;  and  where  a  corporation  is  thus  created,  its 
existence,  powers,  capacities,  and  the  mode  of  exercising  them, 
must  depend  upon  the  law  creating  it.^ 

§  43.  Who    included  in    the  Word  "  Associates."  —  It   has 

been  pointed  out  that,  where  a  charter  is  granted  to  certain  per- 
sons named,  and  their  "  associates,"  the  word  "  associates"  may 
mean  those  who  are  already  associated  with  the  persons  named, 
or  those  who  may  come  in  afterwards.  Speaking  upon  this 
question,  it  was  said  by  Chief  Justice  Shaw:  "  If  articles  of  as- 
sociation were  drawn  up  and  signed,  by  which  they  had  agreed 
to  unite  in  applying  for  an  act  of  incorporation,  and  an  act 
should  be  passed  conferring  corporate  powers  on  two  or  three  of 
the  first  named,  and  their  associates,  referring  to  such  articles,  — 
this  would  make  the  articles  evidence,  and  make  the  act  apply  to 

*  Post,  §§  539,  573.  purposes  of  an  incorporated   institu- 

2  Biuj^harapton     Bridge     Case,     3  tion  are  to  be  gathered  solely  from  iis 

Wall.  CU.  S.)  78.  charter.     Nicholson's   Succession,  37 

'  Penobscot  Boom   Corp.   v.  Lam-  La.  An.  346. 

son,  16  Me.  224.     The  character  and 
38 


MEANING  OF  "ASSOCIATES."     [1  Thomp.  Corp,  §  43. 

all  the  parties  there  named,  conformably  to  the  maxim,  cerium 
est,  quod  cei'tum  reddi  potest.  The  question  in  all  such  cases  is, 
what  the  legislature  intended;  it  is  a  question  of  the  construc- 
tion of  their  words.  Even  if  the  parties  to  the  enterprise  had 
an  understanding  between  themselves,  which  was  not  communi- 
cated to  the  legislature,  or  not  acted  upon  by  them,  either  in 
the  words  of  their  act,  or  referred  to  in  it  by  necessary  or  rea- 
sonable implication,  such  understanding  can  not  aid  in  constru- 
ing the  act."  1  In  determining  this  question  it  is  admissible,  if 
necessary,  to  consider  any  competent  evidence  outside  the  charter, 
in  explanation  of  the  ambiguity. ^  If,  upon  such  evidence,  it 
appears  that  a  charter,  granted  in  terms  to  several  persons  therein 
named  and  their  associates,  was  in  fact  granted  upon  the  joint 
request  and  application  of  those  named,  and  others  associated 
withlhemin  applying  for  it,  it  may  reasonably  be  supposed  that 
the  legislature  inl ended  to  embrace  them  all  within  the  grant, 
and  that  the  word  "  associates  "  is  used  to  designate  those  who 
are  not  specifically  named  in  the  charter.  If,  however,  the  evi- 
dence discloses  the  fact  that  the  grantees  so  named  had  no  actual 
associates  at  the  time,  or  if  it  discloses  that  the  charter  was 
given  by  the  legislature  of  its  own  motion,  and  without  solicita- 
tion or  application  from  any  one,  the  use  of  such  term  in  the 
connection  here  found  may  properly  be  reg^arded  as  intended  to 
apply  to  such  persons  as  may  become  members  of  the  corpora- 
tion, u[)on  and  after  its  organization.^  Where  the  charter  of  a 
bank  was  granted  by  the  legislature  to  six  persons  named,  "  and 
their  associates,"  the  court  heard  evidence  outside  the  charter, 
and  determined  thereon  that  the  charter  could  not  have  been  in- 
tended to  include  other  persons  who  did  not  sign  the  petition  for 

1  Lechmere  Bank  v.  Boyoton,  11  is  made  to  one  by  name,  and  it  turns 
Gush.  (Mass.)  3G9,  380.  out  that  there  are  two  or  more  per- 

2  State  V.  Sibley,  25  Minn.  387,  399.  sons  of  the  same  name,  it  is  in  the  na- 
"We  are  not  prepared  to  say  that  a  tureof  a  latent  ambiguity,  and  evidence 
grant  may  not  be  made  to  certain  per-  aliunde  is  admissible."  Shaw,  C.  J., 
sons  by  a  certain  and  definite  de.scrip-  in  Lechmere  Banku.  Boynton,  11  Cush. 
tion,  as   well  as  by  name;    and  when  (Mass.)  3C9,  379. 

such  words  of  description  are  used,  it  »  State  v.  Sibley,  25  Minn.  387,  399. 

is  always  competent  to  go  into  parol  As  to  the  effect  of  a  grant  of  land  to  a 

or  other  evidence  aliunde,  to  ascer-  person  named  and   his  associates,  see 

tain  the  person  or  thing  embraced  in  Duncan  v.  Beard,  2Nott  &  McCord  (S. 

the  description.    Even  when  a  grant  C),  400. 

39 


1  Thomp.  Corp.  §  44.]     creation  by  special  charters. 

the  bank,  but  who  merely  subscribed  for  stock  in  the  same,  in 
sundry  books  prepared  and  circulated  at  the  meeting  at  which 
the  enterprise  originated  and  at  which  the  petition  to  the  legis- 
lature was  drawn  up  and  signed.* 

§  44.  How  ticgislative  Grant  made  and  Corporation  Organ- 
ized. —  It  has  been  reasoned  by  Mr.  Justice  McLean:  "  The  creation 
of  a  corporate  existence  can  never  take  effect  until  the  association  be 
formed  and  the  organization  completed.  Commissioners  are  generally 
designated  in  the  act,  who  are  to  superintend  the  opening  of  the  books 
and  receive  subscriptions  of  stock.  And  when  the  amount  shall  be 
subscribed,  and  the  necessary  pa3Tnents  made,  the  stoclcholders  elect 
directors,  who  appoint  a  president  and  cashier.  The  organization  being 
eompleted,  existence  is  given  to  the  artificial  being,  and  the  agency 
commences.  It  is  now  in  esse,  but  before  this  it  was  not.  Vitality  is 
given  to  it  by  the  voluntary  association  and  organization  of  its  members. 
Had  they  remained  passive,  the  law  could  have  had  no  effect.  In  this 
case,  then,  the  grant  of  the  franchise  is  not  made  to  a  person  or  persons 
in  esse.  The  commissioners  did  not  constitute  the  corporation,  nor  was 
the  franchise,  in  any  form  or  degree,  vested  in  them.  This  is  the  gen- 
eral mode  in  which  corporations  are  created,  and  it  has  stood  the  test  of 
time  and  of  legal  scrutiny.  No  valid  objection  is  perceived  to  it.  In 
regard  to  this  objection  the  act  under  consideration  [a  general  law  au- 
thorizing the  formation  of  banldng  corporations]  rests  upon  the  same 
ground  as  other  and  more  special  acts  on  the  same  subject.  The  fran- 
chise is  not  vested  in  either  until  the  organization  be  completed,  and 
this  depends  upon  the  voluntary  association  of  individuals.  In  a  special 
act  commissioners  are  named  to  open  the  books  and  receive  subscrip- 
tions of  stock ;  in  the  act  under  consideration  the  clerk  and  treasurer  of 
each  county  are  required  to  perform  this  duty.  They  are  commissioners 
for  this  purpose.  And,  so  far  as  the  grant  is  concerned,  if  it  be  vahd 
under  one  law  it  must  be  so  under  the  other."  2  If  in  the  organization 
of  a  corporation,  all  the  requirements  of  the  charter  are  observed,  al- 
though 7iot  in  the  order  prescribed,  the  organization  is  sufficient.  Thus, 
where  the  charter  requires  that  the  directors  shall  be  named  in  the 
articles  of  association,  it  is  sufficient  comphance  with  the  requirement 
that  the  articles  are  adopted  at  the  time  of  electing  the  directors.  And 
the  requirement  is  only  directory.^ 

1  Lechmere  Bank  v.  Boynton,  11  ^  Eakright  v.  Logansport  &c.  R. 
Cush.  (Mass.)  3G9.                                        Co.,  13  Ind.  404;  Covington  &c.  Plank 

2  Falconer  D.Campbell,2  McLean  (U.      Road  Co.  v.  Moore,  3  Ind.  510. 
S.),  195;  s.  c.  lOMyerFed.  Dec,  §  10. 

40 


COMMISSIONERS    REFUSING   TO   ACT.       [1  Thomp.  Coip.   §  46. 

§  45.  What   if  the    Commissioners  Refuse  to   Act.  —  If  a 

majority  of  the  commissioners  corruptly  refuse  to  proceed  to 
tiie  organization  of  the  corporation,  in  accordance  with  the  law, 
it  seems  that  the  minority  may  proceed  to  execute  the  power. 
Such  seems  to  have  been  the  conclusion  of  the  Supreme  Couit 
of  Pennsylvania  in  a  case  where  the  legislature  appointed  nine 
commissioners,  who,  or  any  three  of  them,  were  authorized  to 
organize  a  bank.  A  majority  of  the  whole  number  corruptly 
afyreed  to  transfer  the  franchise  to  a  citizen  of  another  State. 
It  was  held  that,  in  such  case,  three  other  of  the  commissioners 
had  valid  authority  to  proceed  with  the  organization,  and  that 
letters-patent,  issued  in  pursuance  of  such  organization,  were 
valid. ^  If  it  should  appear,  that  commissioners,  appointed  by 
an  act  of  the  legislature  to  open  books  for  receiving  subscrip- 
tions to  the  capital  stock  of  a  bank,  have  refused,  after  having  ac- 
cepted their  appointment  and  assumed  to  act  in  the  premises,  to 
proceed  in  the  execution  of  the  trust  confided  to  them,  without 
sufficient  cause  for  such  refusal,  and  that  thereby  the  act  of  in- 
corporation may  fail  of  being  carried  into  effect,  a  court  possess- 
ing jurisdiction  would,  upon  proper  application,  issue  a  writ  of 
mandamus  to  compel  the  commissioners  to  perform  the  services 
required  of  them  by  law.  But  where  the  act  of  incorporation  re- 
quires, that  the  books  for  receiving  subscriptions  to  the  capital 
stock  shall  be  opened  under  the  direction  of  seven  commissioners 
named,  *'  or  a  majority  of  them,"  the  majority  have  full  power  to 
discharge  the  duties  required  of  t  he  commissioners ,  withon  t  the  con- 
currence of  the  others  ;  and  if  all  except  one  are  willing  to  act,  the 
court  will  not  grant  a  peremptory  mandamus  to  compel  that  one 
to  act,  for  the  reason  that  the  issuing  of  such  writ  is  unnecessary.^ 

§  46.  When  Charter  Provisions  deemed  a  Substitute  for 
Provisions  of  a  General  Act.  —  Where  the  charter  of  a  corporation 
contains  provisions  in  terms  similar  to  provisions  of  a  general  act,  and 
provides  that  the  corporation  shall  be  subject  to  such  provisions  of  the 
general  act  as  are  applicable,  the  provisions  in  the  charter  will  be  deemed 
a  substitute  for  the  provisions  of  the  general  act.^ 

1  Commonwealth  v.  McKean  County  "  Briggs  v.  Cape  Cod  Ship  Canal 
Bank,  32  Pa.  St.  185.                                      Co.,  137  Mass.  71. 

2  Matter  of  White  River  Bank,  23 
Vt.  478. 

41 


1  Thonip.  Corp.  §  46]     creation  by  special  charters. 

§  47.  Whether  Corporations  created  by  the  Concurrent  Ac- 
tion of  Two  States.  —  Whether  one  corporation  can  be  created 
by  the  concurrent  legishition  of  two  States  has  been  a  subject  of 
judicial  controversy.  The  question  seems  to  have  been  first 
raised  in  the  Supreme  Court  of  Errors  of  Connecticut,  and  that 
court  took  substantially  the  view  that  there  is  no  legal  difficulty 
in  the  way  of  the  creation  of  a  single  corporation  by  the  concur- 
rent action  of  two  or  more  States ;  nor  of  the  creation  of  a  new 
corporation  out  of  two  or  more  corporations  already  existing ; 
nor  of  the  creation,  by  one  State,  of  such  a  corporation,  where 
one  of  the  constituent  corporations  is  a  foreign  one.  The  court 
saw  no  objection,  technical  or  otherwise,  to  the  parting,  by  two 
or  more  States  unitedly,  in  the  exercise  of  their  sovereign  au> 
thority,  with  such  of  their  respective  powers  as  should  be  neces^ 
sary  in  order  to  confer  upon  persons,  real  or  artificial,  the 
franchise  or  privilege  of  being  a  corporation,  and  with  such.powers 
and  privileges  as  they  should  deem  it  proper  to  grant  them.  The 
court  further  observed  that  tiiis  power  had  been  not  infrequently 
exercised  by  the  States,  without  question  or  objection. ^  It  can- 
not escape  attention,  however,  that  this  view  is  contrary  to  what 
mio-ht  be  regarded  as  the  States'  rights  view  of  the  question,  and 
that  it  cannot  be  made  to  rest  upon  a  strictly  logical  basis.  If 
we  are  to  accept  as  still  true  the  doctrine  of  the  leading  case  in 
the  Supreme  Court  of  the  United  States  touching  the  status  of 
foreio-n  corporations,  we  must  still  conclude  that  a  corporation 
can  have  but  one  domicile  and  must  dwell  in  the  place  of  its 
creation. 2  Adhering  to  this  theory,  the  same  court  at  one  time 
held  that  a  railroad  corporation  created  by  the  concurrent  legis- 
lation of  two  States,  with  the  same  capacities  and  powers,  for 
the  same  objects,  referred  to  in  the  laws  of  the  States  as  one 
corporate  body,  composed  of  the  same  persons,  and  represented 
by  one  name,  —  was  nevertheless,  as  a  matter  of  legal  and  con- 
stitutional necessity,  two  distinct  and  separate  corporations,  upon 
the  ground  that  a  corporation  is  the  creature  of  the  sovereignty 
which  brings  it  into  being,  and  can  have  no  jurisdiction  beyond 
that  sovereign. 2     This  theory  was  suitable  to  the  casuistry  of  one 

iBishopw.Brainerd, 28 Conn. 289,299.  'Ohio    &    Mississippi     R.   Co.   v. 

2  Bank    of    Augusta    v.    Earle,    13      Wheeler,  1  Blacii  (U.  S.),  286. 
Pet.  (U.  S.)  521. 
42 


CREATION  BY  TWO  STATKS.      [I  Tliomp.  Corp.  §  48. 

period  of  our  legal  development  and  history,  but  it  was  not 
suited  to  the  practical  needs  of  a  great  homogeneous  commercial 
people.  The  same  court  was  compelled,  in  a  subsequent  decision, 
to  abandon  the  doctrine,  and  to  adopt  the  better  view  that  the 
question  whether  there  is  a  unity  in  the  corporation  and  in  the 
proprietorship  of  the  corporate  property,  is,  in  such  a  case,  one 
of  legislative  intent,  and  not  of  legislative  power.  Accordingly, 
the  doctrine  of  the  court  now  is  that  several  States  may,  by  com- 
petent legislation,  unite  in  creating  the  same  corporation,  or  in 
combining  several  pre-existing  corporations  into  a  single  one; 
that  one  State  may  make  a  corporation  of  another  State,  as  thus 
organized  and  conducted,  a  corporation  of  its  own,  as  to  any 
property  within  its  territorial  jurisdiction;  and  that  a  State 
tti'»y»  by  an  enabling  act,  authorize  a  corporation  created  in  an- 
other State  to  build  and  use  a  railway  within  its  own  limits,  with- 
out creating  a  new  corporation.^  Illustrations  of  this  conclusion 
are  now  seen  every  day,  in  the  passage  by  States  of  enactments 
making  foreign  corporations  doing  business  within  the  domestic 
jurisdiction,  domestic  corporations,  and  amenable  in  all  respects 
to  the  domestic  laws  and  police  regulations,  notwithstanding  the 
provisions  of  their  foreign  charters. ^ 

§  48.  Decisions  adhering  to  the  View  that  this  cannot  be 

done. — The  doctriae  first  announced  by  the  Supreme  Court  of  the  United 
States  2  is  still  followed,  so  far  as  appears,  in  some  of  the  courts  of  the 
States.  The  Supreme  Court  of  Pennsylvania  has  reiterated  the  view  laid 
down  by  Chief  Justice  Taney  in  that  case,  and  has  formulated  it  thus : 
"  1.  That  the  artificial  person  or  legal  entity  known  to  the  common 
law  as  a  corporation,  can  have  no  legal  existence  out  of  the  bounds  of  the 
sovereignty  by  which  it  was  created.  It  must  dwell  in  the  place  of  its 
creation.  2.  That  the  corporation  in  question  was  chartered  by  the  two 
States  of  Ohio  and  Indiana,  by  the  same  name  and  style,  clothed  with  the 

*  Railroad  Co.   v.  Harris,  12  Wall,  but  for'purposes  of  jurisdiction  it  is  a 

(U.S.)    65;  followed  iu   Copeland   v.  separate  corporation  within  the  State 

Memphis  &c.  R.  Co.,  3  Woods  (U.  S.),  of  its  adoption.     In  such  a  case  a  sep- 

C51,  G58.     In  another  Federal  court  it  arate  organization   is   not  necessary, 

was  held   that  where  the  charter  of  a  Blacl<l)urn  v.  Selma  &,c.  R.  Co.,  2  Flip, 

corporation  in  one  State  is  duplicated  (U.  S.)  525. 

in  aiKjther  State,  and  the   legislature  ^  Po.s<,  Ch.  193. 

assumes  to  create  a  home  corporation,  3  In  Ohio  &c.    R.  Co.  v.   Wheeler,  1 

tlie   effect   is  to  consolidate  the  two;  Black  (U.  S.),  286. 

43 


1  Thomp.  Corp.  §  48]     creation  by  special  charters. 

same  capacities  and  powers,  and  intended  to  accomplish  the  same  ob- 
jects, and  is  spoken  of  in  the  laws  of  both  States  as  one  corporate  body 
exercising  the  same  powers  and  fulfilling  the  same  duties  in  both  States  ; 
and  yet  that  it  had  no  legal  existence  in  either  of  the  States,  except  by 
the  laws  of  the  State,  and  neither  State  could  confer  on  it  a  corporate 
existence  in  the  other,  nor  add  to  or  diminish  the  powers  there  exer- 
cised. Therefore,  that  it  was  a  distinct  and  separate  corporate 
body  in  Indiana,  from  the  corporate  body  of  the  same  name  in  Ohio. 
3.  That,  where  a  corporation  is  created  by  the  laws  of  a  State,  the  legal 
presumption  is  that  its  members  are  citizens  of  the  State  in  which  alone 
the  corporate  body  has  a  legal  existence ;  and  that  a  suit  by  or  against 
a  corporation  in  its  corporate  name,  must  be  presumed  to  be  a  suit  by  or 
against  citizens  of  the  State  which  created  the  corporate  body,  and  that 
no  averment  or  e\'idence  to  the  contrary  is  admissible,  for  the  purpose 
<jf  withdrawing  the  suit  from  the  jurisdiction  of  a  court  of  the  United 
States.  4.  It  follows  from  these  principles  that  a  suit  by  a  corporation 
created  by  the  concurrent  legislation  of  two  States  was,  in  legal  contem- 
plation, the  suit  of  the  individuals  who  compose  it,  and  must,  therefore, 
be  treated  as  a  suit  in  which  citizens  of  each  State  are  joined  as 
plaintiffs.  If  the  defendant  was  a  citizen  of  either  of  those  States,  such 
a  suit  could  not  be  maintained  in  the  Federal  courts,  where  jurisdiction 
of  the  case  depended  altogether  on  the  citizenship  of  the  parties,  and 
consequently,  the  plea  to  the  jurisdiction  in  that  case  was  sustained."  ^ 
The  Court  of  Appeals  of  Kentucky,  in  a  decision  rendered  as  late  as 
1880,  adheres  to  the  same  view.  The  question  concerned  the  effect  of 
two  acts  of  incorporation,  one  passed  by  the  legislature  of  Ohio  and  the 
other  passed  by  the  legislature  of  Kentucky,  both  incorporating  the 
Newport  and  Cincinnati  Bridge  Company,  a  company  whose  bridge  was 
built  across  the  Ohio  river  between  the  States  of  Ohio  and  Kentucky. 
The  appellant  contended  that  the  corporation  was  one  entity  created  by 
two  laws  emanating  from  different  sovereigns,  with  no  joint  govern- 
mental powers  over  the  subject  of  its  properties  and  business.  "  This," 
said  Hargis,  J.,  "seems  to  be  an  absurdity,  because  the  law-making 
power  of  neither  State  can  bind  the  other.  Kentucky  or  Ohio  has 
plenary  power  to  create  a  corporation,  but  neither  can  create  a  part  of 
the  elements  of  a  corporation  and  rely  upon  the  other  to  complete  it, 
and  by  this  unauthorized  marriage  of  distinct  legislative  powers,  produce 
a  being  which  has  not  received  its  full  hf e  from  either.  Each  legisla- 
tive power  must  complete  the  corporation,  or  it  never  can  be  done,  be- 
cause the  completing  act  of  one  State  is  not  binding  upon  the  State 

^  Allegheny  County  v.  Cleveland  &c.  R.  Co.,  51  Pa.  St.  228,  231,  opinion  by 
Woodward,  C.  J. 
44 


CREATION    BY    TWO    STATES.       [1  Thomp.  Cm'p.    §   48. 

•which  began,  but  failed  or  refused  to  complete  and  give  legal  existence 
to  the  corporation.  Otherwise,  persons  who  should  receive  from  a 
State  only  a  part  of  the  powers,  but  were  denied  the  rest  which  were 
necessary  to  create  a  corporation,  could  apply  to  a  foreign  State  for 
supplementary  legislation,  which  would  authorize  the  building  of  rail- 
roads and  bridges  upon  our  soil,  and  give  to  its  laws  an  extra-territorial 

force  a  doctrine  that  has  always  been  successfully  denied   among 

these  States,  which  hold  the  relation  to  each  other  of  foreign  States  in 
close  friendship.  The  creative  power  of  one  State  can  neither  be  added 
to  nor  subtracted  from  by  another,  so  as  to  strengthen  or  weaken  the 
power  of  the  former  in  its  own  territory.  And  the  proposition  that  two 
States  can  jointly  create,  by  partial  legislation  in  each,  a  corporation 
which  has  a  complete  legal  existence  in  either,  must  fall  to  the  ground. 
These  corporations  are  distinct,  controlling  the  same  substance  in  a 
joint  business,  and  appellant's  residence  is  alone  in  Ohio.  A  corpora- 
tion can  not  have  two  domiciles  or  residences  at  the  same  time.  It  ob- 
tains a  residence  not  by  its  own  right,  but  by  legal  authority  which 
fixes  the  requisites  of  residence ;  and  it  retains  a  residence,  so  long  as 
its  legal  existence  lasts,  in  the  State  whence  it  received  it.  The  appel- 
lant was  properly  sued  as  anon-resident  of  Kentucky."  The  court, 
coming  to  the  merits,  which  was  the  right  to  recover  compensation  for 
legal  services,  under  an  employment  of  the  plaintiff  by  the  Kentucky 
corporation,  held  that  the  legal  status  of  the  two  corporations  was  that 
of  agents  for  each  other,  and  that,  upon  this  theory,  the  obhgation  was 
that  of  the  Ohio  corporation,  on  the  principle  of  respondeat  superior.^ 

1  Newport  &c.  Bridge  Co.  v.  Woolley,  78  Ky.  523. 

45 


1  Thomp.  Corp.  §  52.]     acceptance  of  special  charters. 


CHAPTEK    III. 


ACCEPTANCE  OF  SPECIAL  CHARTERS. 


Section 

52.  Necessity  of  acceptance  of  charter. 

53.  Cauuot  be  accepted  iu  part. 

54.  By  what  body  or  constituency. 

55.  At  meeting  held  iu  another  state, 

void. 

56.  Illustrations  of  the  foregoing. 

57.  Withdrawal  or  repeal   before  ac- 

ceptance. 


Skction 

68.  Illustration. 

59.  Effect  of  acceptance 

60.  Facts  from  which  acceptance  pre- 

sumed. 

61.  Further  of  evidence  to  show  ac- 

ceptance. 

62.  Evidence  of  non-acceptance. 

63.  A  question  for  a  jury. 


§  52.  Necessity  of  Acceptance  of  Charter.  —  When  the  leg- 
islature proceeds  to  create  a  municipal  or  other  public  corpora- 
tion, the  assent  of  the  inhabitants  within  the  territorial  district 
intended  to  be  incorporated  is  not  necessary.  But  a  man  can 
not  be  forced  by  the  legislature  to  become  a  member  of  a  strictly 
private  corporation  without  his  consent.*  The  general  rule, 
therefore,  is  that  a  charter  of  a  private  corporation  isinoi)erative 
until  it  is  accepted.^     So  is  the  extension  of  a  charter  beyond 


1  Ellis  V.  Marshall,  2  Mass.  2G9;  s. 
c.  3  Am.  Dec.  49;  Hampshire  v.  Frank- 
lin, 16  Mass.  76,  87.  There  is  much  au- 
thority, early  and  late,  for  this  general 
proposition.  Thus,  in  Bagg's  case> 
Rolle  Rep.  224,  it  seems  to  have  been 
agreed  by  the  court  that  a  patent  pro- 
cured by  some  persons  of  a  corpora- 
tion would  not  bind  the  rest,  unless 
they  should  assent.  And  iu  Brown- 
low's  Reports,  100,  this  passage 
occurs:  "It  was  said  that  the  in- 
habitants of  a  town  cannot  be  in- 
corporated without  the  consent  of 
a  major  part  of  them,  and  an  in" 
corporation  without  their  consent 
is  void."  In  like  manner  in  a  case 
in  Coraberbach,  316,  Lord  Holt,  speak- 
ing of  a  new  charter  mide  to  the 
city  of  Norwich  by  Henry  IV  and  cou- 

46 


firmed  by  Charles  II.,  says :  "  The  new 
charter  had  been  void  if  the  corpora- 
tion had  refused  it;  but  when  they 
accept  and  put  it  in  execution,  then 
it  is  good."  In  like  manner,  it  is 
said  by  Chancellor  Ke't:  "  It  requires 
the  aceptance  of  the  charter  to  create 
a  corporate  body;  for  the  government 
cannot  compel  persons  to  I  ecome  an 
incorporate  body  without  heir  consent, 
or  the  consent  of  at  least  the  major  part 
of  them."  2  Kent  Com.  277.  S.  e, 
further,  Lexington  and  West  Cam- 
bridge R.  Co.  V.  Chandler,  13  Met. 
(Mass.)  315;  Wright  v.  Tukey,  3 
Cush.  (Mass.)  297;  Parlmouth  Col- 
lege V.  Woodward,  4  Wheat.  (U.  S.) 
708. 

2  Haslettu.  Wotherspoou,  1  Strobh. 
Kq.  (S.  C.)  209. 


NOT  ACCEPTED  IN  PART.      [1  Thomj).  Corp.  §  53. 

its  original  term.*  So,  a  charter  granted  by  the  king  in  England 
to  a  particular  guild  of  tradesmen  does  not,  it  seems,  bind  all  the 
members  of  that  trade  in  England,  whicli  nothing  short  of  an 
act  of  Parliament  could  do,  but  it  binds  only  those  who  become 
members.^ 

§  53.  Cannot  be  Accepted  in  Part.  —  As  a  general  rule, 
when  a  charter  is  granted,  whether  it  be  one  of  creation,  or  of 
amendment  to  a  pre-existing  charter,  it  must  either  be  accepted 
or  rejected  as  offered,  and  without  condition  ;  and,  in  accepting 
the  privileges  conferred,  tlie  grantees  will  be  required  to  per- 
form the  conditions  imposed.^  A  charter  granted  by  the  Crown 
in  England,  cannot  be  accepted  in  part  and  rejected  in  part,  un- 
less it  should  appear  to  be  the  intention  of  the  Crown  tliat  the 
grantee  should  have  the  option  to  accept  in  part  and  reject  in 
part.^  But  it  has  been  said:  "  However  well  settled  this  may 
be  in  regard  to  subsequent  conditions,  to  be  performed  after  the 
organization  of  the  company,  and  for  a  refusal  to  comply  with 
which  a  party  injured  may  have  his  remedy  at  law  or  in  equity 
for  a  specific  performance,  it  does  not  apply  to  conditions  prece- 
dent^ upon  the  strict  performance  of  which  the  very  existence 
and  exercise  of  powers  on  the  part  of  the  corporation  depend. 
And  by  conditions  precedent  we  mean  anything  which,  by  the 
express  provisions  of  the  statute,  is  made  a  condition  to  be  per- 
formed on  the  part  of  the  corporators  before  and  as  a  founda- 
tion of  the  QX^evaisQ  of  powers  and  privileges  under  the  charter. 
In  such  cases  the  organic  life  of  the  corporation  depends  upon 
a  strict  compliance  with  the  conditions  imposed,  and  until  this 
is  done  there  can  be  no  such  thing  as  an  acceptance  of  the 
charter."  ^ 


1  Lincoln  &c.  Bank  v.  Richardson,  ^  London  Tobacco  Pipe  Makers  Co. 

1    Me.    81.      It    has   been   ruled   that  v.   Woodroffe,  7   Barn.   &  Cress.  838. 

where  a  corporation,  which  is  already  ^  Lyons  v.    Orange  &c.  R.    Co.,  32 

in  existence,  and  acting  under  a  former  Md.  18,  30;  Kenton  County  Court    v. 

charter,   or    prescription,    or    usage,  Bank  Lick    Turnpilce    Co.,    10  Bush 

accepts  a  new  charter  before  the  ex-  (KyO»  "~^' 

piration  of  the  old,  the  corporation  ^  Res  v.    Westwood,   2  Dow  &  CI. 

may  still  act    under  the  former,    or  21,  36. 

partly    under    both.       Woodfork    v.  ^  Lyons  v.   Orange  &c.  R.  Co.,  32 

Union  Bank,  3  Coldw.  (Tenn.)  488.  Md.  18,  30.     See  post,  §  501,  et  seq. 

47 


1  Thouip.  Corp.  §  55.]     acceptance  of  special  charters. 

§  54.  By  what  Body  or  Constituency. —  Acceptance  of  a 
charter,  to  bo  binding,  must  obviously  be  by  the  cori)orators  in 
their  constituent  capacity.  Until  acceptance,  there  is  ordinarily 
no  representative  body  which  could,  under  any  circumstances  or 
on  any  theory,  perform  such  an  act  for  the  corporators  at  large, 
unless  in  the  case  of  a  renewal  of  a  charter.  Thus,  the  election 
of  a  board  of  directors  or  trustees  under  a  charter  is  an  act 
which  itself  implies  an  acceptance  of  the  charter.  But,  as  here- 
after seen,  when  the  charter  has  been  accepted  and  an  organ- 
ization has  taken  place  under  it,  and  directors  have  been  elected, 
an  amendment  to  the  charter  may  be  accepted  by  the  directors, 
if  acquiesced  in  by  the  corporators.^ 

§  55.  At  Meeting  held  in  Another  State,  Void.  —  It  has  been 
laid  down  in  round  terms  that  "  all  votes  and  proceedings  of 
persons  professing  to  act  in  the  capacity  of  corporators,  when 
assembled  without  the  bounds  of  the  sovereignty  granting  the 
charter,  are  wholly  void."  ^  This  is  a  branch  of  the  general 
rule  declared  in  a  leading  case,^  that  a  corporation  can  have  no 
legal  existence  out  of  the  boundaries  of  the  sovereignty  by  which 
it  is  enacted ;  that  it  exists  only  by  force  of  law ;  that,  where 
that  law  ceases  to  operate,  it  can  have  no  existence;  and  that  it 
must  dwell  in  the  place  of  its  creation,  and  cannot  migrate  to 
another  sovereignty.  In  this  respect  a  distinction  must  carefully 
be  borne  in  mind  between  acts  done  by  the  members  in  their 
capacity  of  corporators,  and  by  the  directors  in  their  capacity  of 
agents  or  trustees.  Acts  of  the  former  class,  to  be  valid,  can 
only  be  done  within  the  bounds  of  the  sovereignty  creating  the 
corporation;  while  acts  of  the  latter  class  may  be  done  outside 
of  such  boundaries,  an<l  yet  be  valid.*  The  organization  of  a 
corporation  is  an  act  which,  from  its  very  nature,  can  only  be 
done  by  the  corporators  in  their  constituent  capacity.     If,  there- 

1  Post,  §  86.  '  Bank  of  Augusta  v.  Earle,  13  Pet. 

2  Miller  v.  Ewer,  27  Me.  509,  opin-      (U.  S.)  619. 

ion  by  Shepley,  J.;  quoted  and  re-  *  This    distinction    is     stated    in 

aflarmed  in  Smith  v.  Silver  Valley  Smith  v.  Silver  Valley  Mining  Co. 
Mining  Co.,  64  Md.  85;  s.  c.  54  Am.  supra,  and  in  other  cases.  But  see 
Kep.  760,  765.  Ohio  &c.  R.  Co.  v.  McPherson,  S6  Mo. 

26,  and  Arms  v.   Conant,  36  Vt.  750. 

48 


AT  MEETING  IN   ANOTHER   STATE.       [1  Tliomp.  Corp.   §  56. 

fore,  they  meet  in  a  State  other  than  that  by  which  their  existence 
as  a  corporation  has  been  authorized  and  there  attempt  to  organ- 
ize, their  acts  will  be  void,  and  the  corporation  will  acquire  no 
existence,  unless  by  subsequent  events,  such  as  a  legislative  ratifi- 
cation by  the  State  granting  the  charter.* 

§  56.  Illustrations  of  tlie  foregoing.  —  A  writ  of  entry  was 
brought  to  recover  a  tract  of  land  in  the  State  of  Maine.  The  defend- 
ants claimed  title  through  a  mortgage  executed  by  the  president  and 
secretary  of  the  Blue  Hill  Granite  Company,  which  had  been  char- 
tered as  a  corporation  by  the  legislature  of  Maine  in  1836.  It 
appeared  in  proof  that,  shortly  after  the  date  of  the  charter,  a  meeting 
of  the  corporators  for  the  purpose  of  organizing  the  corporation  was 
called  and  held  in  the  city  of  New  York ;  that  the  charter  was  there 
accepted ;  that  the  officers  of  the  corporation,  consisting  of  president, 
U  secretary  and  directors,  were  there  chosen;  that,  at  a  meeting  of  the 
^  directors  which  was  held  in  the  same  city  in  April,  1837,  the  president 
>■  and  secretary  were,  by  a  vote,  authorized  to  execute  the  mortgage  in 
question,  which  they  accordingly  did.  There  was  no  proof  that  any 
meeting  for  the  organization  of  the  company,  or  for  the  choice  of  its 
officers  had  ever  been  held  in  the  State  of  Maine.  The  court,  upon  this 
proof,  held  that  the  mortgage  passed  no  title,  because  the  directors 
who  ordered  its  execution  had  not  been  lawfully  chosen. ^  -  -  -  - 
In  another  case  in  the  same  State,  a  shareholder  in  a  de  facto  corpora- 
tion sued  the  company  for  dividends  upon  his  shares,  alleged  by  Mm 
to  have  been  illegally  forfeited  by  the  company.  It  appeared  that 
the  act  of  incorporation  had  been  passed  by  the  legislature  of  Maine 
in  1836,  and  that,  in  April  following,  an  attempted  organization  of 
the  corporation  had  been  made  in  the  city  of  Boston,  in  Massachu- 
setts, where  the  number  of  shares  was  determined  and  the  certificates 
issued.  The  court,  following  the  case  last  cited,  held  that  the  stock 
certificate  which  the  plaintiff  offered  in  evidence  as  proof  of  his  right, 
having  been  issued  by  officers  chosen  in  Boston,  was  invalid,  —  rea- 
soning that  there  could  be  no  stock  in  a  non-existent  corporation, 
and  that  the  plaintiff  could  not  have  become  a  stockholder  under 
any  attempted    organization   outside    the  State   granting    the     char- 

1  Miller    v.    Ewer,   supra;  distin-  54     Am.     Rep.     760,    distinpjulshing 

guishiug  Coppp.  Lamb,  3Fairf.  (Me.)  Keene  v.  Van  Reuth,  48  Md.  184. 

314,  aud   McCall  v.  Byrara  Man.  Co.,  2  Miller  v.   Ewer,  27  Me.  509;  s.  c. 

6  Conn.  428.     See  Freeman  v.  Machias  46  Am.  Dec.  619.     The  decision  stands 

&c.  Co.,  38  Me.   343;  Smith  v.  Silver  on  doubtful  grounds ;  they  would  seem 

Valley  Mining  Co.,  G4  Md.  85;    s.  c.  to  have  been  directors  (Ze /ac<o. 

t  49 


1  Thomp.  Corp.  §  69.]     acceptance  of  special  charters. 

ter.^  -  -  -  -  In  a  later  case  in  Maryland,  a  corporate  char- 
ter had  been  granted  by  the  legislature  of  North  CaroUna.  The 
corporators  named  by  the  charter  held  their  first  meeting  in  Balti- 
more, in  the  State  of  Maryland,  and  there  undertook  to  accept  the 
charter  and  to  organize  the  corporation.  Thereafter,  one  of  the  share- 
holders brought  a  suit  in  equity  to  set  aside  a  forfeiture  which  the 
company  had  undertaken  to  make  of  his  shares,  for  the  non-payment  of 
an  assessment,  which  had  Ukewise  been  made  at  a  meeting  of  the  direct- 
ors held  in  Baltimore.  The  court  affirmed  a  decree  dismissing  the 
bill,  placing  its  decision  on  the  ground  that  the  corporation  had  never 
acquired  a  legal  existence,  that  no  vahd  shares  had  been  issued,  and 
consequently  that  the  plaintiff  had  no  standing  in  court.  2  >  -  _  - 
These  three  decisions  seem  to  involve  distinct  departures  from  the 
principle  that  the  vahdity  of  the  existence  of  a  corporation,  or  of  the 
election  of  its  officers,  cannot  be  inquired  into  collaterally. 

§  57.  Withdrawal  or  Repeal  before  Acceptance. —  An  offer 
of  a  charter  to  persons  who  have  not  applied  for  it  is  considered 
as  beino-  in  fieri  until  those  persons  have  accepted  it;  and,  like 
any  other  offer,  it  may  be  withdrawn  at  any  time  prior  to  such 
acceptance.^ 

§  58.  Illustration.  —  An  offer  of  a  railroad  charter  was  made  to 
certain  persons  who  had  not  appUed  therefor,  in  January,  1849,  by  the 
legislature  of  Indiana.  In  June,  1852,  these  persons  first  accepted  the 
charter.  In  November,  1851,  the  new  constitution  of  Indiana  went  into 
effect,  which  provided  that  corporations  other  than  banldng  should  not  be 
created  by  special  laws.  It  was  held  that  the  acceptance  after  Novem- 
ber, 1851,  was  insufficient,  and  that  the  corporation  never  came  into 
existence.'* 

§  59.  Effect  of  Acceptance.  —  Though  it  is  optional  with 
members  of  a  private  corporation  whether  or  not  they  will  take 

^  Freeman  v.   Machias  &c.  Co.,  38  to  repeal  a  previous  legislative  pro- 

Mc.  343.  vision  tliat  all  charters  should  be  sub- 

2  Smith  o.  Silver  Valley  Mining  jeet  to  alteration,  suspension,  and 
Co.,  64  Md.  85;  s.c.  54  Am.  Rep.  760.  repeal  by  the    legislature.    Little  v. 

3  State  V.  Dawson,  16  Ind.  40.  A  Bowers,  46  N.  J.  L.  300.  See 
provision  that  a  charter  should  not  post,  §  92. 

take  effect  unless  the  company  filed  a  *  State  v.  Dawson,  16  Ind.  40. 

written  assent  thereto  In  six  months,  — 
was  held,  not  to  indicate  any  purpose 

50 


EFFECT  OF  ACCEPTANCE.      [1  Thomp.  Corp.  §  60. 

the  benefit  of  their  charter,  yet  after  they  have  made  their  elec- 
tion, by  executing  the  powers  granted,  or  otherwise,  the  duties 
and  liabilities  attach  which  the  charter  imposes. ^  By  accepting 
the  charter,  they  become  bound  by  all  its  provisions,  and  cannot 
insist  that  the  enactment  of  any  provision  therein  was  fraudu- 
lently obtained. 2  Stated  more  fully,  it  has  been  reasoned  that 
an  act  of  incorporation,  which,  after  naming  certain  persons, 
declares  that  they  "  and  such  others  as  may  hereafter  become  as- 
sociated with  them  for  that  purpose,  and  their  successors,  are 
hereby  declared  and  created  a  body  politic  and  corporate,"  con- 
stitutes such  persons  a  corporation  immediately  on  the  passage 
of  the  act,  if  there  are  no  conditions  that  must  be  complied  with 
before  they  can  become  a  body  corporate.  It  is  true  that  the 
charter  of  a  corporation  must  be  accepted ;  but  in  cases  of 
private  corporations  created  for  individual  benefit,  the  presump- 
tion is,  that  they  are  created  at  the  instance  and  on  the  request 
of  the  parties  to  be  benefited  thereby,  and  consequently,  are 
accepted  by  them.  If,  therefore,  they  are  found  exercising  the 
privileges  granted,  it  will  be  almost  conclusive  evidence  of  the 
fact  of  acceptance.^ 

§  60.  Facts  from  which  acceptance  presumed.  — An  ac- 
ceptance by  the  corporators  of  their  charter  and  franchises  may 
be  presumed  from  a  variety  of  circumstances,  —  such  as  the  ex- 
istence of  the  corporate  powers  conferred;*  the  fact  that  a 
charter  has  been  applied  for ;  ^  or  user  of  the  franchises  or  powers 
conferred.® 


1  Riddle  v.  Proprietors  of  Locks  facto  officers  of  the  corporation,  see 
&c.,  7  Mass.  184;  Goslien  Turnpike  v.  Heath  v.  Silverthorn  Lead  Min.  &c. 
Sears,    7  Conn.  86;    Commonwealth  Co.,  39  Wis.  147. 

V.   Worcester    Turnpilie  Co.,   3  Picli.  *  Penobscot  Boom  Corp.  u.  Lawson, 

(Mass.)  327.  16  Me.  224;   Ameriscoggin  Bridge  v. 

2  Bushwicls  &c.  Bridge  Co.  v.  Bragg,  11 N.  11.102.  See  also  Astor 
Ebbetts,  3  Edw.  Ch.  (N.  Y.)  353.  See  v.  New  York  Arcade  R.  Co.,  48  Hun 
an«e,  §38.  (N.  Y  ),  562. 

3  Talladega  Ins.  Co.  v.  Landers,  43  '^  Atlanta  u.  Gate  City  Gas-Light 
Ala.  115,  136.     As  to  what  acts  on  the  Co.,  71  Ga.  106. 

part  of  corporators  will  constitute  an  ^  Illinois  River  R.  Co.  v.  Zimraer, 

acceptance  of  their   charter,  so   as  to  20  111.  654  (case   of   an  amendment)  ; 

tstop  them  from  denying  the  validity  Newton  «.  Carbery,  5  Cranch  C.  C.  (U. 

of  contracts  entered  into  by  tlie   de  S.)  632. 

51 


1  Thomp.  Corp.  §  62.]     acceptance  of  special  charters. 

§  Gl.  Further  of  Evidence  to  show  such  Acceptance.  — It  is 

not  essential,  then,  that  the  acceptance  of  a  charter  should  appear 
in  the  records  of  the  corporation. ^  It  may  be  inferred  from  acts 
of  the  corporators,  or  of  the  corporation,^  —  at  least  unless  the 
charter  in  terms  requires  some  express  act  of  acceptance  from  the 
corporators;  ^  or,  in  case  of  an  amendment  to  the  charter,  from 
acts  of  the  directors.*  Such  evidence  is  afforded  by  the  act  of 
organizing  as  a  corporation  and  exercising  the  franchises  con- 
ferred ;  ^  or  by  the  fact  of  expenditures  and  other  transactions 
in  furtherance  of  the  purpose  thereof,  without  proof  of  any 
formal  organization,  by  meeting,  election,  etc.^  So,  a  notice  for 
a  meeting  to  organize,  signed  by  those  named  in  the  charter,  is 
evidence  of  an  acceptance  of  the  charter.^ 

§  62.  Evidence  of  Non-acceptance.  —  On  the  other  hand, 
this  presumption  of  acceptance  from  the  fact  that  the  charter  has 
been  applied  for  is  rebutted  by  evidence  that  no  proceedings  were 
ever  had  under  it,  although  seven  years  have  elapsed  since  its 
dute.^  The  proprietors  of  a  toll  bridge,  several  years  after  it 
was  built,  were  incorporated  by  the  legislature,  but  did  not  ac- 
cept the  charter.  In  a  quo  warranto  against  them  by  the  attor- 
ney-general, they  had  denied  that  they  had  ever  assumed  to  act 
as  a  corporation,  and  a  judgment  of  preclusion  was  thereupon 
entered.  It  was  held,  that  this  judgment  was  conclusive  evi- 
dence that  they  had  not  accepted  their  charter,  and  could  not  be 
impeached  collaterally.' 

1  Russell  V.     McLellan,  14    Pick,      contracts,  and  hold  and  sell  real  and 
(Mass.)  C3.  personal  property.    The  division  had 

2  Taylor  v.  Newberne,  2  Jones  Eq.      existed  under  that  name  since  1849. 
(N.  C.)  141.  '               These  facts,  together  with  the  exer- 

3  Los^an  v.  McAllister,  2   Del.  Ch.      else  of  corporate  powers  in  conveying^ 
J7(5        '  real  estate  as    security  for    a    loan, 

4  Post   §  87.  were  deemed   sufficient  to    justify  a 

5  Jl^^l^  referee   in  finding  that    the   division 

6  McKay  v.  Beard,  20  S.  C.  15G.  accepted  tlie  act  of  incorporation.     St. 
■»  Cleaves  v.  Turnpike  Co.,  1  Sneed      Paul    Division    v.  Brown,     11   Minn. 

(Tenn.),  491.    In  1851,  the  legislature  356. 

of  Minnesota  authorized  the  organi-  *  Newton  v.   Carbery,  5  Cranch  C. 

zation  of  the  "  St.  Paul  Div.  No.  1  Sons  C.  (U.  S.)  632. 
*  of  Temperance  "as    a    corporation,  »  Thompson  v.  New    York  &c.   R. 

with  power  to  sue  and  be  sued,  make  Co.,  3  Sandf .  Ch.  (N.  Y.)  625. 
52 


QUESTION  FOR  JURY.     [1  Tliomp.  Corp.  §  62. 

§  63.  A  Question  for  a  Jury.  —  The  question  of  the  accept- 
ance of  an  act  of  incorporation  is  for  the  jury^  in  an  action  at 
law.^  This  is  analogous  to  the  rule  in  the  law  of  contracts,  that 
whether  there  has  been  a  verbal  acceptance  of  a  written  proposal 
is  a  question  for  a  jury  ;  ^  and  to  the  rule  in  respect  of  dedica- 
tions of  land  to  public  purposes,  that,  whether  there  has  been  an 
acceptance  of  the  dedication  is  a  question  for  a  jury.^  If,  how- 
ever, the  only  evidence  which  is  tendered  to  show  an  acceptance 
is  a  writing,  the  effect  of  such  writing,  as  evidence  of  an  accept- 
ance, will  be  a  mere  question  of  interpretation,  for  the  judge.* 

1  Hammond  v.  Straus,  53  Md.  1.  3  /jj^^.^  §  1356, 

«  1  Thomp.  Tr.,  §  1114.  *  1  Thomp.  Tr.,  §  1065  et  seq. 

53 


1  Thomp.  Corp.]     amendment  of  ciiauteks. 


CHAPTER    lY. 


AMENDMENT  OF   CHARTERS. 


Section 

66.  Preliminary. 

67.  Power    of  legislature  to    amend 

charters. 

68.  Amendments  in  furtherance  of  the 

original  design. 

69.  Amendments  granting  or  altering 

remedy. 

70.  Amendments  made  in  the  exercise 

of  the  police  power. 

71.  What    amendments    release   non- 

assenting  subscribers. 

72.  View    that    majority    binds    mi- 

nority except  as  to  fundamental 
changes. 
78.  View  that  majority  binds  minority 
unless  there  is  a  total  deviation 
from  the  original  object. 

74.  What  changes  are  material  so  as 

not  to  bind  minorities. 

75.  Amendments  authorizing  consoli- 

dation or  subdivision. 

76.  Other    changes     deemed    funda- 

mental. 

77.  Further   holdings    on    this    sub- 

ject. 

78.  Amendments  increasing  the  capital 

stock. 

79.  Illustrations. 

80.  When  stockholder  bound  on  prin- 

ciple of  acquiescence,  ratifica- 
tion or  estoppel. 

81.  Effect  of  want  of  knowledge  of  the 

change  on  the  part  of  a  share- 
holder. 

82.  Other  alterations  immaterial  and 

hence  permissive. 

83.  Amendments  changing  denomina- 

tion of  shares. 
54 


Section 

84.  View  that  subscription  is  made 

subject  to  legislative  power  to 
amend  charter. 

85.  Materiality  of  amendment,  ques- 

tion for  court. 

86.  What  body  give  assent. 

87.  When  the  action  of  the  directors 

evidence  of  acceptance. 

88.  Illustration. 

89.  Effect  of  reservation  of  power  to 

alter  or  repeal. 

90.  Whether  this   power  is  merely  a 

reservation  to  state  for  public 
purposes. 

91.  Further  of  this  subject. 

92.  Power    to    alter    or  repeal,    re- 

served in  a  general  law,  ap- 
plies to  future  special  char- 
ters. 

93.  Illustration. 

94.  Subsequent  general  laws    oper- 

ating as  amendments  of  special 
charters. 

95.  Amendments  authorizing   a  sur- 

render of  franchises. 

96.  When  acceptance  of  amendment 

not  necessary. 

97.  Evidence  of  acceptance  of  amend- 

ment by  corporation. 

98.  Evidence  of  acceptance  by  stock- 

holders. 

99.  View  that  assent  of  stockholder 

is  to  be  presumed,  and  dissent 

proved. 
IOC.  Instances    under    the    foregoing 

rule. 
101.  Estoppel  to   deny  acceptance   of 

amendment. 


POWER  TO  AMEND.     [1  Thomp.  Corp.  §  67. 

Section  Section 

102.  View    that  objections  can  only      104.  Objection  by  third  parties:  con- 

be  raised  by  quo  warranto,  etc.  tractors. 

103.  Amendment    by  substitution  of      105.  How  minority  are    protected  in 

new  charter.  England. 

§  66.  Preliminary. — The  constitution  of  the  United  States 
provides  that  *' no  State  shall  *  *  *  pass  any  *  *  * 
law  impairing  the  obligation  of  contracts."  ^  It  was  established 
by  the  Supreme  Court  of  the  United  States,  in  the  celebrated 
case  of  Dartmouth  College  v.  Woodward,'^  that  the  charter  of  a 
private  corporation,  when  granted  by  the  legislature  and  accepted 
by  the  grantees,  becomes  a  contract  between  the  State  and  the 
corporation,  which  can  not  be  impaired  by  subsequent  legisla- 
tion, without  the  consent  of  the  other  contracting  party.  It  is 
not  intended  in  this  chapter  to  enter  upon  a  general  discussion 
of  the  inviolability  of  corporate  charters  under  this  decision; 
that  subject  is  reserved  for  future  treatment.^  It  will  be  neces- 
sary, however,  to  consider  the  subject  in  this  chapter,  in  so  far 
as  it  involves  the  question  of  the  power  of  the  legislature  to 
grant  amendments  to  corporate  charters  on  the  application  of  a 
majority  of  the  members,  or  of  the  governing  body,  but  without 
the  concurrence  of  all  the  members,  so  as  to  bind  the  corporation 
or  the   dissenting  members. 

§  67.  Power  of   Ijegislature   to  amend  Charters.  —  In  the 

case  of  municipal  or  other  public  corporations,  the  charter  does 
not  constitute  a  contract  between  the  State  and  the  corporators 
within  the  meaning  of  the  clause  of  the  constitution  of  the  United 
States  above  quoted.  It  follows  that,  in  respect  of  public  corpo- 
rations, the  power  of  the  legislature  to  alter,  modify  or  abro- 
gate any  corporate  power  or  franchise  conferred  by  previous 
charter  is  plenary,  and  no  member  will  be  heard  to  object 
thereto.*  But,  by  reason  of  this  constitutional  prohibition,  it  is 
regarded  by  most  courts  as  beyond  the  power  of  the  legislature 

1  Const.  U.  S.,  Art.  I,  §  10.  325;  Cole  w.  East  Greenwich  Fire  En- 

2  4  Wheat.  (U.  S.)  519;  reversing  s.      gine  Co.,  12  R.  I.  202;  Louisville  u. 
c.  1  N.  H.  111.  Louisville   University,    15    B.    Monr. 

8  Pos«, Ch.  117,  Art.  I.,  cfsery.  (Kv.)    642;    Head   i>.   University,    19 

^  People  V.  Morris,  13  Wend.  (N.  Y.)      Wall.  (U.S.)  526. 

55 


1  Thomp.  Corp.  §  67.]     amendment  of  ciiauters. 

of  a  State  to  make  /undame7ital  changes  in  the  charter  of  an  ex- 
isting private  corporation,  such  as  materially  alter  the  nature  of 
the  corporation,  or  change,  or  enlarge  its  powers  or  purposes, 
without  the  consent  of  all  the  stockholders  or  members,^ 
unless  the  legislature  has  reserved  the  power  to  make  such 
changes  in  the  original  charter,  or  unless  such  power  is  reserved 
to  the  legislature  in  the  constitution  of  the  State,^  or  in  some  stat- 
ute which  is  operative  notwithstanding  the  silence  of  the  char- 
ter.^ But  if  the  power  to  alter  or  repeal  is  reserved  in  the 
incorporating  act,  or  otherwise  as  above  stated,  the  legislature 
may  make  such  alterations  or  amendments  as  it  may  see  fit,  and 
the  judicial  courts  will  have  no  power  to  consider  their  pro- 
priety.* 


1  Livingston  v.  Lynch,  4  Jolins.  Ch. 
573;  Natusch  v.  Irving,  2  Coop.  Ch. 
(Tenn.)  358. 

2  If  the  power  is  reserved  in  the 
constitution  of  the  State,  it  need  not 
be  contained  in  the  charter.  Dela- 
ware Railroad  Co.  v,  Tharp,  5  Harr. 
(Del.)  454. 

3  Mowrey  v.  Indianapolis  R.  &c. 
Co.,  4  Biss.  (U.  S.)  78;  City  of  Cov- 
ington w.  Covington  &c.  Bridge  Co.,  10 
Bush  (Ky.),  69;  Allen  v.  Buchanan,  9 
Phil.  (Pa.)  283;  Indiana  &c.  Turnp. 
Road  V.  Phillips,  Peur.  &  W.  (Pa.) 
184;  State  v.  Heyward,  3  Rich  L.  (S. 
C.)  389;  Winter  v.  Muscogee  R.  Co., 
11  Ga.  438;  New  Orleans  &c.  R.  Co.  v. 
Harris,  27  Miss.  517;  Fry  v.  Lexing- 
ton &c.  R.  Co.,  2  Mete.  (Ky.)  314; 
Hamilton  ■».  Keith,  5  Bush  (Ky.),  458. 
The  cases  cited  do  not,  all  of  them, 
express  fully  the  doctrine  of  the  text. 
It  has  been  drawn  on  a  comparison  of 
many  decisions.  In  some  of  the  cases 
general  expressions  are  found  to  the 
effect  that  an  act  of  the  legislature 
granting  new  franchises  to  an  exist- 
ing corporation  upon  specified  con- 
ditions, is  inoperative  until  it  is 
acepted.  Lyons  v.  Orange  &c.  R.  Co., 
33  Md.  18.  It  was  said  by  Lord  Holt, 
C.  J.,   that  although   the  king  might 

56 


make  such  a  constitution  as  they 
themselves  (meaning  the  corporation) 
might  have  done  without  him,  but  the 
new  charter  had  been  void  if  the  cor- 
poration had  refused  it;  but  when 
they  accept  and  put  it  in  execution 
then  it  is  good.  Rex  v.  Larwood, 
Comb.  315,  316. 

4  Miners'  Bank  v.  United  States,  1 
Greene  (Iowa) ,  553 ;  s.  c.  1  Morr.  (Iowa) 
482;  Hyatt  v.  McMahon,  25  Barb. 
(N.  Y.)  457;  State  v.  Granville  &c.  So- 
ciety, 11  Ohio,  1 ;  Salay.New  Orleans, 
2  Woods  (U.  S.),  188;  Lothrop  v. 
Stedman,  42  Conn.  583;  Gardner  v. 
Hope  Ins.  Co.,  9  R.  I.  194;  s.  c.  11  Am. 
Rep.  238;  Lothrop  v.  Stedman,  13 
Blatch.  (U.  S.)  134;  Joslyn  v.  Pacific 
Mail  Steamship  Co.,  12  Abb.  Pr.  (n. 
s.)  (N.  Y.)  329;  Com.  v.  Fayette  Co. 
R.  Co.,  55  Pa.  St.  452;  Robinson  v. 
Gardiner,  18  Gratt.  (Va.)  509;  Close 
V.  Gleuwood  Cemetery,  107  U.  S.  466 
(charter  granted  by  Congress).  It  is 
added  in  some  cases  that  this  rule  is 
subject  to  the  qualification  that  the 
power  is  not  to  be  exercised  in  such  a 
way  as  to  violate  the  principles  of  nat- 
ural justice.  Sala  v.  New  Orleans,  2 
Woods  (U.  S.),  188;  Lothrop  v. 
Stedman,  13  Blatch.  (U.  S.)  134. 


ALTERING    REMEDIES.        [1  Thoilip.  Coip.   §  69. 

§  68.  Amendments  in  Furtherance  of  tlic  Original  Design. — 

This  rule  does  not  extend  so  far  as  to  prevent  the  legislature  from 
enacting  amendments  to  a  charter,  in  furtherance  of  the  original 
design,  on  the  application  of  the  corporation  or  of  a  majority  of 
the  members.^  The  constitutionality  of  a  statute,  by  which  cer- 
tain stockholders  of  a  railroad  company  were  required  to  waive 
their  interest  in  a  municipal  subscription  in  aid  of  the  railroad, 
has  been  upheld,  on  the  ground  that,  without  the  aid  of  the  sub- 
scription under  the  amended  charter,  the  stock  of  such  subscrib- 
ers would  be  worthless,  and  that  they  could  not  lose,  but  must 
o-ain,  .by  the  provision  complained  of.^  The  mere  grant  of 
auxiliary  poivers  to  enable  the  corporation  the  better  to  carry 
out  the  original  design,  does  not  constitute  such  a  radical  and 
fundamental  change  in  the  objects  and  purposes  for  which  the 
original  company  was  chartered,  as  places  the  amendment  within 
the  category  of  statutes  impairing  the  obligation  of  contracts. 
Instead  of  impairing  the  obligation  of  the  contract  expressed  in 
the  charter,  it  aids  and  effectuates  it.^  The  same  may  be  said  of 
amendments  removing  restrictions,  or  releasing  or  discharging 
burdens  to  which  the  corporation  is  subject  under  an  existing 
statute,* — such  as  an  amendment  empowering  a  religious  cor- 
poration to  sell  for  its  own  benefit  its  real  estate,  although  its 
charter  forbids  such  alienation;^  ov  extending  the  time  within 
which  the  corporation  may  complete  its  undertaking.^ 

§  69.  Amendments  Oranting  or  Altering  Remedies.  —  Nor 
does  this  constitutional  inhibition  extend  so  far  as  to  disable  the 
legislature  of  a  State  from  altering  an  existing  charter  of  a  pri- 
vate corporation,  so  as  merely  to  effect  a  change  of  remedies 

1  state  V.  Accommodation  Bank  of  Mahon,  25  Barb.  (N.  Y.)  457 ;  Curry 
La.,  26  La.  Ann.  288;  Fry  v.  Lexing-  v.  Scott,  54  Pa.  St.  270;  Zabriskie  v. 
ton  &c.  R.  Co.,  2  Mete.  (Ky.)  314;  Hackensack  &c.  R.  Co.,  3  Green  (N. 
Winter  v.   Muscogee  R.   Co.,  11    Ga.  J.)  178. 

438.  ■*  People  v.  Grand  &c.  Plank  Road 

2  Shelby  County  v.  Shelby  Railroad      Co.,  10  Mich.  400. 

Co.,  5  Bush  (Ky.),  225.  *  Burton's  Appeal,  57  Pa.  St.  213. 

3  Sprigg  V.  Western  U.  Tel.  Co.,  46  «  Taggart  v.  Western  Maryland  R. 
Md.  67;  Gifford  w.  New  Jersey  R.  Co.,  Co.,  24  Md.  563;  s.  c.  89  Am.  Dec. 
ION.  J.  Eq.  171;  Mayor  of  Wetumpka  761,  771;  Union  Hotel  Co.  v.  Hersee, 
V.  Winter,  29  Ala.  G51;    Hyatt  v.  Mc-  79  N.  Y.  458. 

57 


1  Thomp.  Corp.  §  69,]     amendment  of  charters. 

without  divesting  any  existing  rights.  ^  The  power  of  a  State  to 
reo-ulato  the  forms  of  administering  justice  is  an  incident  of 
sovereignty,  and  its  surrender  is  never  presumed.  Therefore  a 
statute  which  prescribes  a  mode  of  serving  process  upon  railroad 
companies,  different  from  that  provided  for  in  a  charter  previous- 
ly granted  to  a  particuhir  company,  does  not  impair  the  obliga- 
tion of  the  contract  between  such  company  and  the  State,  and  is 
not  invalid. 2  So,  it  has  been  held  that  the  legislature  has  the 
power  to  modify  at  its  pleasure  a  summary  remedy  against  de- 
faulting stockholders  given  to  a  corporation  by  its  charter.^  So, 
although  a  charter  contain  no  provision  for  the  liquidation  of  a 
corporation  in  case  of  its  dissolution^  the  omission  may  be  sup- 
plied by  subsequent  legislation,  without  impairing  the  obligation 
of  the  contract  between  the  State  and  the  corporators,  conceding 
the  charter  to  be  such.*  So,  a  provision  in  a  special  charter  pre- 
scribing the  manner  in  which  the  corporation  must  proceed  in 
condemning  land,  must  yield  to  a  subsequent  general  law  pre- 
scribing a  different  mode.^  There  is  more  difficulty  in  uphold- 
ing amendments  which  grant  to  individuals  remedies  against  the 
corporation  which  did  not  exist  before,  in  such  a  sense  that  the 
right  inheres  in  the  remedy.  Thus,  it  has  been  reasoned,  with 
reference  to  a  corporation  which  found  it  necessary  to  damage 
land  in  the  prosecution  of  its  works,  that  the  legislature  could 
not,  by  a  law  enacted  subsequent  to  its  charter,  give  to  land- 
owners a  remedy  for  damages  where  none  existed  under  the 
charter.  But  where  a  supplementary  charter  had  been  accepted 
by  the  corporation,  in  which  a  power  was  reserved  to  the  legislature 
to  alter  and  amend  its  charter  so  as  to  do  no  injustice  to  its  stock- 
holders,—  it  was  held  competent  for  the  legislature  to  enact  a  law 
giving  to  land-owners  a  remedy  for  damages  already  done.^  But 
such  remedies  may  be  given  in  the  exercise  of  the  police  power, 
which  the  State  possesses  alike  over  persons  and  corporations.^ 

1  Eeapers'  Bank  v.  Willard,  24  111.  •'  ex  parte  North  East  &c.  R.  Co., 
433;  Gowen  v.   Penobscot  K.    Co.,  44      37  Ala.  679. 

Me.  140',  Cummings  v.  Maxwell,    45  ^  Haynes  v.  Carter,  9  La.  An.  2G5. 

Me.  190;  Hyatt  v.  McMahon,23  Barb.  «  McCrea  v.  Port  Royal  R.  Co.,  3  S. 

(N.  Y.)  457.  C.  381 ;  s.  c.  16  Am.  Rep.  729. 

2  Railroad  Co.  v.  Hecht,  95  U.  S.  ®  Monongahela  Nav.  Co.  v.  Coon,  6 
168;  affirming  s.  c.  29  Ark.  661.  Pa.  St.  379. 

^  See  Board  of  Int.  Imp.  v.  Scarce, 

.0  8 


NON-ASSENTING  SUBSCRIBERS.     [1  Thomp.  Corp.  §  71. 

§  70.  Amendments  made    in   the    Exercise   of   the   Police 
Power.  —  Nor  can  the  legislature  of  the  State,  by  the  grant  of 
a  particular    charter  to    a  private   corporation,  disable  future 
legislatures  from  enacting  wholesome  and  necessary  police  recru- 
lations;^  though  in  many  cases  great  difficulty  will  be  found  in 
drawing  the  line  between  an  inviolable  charter  right  and  a  police 
regulation  which  it  is  competent  for  the  legislature  to  enact.     It 
has  been  held  that  a  statute  of  Massachusetts,  relating  to  the 
manufacture  and  sale  of  malt  and  other  intoxicating  liquors,  is  in 
the  nature  of  a  police  regulation  of  a  particular  kind  of  property, 
and  applies  to  such  property  when  in  the  hands  of  corporations 
as  well  as  when  in  the  hands  of  individuals;  and  that  it  does 
not  impair  the  obligation  of  the  contract  contained  in  the  charter 
of  a  corporation,  although  the  corporation  was  created   before 
the  passage  of  the  statute,  under  a  charter  which  authorized  it 
to  manufacture  such  liquors,  and  although  the  legislature  had  re- 
served no  power  to  alter,  modify  or  repeal  the  charter .^     It  has 
been  held  in  Connecticut  that   a   statute  requiring   a   railroad 
company  to   reopen  and   maintain  a  station  on  its  road,  which 
it  has  abandqned,  is  not  in  the  nature  of  an  amendment  of  the 
charter,  requiring  acceptance  by  the  company  before  it  can  take 
effect,  but  is  an  exercise  of  the  legislative  authority  to  direct  the 
management  of  the  road,  and  is  obligatory,  from  the  time  of  its 
enactment.^ 

§  71.  What  Amendments  Release  Non-assenting  Subscrib- 
ers.—  The  relation  between  a  corporation  and  a  stockholder  is 
one  of  contract,  and  hence  any  legislative  enactment  which, 
without  the  assent  of  the  stockholder,  authorizes  a  material 
change  in  the  powers  or  purposes  of  the  corporation,  not  in  aid 
of  its  original  object,  is  not  binding  upon  him.*     The  grounds 

2  Duv.  (Ky.)  576;  post,  next  section,  2  Com.  v.  Certain  Intoxicating  Liq- 

and  Ch.  118.  uors,  115  Mass.  153.     Compare  Beer 

1  Pos«,  Ch.  118.  Rodemacher  v.  Mil-  Co.  v.  Massachusetts,  97  U.  S.  25. 

waukee  &c.  R.  Co.,  41  Iowa,  297  (im-  ^  gtate  v.  New  Haven  &c.  R.  Co., 

posing   liability    for    railway    fires);  43  Conn.  351.     See,  in  supposed  illus- 

Wilder  v.  Maine  Central  R.  Co.,  65  Me.  tration  of  the  text,  State  v.  Greer,  9 

332   (requiring  railway  companies  to  Mo.     App.    219    (changing    mode    of 

fence  their  tracks)  ;  State  v.  Noyes,  47  voting  at  corporative  elections). 

Me.   189;  Indianapolis   &c.  R.  Co.   v.  *  Sparrow    v.  Evansville     &c.    R. 

Townsend,  10  Ind.  38.  Co.,  7  Ind.  369;  McCray  v.  Junction 

59 


1  Thomp.  Corp,  §  71.]     amendiMent  of  charters. 

on  which  stockholders  are  entitled  to  claim  a  release  from  the 
obligation  of  their  subscription,  where  there  has  been  a  material 
change  in  the  charter,  are  very  plain.  By  his  subscription,  the 
stockholder  agrees  to  furnish  money  to  be  applied  for  a  particu- 
lar purpose.  This,  of  course,  does  not  bind  him  to  furnish  the 
money  if  it  is  to  be  applied  to  a  materially  different  purpose.^ 
A  strictly  logical,  though  extreme  view  is,  that  the  alteration  of 
a  corporate  charter,  affecting  substantially  the  character  of  the 
enterprise,  can  be  had  only  by  unanimous  consent  of  the  members 
of  the  corporation.  There  are  cases  which  uphold  this  rule  to 
the  extent  of  declining  any  inquiry  into  the  advantage  or  disad- 
vantao"e  which  may  flow  from  such  a  change  to  a  dissenting 
stockholder,  or  into  the  materiality  or  immateriality  of  the 
amendment  as  affecting  his  contract,  or  into  the  private  reasons 
which  he  may  have  for  dissenting  from  the  change.^  They  con- 
cede to  him  the  right  to  say  non  hocc  in  feeder  a  veni?  But,  as 
corporate  ventures,  owing  to  unforeseen  difficulties,  can  seldom 
be  carried  out  in  strict  accordance  with  the  original  under- 
taking, most  courts  have  found  this  rule  too  severe  for  practical 
justice.*     Two  qualifications  have  therefore  been  grafted  upon 

R.  Co.,  9  Ind.  358;  Booe  v.  Junction  placed  in  a  small  majority  to  clog  the 

R.  Co.,  10  Ind.  93;  Martin  v.  Junction  wheels  of  a  large  corporation,  by  in- 

R.  Co.,  12  Ind.  605;  States.  Bailey,  16  terposiug  an  injunction  to  its  further 

Ind.  46.  progress,  under  an  amendment  which, 

1  Union  Locks  &c.  Co.  v.  Towne,  1  though  makiug  no  material  change  in 

N.  H.  44;    s.   c.  8  Am.  Dec.  32.     See  the  charter,  might  yet  contain  such 

also  Middlesex  Turnp.  Corp.  v.  Locke,  further  privileges  or  indemnities  as 

8  Mass.  268;  Middlesex  Turnp.  Corp.  would  be  not  only  highly  beneficial  to 

V.   Swan,  10  Mass.   384;    s.   c.  6  Am.  the  corporation,   but    also,   perhaps, 

Dec.  139;  Ang.  &  A.  Corp.,  §  537.     Of  absolutely  necessary  to  the  profitable 

course,  and  under  any  rule  or  theory,  prosecution  of  its  business.    Or,  again, 

the  consenting  shareholders  are  bound,  a    corporator  might,  under  this  rule, 

Chesapeake  &c.  Canal  Co.  v.  Robert-  when  his  subscription  to  the  capital 

son,  4CranchC.  C.  (U.  S.)  291.  stock  was    sought    to    be    collected, 

-  Central  R.  Co.  v.  Collins,  40  Ga.  avoid  it  upon  the  ground  that  the  char- 

617;  Zabriskie  v.  Hackensack  R.  Co.,  ter  had  been  changed  in  some  imma- 

18  N.  J.  Eq.  170.  terial  way,  though  the  alteration  had 

3  Union  Locks  &c.  Co.  v.  Towne,  1  never  affected  his  interests.  The  courts 

N.  II.  44;  s.  c.  8  Am.  Dec.  32.  have,  therefore,   almost  unanimously 

*  It  has  been  observed:   "Such  a  agreed  in  restricting  their  protection 

rule  has  been  found  too  stringent  for  over  the  minority  to  those  changes  in 

the  practical  administration  of  jus-  the  charter  which  are  radical."    53  Am. 

tice.    Too  much  power  would  thus  be  Dec.  462,  note. 

60 


NON-ASSENTING    SUESCKIBERS.        [1  TllOmp.  Coi'p.    §  72. 

it:  1.  That  it  does  not  apply  where  the  change  produced  by  the 
amendatory  act  is  trifling  or  immaterial.^  2.  That  it  does  not 
apply,  at  least  in  its  full  force,  where  the  act  of  incorporation  is 
by  its  terms  subject  to  amendment ^  alteration  or  repeal  at  the 
pleasure  of  the  legislature.^  But,  unless  this  power  is  reserved, 
it  must  follow  that  the  legislature  cannot,  in  an  amendatory  act, 
authorize  the  majority  to  accept  the  amendment  so  as  to  bind 
the  minority ;  because  this  would  have  the  effect  of  impairing 
the  obligation  of  the  contract  entered  into  among  the  corpora- 
tion, the  majority  and  the  minority  in  the  original  subscrip- 
tion;  ^  though  an  act  of  the  English  or  Canadian  parliament, 
which  is  not  under  such  a  constitutional  restraint,  could  easily 
go  to  this  extent.* 

§  72.  View  that  Majority  binds  Minority  except  as  to  Fun- 
damental Changes.  —  Most  of  the  cases  unite  upon  the  practi- 
cal and  just  rule  that,  when  a  person  subscribes  to  the  capital 
stock  of  a  corporation,  he  does  it  with  the  implied  under- 
standing that  changes  may  be  made  in  the  charter  by  the  action 
of  the  majority,  which  do  not  radically  deflect  the  enterprise 
from  its  original  purposes.  Accordingly,  the  rule  is  said  to  be, 
that  in  the  absence  of  a  power  reserved  by  or  to  the  legisla- 
ture to  amend  the  charter,  or  of  a  provision  in  the  charter  that 
the  majority  may  accept  an  amendment  thereto,  —  an  acceptance 
by  the  majority  of  a  material,  radical  or  fundamental  change  in 
the  charter  binds  only  the  accepting  majority,  and  discharges  a 
dissenting  shareholder  from  his  contract  of  subscription.^     On 

1  Milford  &c.  Turnp.  Co.  v.  Bxnish,  acts  not  contemplated  by  the  common 
10  Oh.  HI;  s.  c.  36  Am.  Dec.  79.  contract  (Burmesteru.  Norris,  G  Exch. 

2  Such  has  been  the  case  with  all  790),  by  holding  that  it  does  not  apply 
the  Massachusetts  acts  of  incorpora-  to  corporate  companies  organized  uu- 
tion  granted  since  March,  1831.  Agri-  der  sanction  of  Parliament  for  an  un- 
caltural  Branch  Railroad  v.  Winches-  dertaking  involving  public  interests  VLixd 
ter,  13  Allen  (Mass.),  32,  per  Chapman,  duties.  Ffooks  v.  London  &c.  R.  Co  , 
J,  17  Jur.  365;  Stevens  v.  South  Devon 

3  New  Orleans  &c.  R.  Co.  v.  Harris,  R.  Co.,  13  Beav.  48. 

27  Miss.  517.  ^  Mowrey  v.  Ind.  &  Cin.  R.  Co.,  4 
*  The  English  court  have  gone  Biss.  (U.  S.)  86;  Clearwater  y.  Mere- 
further,  and  have  qualified  the  rule  dith,  1  Wall.  (U.  S.)  25,  40;  Railway 
that  a  majority  cannot  bind  the  mi-  Co.  v.  Allerton,  IS  Id.  233,  235;  Ash- 
nority  in  a  joint-stock  company  as  to  ton  u.    Burbank,    2  Dill.    (U.  S.)  435; 

61 


1  Thomp.  Corp.  §  73.]     amendment  of  charters. 

the  other  hand,  those  changes  in  the  charter  which  in  no  way 
materially  affect  the  compact  subsisting  among  the  share- 
holders, but  which  merely  have  the  effect  of  clothing  the  cor- 
poration with  additional  immunities  and  privileges,  in  further- 
ance of  the  original  design  of  its  incorporation,  will,  when  ac- 
cepted by  a  majority  in  amount  or  number  of  the  shareholders, 
according  to  the  method  of  voting  prescribed  by  the  charter  or 
governing  statute,^  bind  the  whole  corporation,  and  a  dissent- 
ing: member  will  remain  liable  on  his  shares.^ 


Printing  House  v.  Trustees,  104  U. 
S.  711;  Kenosha  &c.  R.  Co.  v.  Marsh, 
17  Wis.  13;  Indiana  &c.  Turnp.  Co.  v. 
Phillips,  2  Penr.  &  W.  (Pa.)  184; 
Brown  v.  Fairmouut  Min.  Co.,  10 
Phila.  (Pa.)  32;  Turup.  Co.  v.  Arndt, 

31  Pa.  St.  317;  Lauman  v.  Lebanon 
Valley  &c.  R.  Co.,  30  Id.  42;  McCray 
V.  Junction  R.  Co.,  9  Ind.  358;  Booe 
V.  Junction  R.  Co.,  10  Id.  93;  Shelby- 
ville  Turnp.  Co.  v.  Barnes,  42  Id.  498; 
Supervisors  of  Fulton  Co.  v.  Miss.  &c. 
R.  Co.,  21  111.  338;  Troy  &c.  R.  Co,  v. 
Kerr,  17  Barb.  (N.  Y.)  581,  607;  Buf- 
falo &c.  R.  Co.  V.  Pottle,  2S  Id.  21; 
Hartford  &c.  R.  Co.  v.  Croswell,  5 
Hill  (N.  Y.),  383,  386;  New  Orleans 
&c.  R.  Co.  v.  Harris,  27  Miss.  517,  537, 
539;  Hester  v.   Memphis  &c.   R.  Co., 

32  Id.  380;  Champion  v.  Memphis  &c. 
R.  Co.,  35  Id.  692;  States.  Accommo- 
dation Bank  of  La.,  26  La.  Ann.  288; 
Hoey  V.  Henderson,  32  Id.  1069; 
Stevens  v.  Rutland  &c.  R.  Co.,  29  Vt. 
54G;  Waring  v.  Mayor  &c.  of  Mobile, 
24  Ala.  701 ;  Winter  v.  Muscogee  R.  Co., 
11  Ga.  438;  Fry  v.  Lexington  R.  Co., 
2  Met.  (Ky.)  314;  Thompson  v.  Guion, 
5  Jones  Eq.  (N.  C.)  113;  Charlotte 
Bank  w.  Charlotte,  85  N.  C.  433;  Mid- 
dlesex Turnp.  Corp.  v.  Locke,  8  Mass. 
268;  Bliddlesex  Turnp.  Corp.  v. 
Swan,  10  Id.  385;  Old  Town  &c.  R. 
Co.  V.  Veazie,  39  Me.  571;  Kean  v. 
Johnson,  9  N.  J,  Eq.  407;  Black  v. 
Delaware  &c.  Canal  Co.,  24  Id.  455, 
466;  Tuttle    v.    Mich.    Air    Line,    35 

62 


Mich.  247;  Marietta  &c.  R.  Co.  v. 
Elliott,  10  Oh.  St.  57;  Union  Locks 
&c.  V.  Towne,  1  N.  H.  44 ;  Witter  t>. 
Miss.  R.  Co.,  20  Ark.  488;  Mississippi 
&c.  R.  Co.  V.  Cross,  Id.  443.  See 
Clinch  V,  Financial  Co.,  L.  R.  4  Ch. 
Ap.  117;  Dougan's  Case,  L.  R.  8  Ch. 
Ap.  540;  Simpson  v.  Denison,  10 
Hare,  54,  56. 

1  Generally  a  majority  in  value,  and 
not  a  majority  in  number;  otherwise 
a  majority  in  number  having  but  a 
relatively  small  interest  in  the  cor- 
poration, could,  by  their  acceptance 
of  an  amendmint  to  its  charter,  con- 
trol the  majority  in  amount  and  change 
the  nature  of  their  investment.  Wit- 
ter V.  Mississippi  &c.  R.  Co.,  20  Ark. 
463. 

2  Fry's  Executors  v.  Lexington  &c. 
R.  Co.,  2  Met.  (Ky.)  322;  Waring  v. 
Mayor  &c.  of  Mobile,  24  Ala.  201; 
Everhart  v.  Westchester  &c.  R.  Co.. 
28  Pa.  St.  339;  Irvine  v.  Turnp.  Co., 
2  Penr.  &  W.  (Pa.)  474 ;  Clark  v.  Mo- 
nongahela  Nav.  Co.,  10  Watts  (Pa.), 
364;  Poughkeepsie&c.  Plank  R.  Co.  v. 
Griffin,  24  N.  Y.  150;  Taggart  v.  West- 
ern Md.  R.  Co.,  24  Md.  564;  Bank  v. 
Richardson,  1  Me.  79;  Bucksport  R. 
Co.  V.  Buck,  68  Id.  81;  Woodfork  t>. 
Union  Bank,  3  Coldw.  (Tenn  )  488; 
Greeneville  &c.  R.  Co.  v.  Johnson,  8 
Baxt.  (Tenn.)  332;  State  v.  Accommo- 
dation Bank  of  La.,  26  La.  Ann.  288; 
Joy  V.  Jackson  &c.  R.  Co.,  11  Mich. 
155;  Wilson  v.  Wills  Valley  R.  Co.,  33 


NON-ASSENTING   SUBSCRIBERS.       [1  Thomp.  Corp.   §  74. 

§  73.  View  that  Majority  binds  Minority  unless  there  is  a 
Total  Deviation  from  the  Original  Object.  —  There  is  another 
and  more  limited  view,  that  a  change  in  the  charter,  procured 
and  accepted  by  a  majority  of  the  shareholders,  will  bind  the 
minority,  unless  the  change  is  so  radical  as  to  have  the  effect  to 
wrench  the  enterprise,  so  to  speak,  entirely  from  its  original 
purpose,  —  as  to  change  a  canal  company  into  a  railway  com- 
pany, an  insurance  company  into  a  banking  company,  or  the 
like.  The  view  of  these  cases  is  that  the  dissenting  minority 
remain  bound  upon  their  contracts  of  subscription,  provided  the 
general  character  and  scope  of  the  corporation  remains  the 
same  under  the  amendment  as  before,  although  the  amendment 
has  worked  a  grave  alteration  in  its  organization,  or  in  respect 
of  the  extent  of  the  undertaking  which  it  was  originally  planned 
to  perform.^  In  the  view  of  these  courts,  the  will  of  the  major- 
ity should  govern,  unless  there  is  fraud,  or  an  entire  change  in 
the  original  purpose.^ 

§  74.  What  Changes  are  Material  so  as  not  to  Bind  Minor- 
ities. —  Amendments  to  the  charters  oirailway  companies  which 
essentially  vary  the  route  of  the  road,^  so  as  to  cause  it  to  run 
through  a  different  section  of  country,  or  otherwise  essentially 
alter  its  plan,  or  change  its  terminus,^  or  extend  the  road   be- 

9 

Ga.   470;   Fall  River  Ironworks    v.  8  Fla.  381;  Dayton  &c.  R.  Co.  r.  Hatch, 

Old  Colony  R.  Co.,  5  Allen  (Mass.),  1  Disney  (Oh.),   84;  Carrie  v.   Mut. 

221 ;  Agricultural  R.    Co.  v.  Winches-  Ass.  Soc,  4  Hen.  &  M.  (Va.)  315. 

ter,  13  Id.  29;  Peoria  v.  Preston,  35  ^  Sprague  v.   Illinois  &c  R.  Co.,  19 

Iowa,  115.  111.  174;  Illinois  &c.R.  Co.  v.  Zimmer, 

1  Banett  u.  Alton  &c.  R.  Co.,  13  111.  20  111.   654;  Ross    v.  Chicago  &c.   R. 

5C4;  Peoria  &c.  R.   Co.  v.   Elting,  17  Co.,     77  111.     127.     Compare    Fulton 

Id.  429;  Sprague  u.   Illinois   Riv.   R.  County  v.  Marsh,  10  Wall.  (U.  S.)  677. 

Co.,  19  Id.  174;  Illinois  Riv.  R.  Co,  v.  ^  Hester  v.  Memphis  &c,  R.  Co.,  32 

Zimmer,  20    Id.    654;    Rice   v.   Rock  Miss.  380;  Champion  u.  Memphis  &c. 

Island  R.  Co.,  21  Id.  93;  Illinois  Grand  R.  Co.,  35  Id.  692;  Winter  v.  Muscogee 

Trunk  R.  Co.  v.  Cook,  29  Id.  243;  Ross  R.  Co.,  11  Ga.  45;    Buffalo   &c.  R.  Co. 

V.  Chicago  &c.  R.  Co.,  77  Id.  134;  Pa-  v.  Pottle,  23  Barb.  (N.  Y.)  21. 

cific  R.   Co.  V.  Renshaw,  18  Mo.  21C;  *  Marietta  &c.  R.  Co.   v.  Elliott,  10 

Pacific  R.  Co.  V.  Hughes,  22  Id.  297.  Oh.  St.  57;  Middlesex  Turnp.  Corp.  u. 

See  also  Gray  v.   Monon2:ahela  Nav.  Locke,  8  Mass.  267;  Middlesex  Turnp. 

Co.,  2  Watts  &   S.  (Pa.)  I.'jG;  Cross  v.  Corp.  w.  Swan,  7d.   385;    Plank   Road 

Peach  Bottom   R.  Co  ,  90  Pa.  St.  392;  &c.  Co.  Arndt,  31  Pa.  St.  317;  Thomp- 

Delawaro  11.  Co.  v.  Tharp,  1   Iloust.  son  u.  Guiou,  5  Jones  Eq.  (N.  C.)  113. 
(Del.)  174;  Martin u.  PensacolaR.  Co., 

63 


1  Thomp.  Corp.  §  75.]     amendment  of  charters. 

yond  its  charter  limits,^  —  will  release  a  dissenting  stockholder. 
It  is  not  enough  that  there  may  have  been  such  a  change  as  will 
prejudice  the  personal  interests  of  the  dissenting  stockholder.  If 
the  general  course  of  the  roadway  remains  the  same  and  no 
change  has  taken  place  such  as  sacrifices  to  a  material  extent  the 
interests  of  the  corporation,  it  will  not  be  regarded  as  funda- 
mental, in  such  a  sense  as  to  release  dissenting  stockholders.^  Nor 
will  an  amendment  conferring  the  power  to  construct  a  hrancli 
road  have  this  effect,  the  termini  of  the  main  line  remaining  the 
same.^  But  one  who  has  subscribed  to  the  stock  of  a  '*  life  and 
accident"  insurance  company  is  not  bound  to  pay  his  subscrip- 
tion after  the  company  has  been  authorized,  by  a  change  in  its 
charter,  to  transact  the  business  of  "  fire,  marine,  and  inland  in- 
surance." * 

§  75.  Amendments  Authorizing  Consolidation  or  Subdivis- 
ion.  Many  decisions  hold  that  an  amendment  providing  for  a 

consolidation  of  the  corporation  with  another  is  of  such  a  funda- 
mental character  as  releases  dissenting  shareholders  in  either 
company;  ^  and  it  has  been  held  that  equity  will  restrain  a  con- 
solidation, at  the  suit  of  a  dissenting  stockholder,  until  security 
is  given  him  for  the  value  of  his  interests.^     So,  an  amendment 

1  Stephens?).  Rutland &c.  R.  Co., 29  McCray  r.  Junction  R.  Co.,  9  Ind. 
Yt,  545.  358;  Booe  v.  Junction  R.  Co.,  10  Ind. 

2  Fry  V.  Lexington  &c.  R.  Co.,  2  93;  Shelbyville  Turnp.  Co.  v.  Barnes, 
Mete.  (Ky.)  322,  323;  Wilson  v.  Wills  42  Ind.  498;  Lauman  v.  Lebanon  Val- 
Valley  R.  Co., 33  Ga.  466;  Irvine  v.  ley  R.  Co.,  30  Pa.  St.  42.  Compare 
Turnpike  Co.,  2  Penr.  &  W.  (Pa.)  Clinch  v.  Financial  Co.,  L.  R.  4  Ch. 
474;  Banet  v.  Alton  &c.  R.  Co.,  13  lU.  117;  Dougan's  Case,  L.  R.  8  Ch.  540; 
504;  Fall  River  Iron  Works  v.  Old  Thomas  t?.  Railroad  Co.,  101  U.  S.  71; 
Colony  R.  Co.,  5  Allen  (Mass.)  221.  East  Anglian  R.  Co.  v.  Eastern  Coun- 

3  Peoria  &c.  R.  Co.  v.  Preston,  35  ties  R.  Co.,  11  C.  B.  775;  Eastern 
Xa.  115.  Counties  R.  Co.   v.  Hav^kes,  5  H.  L. 

4  Ashton  V.  Burbank,  2  Dill.  (U.  S.)  Cas.  331 ;  Abbott  v.  Johnstown  &c.  R. 
435.  Co.,  8  N.  Y.  27;  McGregors.  Deal  &c. 

5  Pearce  v.  Madison  R.  Co.,  21  R.  Co.,  18  Ad.  &  El.  (n.  s.)  618;  s.  c. 
How.  (U.  S.)  441;  Mowrey  v.  Cincin-  22  L.  J.  (Q.  B.)  G9;  Kean  v.  Johnson, 
nati  R.  Co.,  4  Biss.  (U.  S.)  83;  Clear-  9  N.   J.  Eq.   401;  Troy  &c.   R.   Co.  v. 


water  V.  Meredith,  1  Wall.  (U.  S.)  25 
Tuttle  V.  Michigan  Air  Line,  35  Mich 
247;  New  Jersey  &c.  R.  Co.  v 
Strait,  35  N.  J.  L.  322;  Carlisle  v 
Terre  Haute  &c.  R.  Co.,  C  Ind.  316; 
64 


Boston  &c.  R.  Co.,  86  N.  Y.  117;  Mid- 
dletown  v.  Boston  &c.  R.  Co.,  53 
Conn.  351. 

6  Lauraan    v.    Lebanon    Valley   R. 
Co.,  30  Pa.  St.  42. 


NON-ASSENTING   SUBSCRIBERS.       [1  Thomp.  Coip.   §  77. 

providing  for  a  subdivision  of  the  corporation  is  fundamental 
and  will  release  dissenting  subscribers.^  But  where  there  is,  at 
the  time  of  the  incorporation,  a  general  statute  authorizing  the 
consolidation,  the  rule  is  different ;  for  here  the  implication  of 
the  law  is  that  the  shareholder  consents  to  hold  his  shares  sub- 
ject to  the  governing  statute,  which  enters  into  and  forms  a  part 
of  the  contract.2  Laws  have  been  enacted  in  some  of  the  States 
providing  that,  on  the  consolidation  of  two  or  more  corpora- 
tions, a  dissenting  stockholder  may  have  his  stock  appraised  and 
purchased  by  the  consolidated  company.^ 

§  76.  Other  Changes  deemed  Fundamental.  —  An  amend- 
ment authorizing  a  lease  of  the  corporate  property  to  another 
corporation  for  999  years  rests  on  the  same  footing  as  an 
amendment  authorizing  a  consolidation,  and  is  obviously  funda- 
mental in  such  a  sense  that  it  will  be  restrained  in  equity  at  the 
option  of  a  dissenting  stockholder.*  So  is  an  amendment  con- 
ferring the  privilege  of  selling  the  road  owned  by  the  corpora- 
tion.5  So  is  an  alteration  reducing  the  minimum  number  of  sub- 
scribed shares,  thus  rendering  a  stockholder  liable  who  otherwise 
would  not  be.^ 

§  77.  Further  Holdings  on  this  Subject The  view  which 

disregards  the  personal  interests  of  the  stockholder,  althouo-h  he 
may  have  been  induced  to  subscribe  for  his  shares  with  the  chief 
view  of  promoting  those  interests,^  leads  easily  to  such  conclu- 
sions as  that  his  contract  is  not  materially  impaired  when  the 
majority,  contrary  to  his  wishes,  accept  an  amendment  extending 
the  road  beyond  its  charter  terminus,^  or  even  changing  its  ter- 

1  Supervisors  v.  Mississippi  &c.  R.  ^  Black  v.  Delaware  &c.  Canal  Co., 
Co.,   21  111.   338;  Indiana  &c.  Turnp.      24  N.  J.  Eq.  455. 

Co.   V.  Phillips,   2  Penr.   &  W.  (Pa.)  s  Kean  v.  Johnson,  9  N.  J.  Eq.  407. 

^84-  6  Old  Town  &c.    R.  Co,  v.  Veazie, 

2  Sparrow  v.  Evansville  &c.  R.  Co.,      39  Me.  571. 

7  Ind.  3C9;  Rjiilroad  Co.  v.  Black,  79  ^  This  is  the  view  of  several  of  the 

111.  264.    Compare  Simpson  v.   Den-  courts.     Sprague  v.  Illinois  &c.  R.  Co., 

ison,  10  Hare,  51.  19  111.  174;    Illinois  River  R.   Co,   v. 

3  N.  J,  Laws  1878,  p.  58,  §  2;  Id.  Zimmer,  20  111.  654.  See  also  Irvine 
1881,  p.  222,  §8;  Id.  1883,  p.  242,  §  2;  v.  Turnpike  Co.,  2  Pear.  &  W.  (Pa.) 
N.  Y.  Laws  1884,  Ch,  3G7.    So  in  En-  46G. 

gland:  25  &  26  Vict.,  Ch.  89,  §  161,  175.  »  Peoria  &c.  R.  Co.  v.  Elting,  17  lU. 

5  65 


1  Thump.  Corp.  §  78.]     amendment  of  charters. 

mini;  ^  or  reducing  its  length;  ^  or  directing  material  alterations 
in  its  terminus,  including  the  abandonment  of  one  depot  and 
the  erection  of  another ;  ^  and  one  court  has  gone  so  far  as  to 
hold  that  the  subscriber's  contract  is  not  impaired  unless  he  is 
obliged    to  pay  more  money  on  his  subscription.* 

§  78.  Amendmeuts  Increasing  the  Capital  Stock.  —  As  here- 
after seen,^  a  corporation  cannot  increase  its  potential  capital 
stock,  without  authority  from  the  legislature,  expressed  in  its 
charter  or  governing  statute.  An  increase  of  its  capital  stock  is 
a  change  of  such  a  fundamental  character  that,  where  the  govern- 
ing statute  empowers  the  corporation  to  do  it,  but  does  not  pro- 
vide by  whom  the  power  shall  be  exercised,  it  can  not  be  exer- 
cised by  the  directors,  but  must  be  exercised  by  the  sharehold- 
ers, or  by  the  directors  by  the  authority  of  the  shareholders.* 
But  it  does  not  follow  from  this  that  an  increase  of  the  capital 
by  a  majority  of  the  stockholders,  under  an  amendment  to  a 
charter,  or  under  a  general  law,  will  operate  to  discharge  a  dis- 
senting shareholder.  One  view  is  that  the  shareholder  takes 
his  shares  subject  to  the  implication  that  the  legislature  may  au- 
thorize the  board  of  directors  to  make  such  an  increase.^  Another 
is  that  whether  the  cai)ital  stock  has  been  properly  increased  is  a 
question  which  the  State  alone  can  raise,^  —  at  least  that  it  cannot 
be  raised  by  a  shareholder,  under  a  plea  of  non-assumpsit y  when 
sued  on  his  contract  of  subscription.^  But  a  shareholder  who, 
after  the  capital  stock  of  the  company  has  been  increased,  re- 
tains his  shares  and  participates  in  the  profits,  is  estopped  by  his 


429;  Rice   v.  Rock   Island  R.   Co.,   21  s  post,  §  2079. 

Id.  93;  Cross  v.  Peach  Blossom  R.  ^  Eidman  v.  Bowman,  58  111.  444; 

Co.,  90  Pa.  St.  392.  s.  c.  11   Am.  Rep.  90;    Railway  Co.  v. 

1  Sprague  v.  Illinois  River  R.  Co.,  Allerton,  18  Wall.  (U.  S.)  233.  Com- 
19  111.  174.  See  also  Illinois  River  R.  pare  Nashua  &c.  R.  Co.  v.  Boston  &c. 
Co.  V.  Zimmer,  20  111.  C54;  Ross  v.  R.  Co.,  27  Fed.  Rep.  826;  Venner  ?>. 
Chicaio  &c.  R.  Co.,  77  111.  134.  Atchison  &c.  R.  Co.,  28  Fed.  Rep,  589. 

2  Troy  &c.  R.  Co.  v.  Kerr,  17  Barb.  '  Payson  v.  Withers,  5  Biss.  (U. 
(N.  Y.)  607;  coiitra,  Kenosha  &c.  R.  S.)  276.  See  also  PaciQc  R.  Co.  v. 
Co.  V.  Marsh,  17  AVis.  13.  Hughes,  22   Mo.  291;  s.c.  64  Am.  Dec. 

3  Worcester  v.  Norwich  &c.  R.  Co.,  295. 

109  Mass.  103.  «  puUman  v.   Upton,   96  U.  S.  329, 

^  De'aware    R.     Co.   v.    Tharp,    1  per  Mr.  Justice  Strong. 

Houst.  (Del.)  149.  »  Judgra.,  Ibid. 

fir, 


NON-ASSENTING    SUBSCRIBERS.       [1  Thomp.  Coi'p.   §  79. 

cond^ict  *  from  claiming  exemption  from  the  responsibilities  of 
his  contract  after  the  company  has  become  insolvent.'-^  But  the 
rule  may  be  different  where  the  increase  is  wholly  unauthorized, 
and  the  question  arises  between  the  subscriber  and  the  company 
in  an  action  for  calls. ^ 

§  79.  Illustrations.  —  It  has  been  held  that  an  increase  of  the  capi- 
tal of  a  plank-road  company  and  an  appUcation  of  the  funds  so  raised 
to  the  construction  of  a  branch  road,  in  pursuance  of  an  act  of  the 
legislature  passed  since  the  date  of  a  stock  subscription,  will  not  release 
a  stockholder.'*  _  _  .  _  Nor  did  a  subsequent  legislative  amend- 
ment of  the  charter  of  a  railway  company,  changing  its  name,  and 
authorizing  an  increase  of  its  capital  and  an  extension  of  its  road ;  and 
this,  whether  the  alteration  was  beneficial  to  the  stockholders  or  not,  it 
having  been  duly  made,  and  without  any  fraud  on  the  part  of  the  com- 
pany.^  -  -  -  -  Upon  like  grounds,  where  the  charter  of  an  in- 
surance company  recited,  "the  capital  stock  shall  be  Si, 000, 000,  and 
may  be  increased  to  not  exceeding  So, 000, 000,  at  the  discretion  of  the 
stockholders,"  and,  after  a  person  had  subscribed  for  a  given  number 
of  shares,  the  legislature  amended  the  charter  by  declaring  "  the  board 
of  directors  shall  have  power  to  increase  the  capital  stock  of  said  com- 
pany from  time  to  time,  in  their  discretion,"  — a  subsequent  increase 
made  by  the  directors,  under  the  power  thus  conferred,  was  not  such  a 
change  in  the  contract  of  subscription  as  the  legislature  was  prohibited 
from  authorizing,  and  did  not  discharge  the  shareholder.^ 

1  Post,  §  2083.  company  to  extend  the  road,  and  re- 

2  Chubb  V.  Upton,  95  U.  S.  665.  tained  his  stock  after  the  extension 

3  Thus,  where  the  directors  of  a  has  been  made,  and  then  sold  the  same 
plank-road  company,  after  the  forma-  for  a  valuable  consideration  to  a  third 
lion  of  the  company,  extended  the  person,  estop  him  from  denying  his 
main  line  of  the  road  beyond  the  liability  to  pay  his  subscription, 
point  originally  specified,  and  in-  Macedon  &c.  Plank-road  Co.  v.  Lap- 
creased  its  capital  stock,  without  the  ham,  18  Barb.  (N.  Y.)  312;  Middlesex 
written  consent  of  the  persons  owning  Turnp.  Corp.  v.  Lock,  8  Mass.  268; 
two-thirds  of  the  capital  stock,  or  a  Middlesex  Turnp.  Corp.  v.  Swan,  10 
majority  of  the  inspectors,  etc.,  as  Mass.  384;  Stevens  v.  Rutland  &c.  R. 
provided  by  the  first  section  of  the  Co.,  1  Am.  L.  Reg.  154;  s.  c.  29  Vt. 
New  York  Plank-Road  Act,   Laws  N.  545. 

Y.  1849,  ch.   250,  such  acts  being  un-  ■*  Schenectady      &c.     R.      Co.      v. 

authorized  and  illegal,  exonerated  the  Thatcher,  11  N.  Y.  102. 

original  stockholders  from  all  liabil-  ^  Buffalo  &c.   R.  Co.  v.  Dudley,  14 

ity  to  pay  their   subscriptions.     Nor  N.  Y.  336. 

would  the  fact  that  the  stockholder  *  Payson   v.  Withers,  5  Biss.  (U. 

participated  ita  the  proceedings  of  the  S.)  269. 

67 


1  Tliomp.  Corp.  §  SI.]     amendment  of  charters. 

§  SO.  When  Stockholder  bound  ou  Principle  of  Acqui- 
escence, Katiflcatiou  or  Estoppel.  —  Although  the  stockholder 
does  not  affirmatively  assent  to  the  amendment  of  the  charter, 
and  although  the  amendment  may  be  of  such  a  nature,  or  the 
rule  in  the  particular  jurisdiction  such  that,  if  he  had  seasonably 
dissented,  the  effect  would  have  been  to  discharge  him  from  his 
liability  as  a  stockholder,  — yet  if  he  lie  by,  expressing  no  dis- 
sent, but  allowing  the  corporation  to  go  on  under  the  amended 
charter,  incurring  additional  liabilities  on  the  faith  of  his  respon- 
sibility as  a  subscriber  to  its  capital  stock,  he  will,  on  obvious 
principles,  preclude  himself  from  setting  up  the  defense  of  this 
change  in  the  charter,  when  proceeded  against  by  the  corpora- 
tion or  by  its  creditors  to  collect  his  unpaid  subscription,  or 
otherwise  to  enforce  his  liability  as  a  shareholder;  and  it  is  quite 
immaterial  whether  his  liability  is  placed  on  the  ground  of  the 
loss  of  his  rights  by  laches,  or  his  validation  of  an  act  of  the 
majority,  not  otherwise  binding  upon  him,  by  his  acquiescence, 
or  on  the  principle  of  an  equitable  estoppel,  —  though  the  better 
reason  seems  to  place  it  on  the  last  named  ground.^ 

§  81.  Effect  of  Want  of  Knowledge  of  the  Change  on  the 
Part  of  a  Shareholder. —  It  should  seem,  on  principle,  that  a 
shareholder  ought  to  be  required  to  take  sufficient  interest  in  the 
affairs  of  the  corporation  to  know  of  an  act  of  such  importance 
and  publicity  as  a  legislative  amendment  of  the  charter  of  the 
corporation.  It  has  accordingly  been  held  that  one  who  has 
subscribed  for  shares  in  a  corporation  after  it  has  accepted  an 
amendment  of  its  charter,  cannot  avoid  liability  on  his  subscrip- 
tion on  the  ground  that  he  was  ignorant  of  the  change. ^  And 
this  is  so  for  stronger  reasons,  where  the  shareholder,  subse- 

»  Chubb    V.  Upton,  95   U.    S.  665;  Co.,  10  N.   J.   Eq.    176;    Zabrislde  y. 

ante,    §   61;    post,   §3571;    Martin   v.  Hackensiick  &c.  R.  Co.,  18 /d.  178;  Ex 

jl'ensacola   R.    Co.,  8  Fla.  370;   Mem-  parte  Booker,  18  Ark.  338;  Mowrey  r. 

phis  Branch  R.  Co.  ■;;.  Sullivan,  57  Ga.  Ind.  &  Cin.  R.  Co.,  4  Biss.  (U.  S.)  79; 

240;  Bedford  R.  Co.  v.  Bowser,  48  Pa.  Upton  v.   Jackson,  1  Flip.  C   C.  (U. 

St.  29;  Houston  v.  Jefferson  College,  S.)   413;  Owen  v.  Purdy,  12  Ohio  St. 

63  /d.    428;    Daubury  &c.    R.    Co.   v  79;   Goodin  v.  Evans,  18 /d.  150. 
Wilson,  22  Conn.   435;  Vermont  &c.  2  Sparrow  u.  Evansville  &c.  R.  Co., 

R.   Co.  V.  Vermont  Cent.    R.  Co.,  34  7  Ind.  369;  Eppes  v.  Mississippi  &c. 

Vt.  2;  Hayworth  v.  Junction  R.  Co.,  R.  Co.,  35  Ala.  54. 
13  Ind.  318;  Gifford  v.  New  Jersey  R. 


IMMATERIAL   AMENDMENTS.        [1  TllOmp.  Corp.   §  82. 

quently  to  the  amendment,  has  voted  at  corporate  meetings  and 
other \vise  acted  in  a  manner  consistent  only  with  the  view  of  his 
beino;  a  shareholder.^ 

§  82.  Other  Alterations  Iinmatepial and  hence  Permissive. — 

Amono-  the  amendments  of  the  charter  which  are  deemed  im- 
material,  or  in  furtherance  of  its  design,  and  hence  permissive, 
are  amendments  changing  the  name  of  the  corporation. ^  Where 
a  railroad  charter  has  been  granted  by  the  legislature  subject  to 
alteration  or  repeal,  an  amendment  extending  the  time  for  the 
completion  of  the  road,  is  no  alteration  of  the  contract  with  a 
subscriber  to  its  stock. ^  Such  an  amendment,  being  for  the 
benefit  of  the  corporation,  will  be  jwesumed  to  have  been  passed 
with  the  consent  of  the  stockholders.*  So,  an  alteration  in  the 
charter  of  a  private  corporation,  increasing  the  number  of  direct- 
ors from  five  to  nine,  is  not  a  fundamental  alteration,  and  may 
be  accepted  by  a  majority  of  the  stockholders.^  So,  of  an 
iimendment  changing  the  location  of  a  turnpike  road;  the  gov- 
erning principle  here  declared  being  that  the  benefit  which  re- 
sults to  individual  property  by  the  incorporation  of  a  company 
and  the  location  of  a  road  does  not,  in  contemplation  of  law, 
enter  into  the  consideration  of  the  contract  of  subscription,  and 
that  such  subscriptions  are  necessarily  subject  to  the  power  of 
the  lecfislature  to  chancre  the  location  of  the  road,  where  the  con- 
trary  is  not  expressly  stipulated.^  Nor  did  a  subsequent  altera- 
tion of  the  charter  of  a  navigation  company,  extending  its 
privileges,  although  its  liabilities  might  thereby  be  extended.^ 
Nor  did  a  subsequent  act  of  Parliament,  authorizing  a  railway 
company  to  buy  and  work  a  canal  from  M.  to  A.,  and  to  make  a 
railway  from  D.   to  M.  only,  when  the  contract  of  subscription 

1  Bedford  R.  Co.  v.  Bowser,  48  Pa.  ■«  San  Antonio  v.  Jones,  28  Tex.  19. 
St.  29.  But  see,  contra,  Old  Town  &c.  »  Mower  v.  Staples,  32  Minn.  284. 
R.  Co.  V.  Veazie,  39  Me.  571.  *  Irvin  v.   Turnpike  Co.,  2  Penr.  & 

2  Buffalo  &c.  R.  Co.  v.  Dudley,  14  W.  (Pa.)  466,  opinion  by  Gibson,  C. 
N.  Y.  330;  Reading  v.  Wedder,  66  111.  J.  Compare  Central  Plank  Road  Co. 
80;  Bucksport  &c.  R.  Co.  v.  Buck,  68  v.  Clemens,  IG  Mo.  359,366. 

Me.  81;    Milwaukee    &c.    E.    Co.    v.  '  Gray  u.  Monongahela  Nav.  Co.,  2 

Field,  12  Wis.  340;  post,  §  287.  Watts  &  S.  (Pa.)  156. 

'  Agricultural   Branch     R.     Co.  v. 
Winchester,  13  Allen  (Mass.),  29. 

69 


1  Thomp.  Corp.  §  S-i.]     amendment  of  ciiarteus. 

provided  for  forming  a  company  to  make  a  railway  "  from  D.  to 
M.,  and  thence  to  A."  ^ 

§  83.  Ameudments   Changing  Denomination    of   Shares.  — 

Where  the  original  charter  provided  that  the  capital  stock  should  be 
divided  into  shares  of  $200  each,  and  the  subscriber  took  four  shares 
of  this  denomination,  and  afterwards  the  charter  was  changed,  dividing 
the  capital  stock  into  shares  of  $100  each,  which  act  was  accepted  by 
the  corporation,  and  four  shares  were  assigned  to  the  subscriber, 
for  which  he  paid  in  part,  he  was  deemed  to  have  assented  to  the 
change.  2 

§  84.  View  that  Subscription  is  made  Subject  to  Legislative 
Power  to  amend  Charter.  —  Early  decisions  of  the  Supreme  Court 
of  Pennsylvania  denied  the  foregoing  principles,  and  overrode  the  rights 
of  subscribers  to  the  capital  stock  of  turnpike  companies,  by  holding 
that  such  subscriptions  to  a  corporation,  providing  for  the  location  of  a 
turnpike  road,  were  subject  to  the  power  of  the  legislature  to  change  the 
location  of  the  road  at  an  intermediate  point,  unless  the  contrary  was 
expressed.^  These  cases  proceed  on  an  assumption  which  in  many 
cases  is  contrary  to  the  fact,  and  therefore  unsound  as  the  basis  of  a 
legal  conclusion,  that  the  benefit  which  results  to  individual  property, 
from  the  incorporation  of  such  a  company  and  the  location  of  its  road, 
does  not,  in  contemplation  of  law,  enter  into  the  consideration  of 
the  contract  of  subscription ;  wherefore  it  is  reasoned  that  such  sub- 
scriptions are  necessarily  subject  to  the  power  of  the  legislature  to 
change  the  location  of  the  intended  road,  where  the  contrary  is  not  ex- 
pressly stipulated. 

1  Midland  &c.  R.  Go.  v.  Gordon,  16  their  holder  should  not,  in  the  event 
Mee.  &  W.  803.  Many  other  cases  are  of  a  windiug-up,  be  placed  on  the  list 
found  tending  to  establish  the  same  of  contributories.  Sewall's  Case,  L. 
doctrine:  Middlesex  T.  Co.  v.  Loclje,  R.  3  Ch.  131;  Feiling's  Case,  L.  R.  2 
8  Mass.  268;  Hartford  &c.  R.  Co.  v.  Ch.  714.  Compare  Ind's  Case,  L.  R. 
Croswell,  5  Hill,  383;  Indiana   &c.  T.  7  Ch.  485. 

Co.    V.    Phillips,  2   Penn.    184;    New  3  iryin  v.  Turnp.  Co.,  2  Penr.  &  W. 

Orleans  &c.  R.  Co.  v.  Harris,  27  Miss.  (Pa.)   4G6;  followed  in  Gray  v.   Mo- 

517.  nongahela  Nav.    Co.,   2   Watts  &  S. 

2  Kennebec  &c.  R.  Co.  v.  Waters,  34  (Pa.)  161,  and  in  Union  Canal  Co.  v. 
Me.  369.  But  the  mere  fact  that  tlie  cZe-  Young,  1  Wheat.  (U.  S.;  428.  Com- 
nomination  of  shares  has  heen  changed,  pare  Mercer  County  v.  Coovert,  6 
if  the  shares  are  capable  of  being  Watts  &  S.  (Pa.)  71,  where  the  first 
traced  and  identified,  is  no  objection  of  the  above  cases  is  commented  upon. 
to  their  validity,  and  no  reason  why 

70 


ASSENT    BY    DIRECTORS.        [1  Thoilip.  Coip.    §  86. 

§   85.  Materiality  of   Amendment  Question    for    Court.  — 

Whether  the  alteration  of  a  written  instrument  is  material  or  not, 
within  the  meaning  of  the  rule  by  which  an  unauthorized  altera- 
tion discharges  an  obligor  thereon,  is  a  question  of  law  for  the 
court,  and  is  not  to  be  submitted  to  a  jury.^  By  analogy  to  this 
rule,  the  question  whether  the  amendment  of  a  charter  by  a 
corporation  is  material  or  not,  within  the  meaning  of  the  rule 
previously  stated,^  is  a  question  of  law  for  the  court,  and  is 
not  to  be  submitted  to  the  jury.^  But  it  is  a  principle  of  pro- 
cedure that,  although  the  judge  errs  in  submitting  a  question  of 
law  to  the  jury,  yet  if  the  jury  decide  it  rightly,  a  new  trial  will 
not  be  granted.*  Agreeably  to  this  principle,  where  a  judge 
erroneously  submitted  to  a  jury  the  question  of  the  materiality 
of  an  amendment  to  the  charter  of  a  corporation,  and  they  de- 
cided the  question  in  favor  of  the  party  asserting  its  materiality, 
and  it  appeared  to  the  reviewing  court  that  it  was  the  evident 
purpose  of  the  act  to  legalize  previous  illegal  proceedings,  and 
that  its  effect  was  to  reduce  the  capital  stock  at  the  option  of 
the  corporation,  —  the  court  refused  to  set  aside  the  verdict.^ 

§  86.  What  Body  may  give  Assent. — Fundamental  altera- 
tions of  the  charter,  of  the  character  above  spoken  of,  can  only 
be  assented  to  by  the  body  who  compose  the  corporation ;  and 
where  that  body  is  the  stockholders,  the  directors  or  trustees 
have  no  power  to  accept  or  reject  such  alterations.^     But  while 

1  Belfast  Nat.  Bank  v.  Harriman,  68  tion  whether  a  change  in  the  charter 

Me.  522 ;  Wood  v.  Steel,  6  Wall.  (U.  S.)  was  radical,  with  the  direction  to  find 

80;  Overton  v.  Matthews,  35  Ark.  147.  that  the  subscriber  could  not  be  held 

3  Ante,  §  71.  to  his  subscription,  if  such  was   the 

3  Memphis  Branch  R.  Co.  v.  Sulli-  case  — a  ruliug  distinctly  opposed  to 

van,  57  Ga.  240;  Witter  U.Mississippi  the  statement  of  the  text  and  unsound 

&c.  R.  Co.,  20  Ark.  463.  in  principle.     Southern  Penn.  &c.  Co. 

«  Bernstein  v.  Humes,  78  Ala.  141;  v.  Stephen,  87  Pa.  St.    190.     There  is 

.Jones  V.  Pullen,  66  Ala.  306;  Glenn  v.  also  a   holding  to  the  effect  that  the 

Charlotte   &c.    R.  Co.,  63  N.    C.     10;  materiality  of  the  departure  must  rest 

State  u.  Craton,  6Ired.  L.  (N.  C.)  164;  purely  upon  the      circumstances    of 

Thornburg  v.  Maston,  93  N.   C.  258,  each  case,  though  it  is  held  to  be  a 

264;  Woodbury  v.  Taylor,  3  Jones  L.  question  of  law,  to  be  decided  by  the 

(N.  C.)  504.  court,    on    facts  found    or  admitted. 

6  Memphis  Branch  R.  Co.  v.  Sulli-  Witter  v.  Mississippi  &c.  R.    Co.,  20 

van,  57  Ga.  240.     But  it  has  been  held  Ark.  463. 

not  error  to  submit  to  a  jury  the quos-  «  Com.  u.    Cullen,    13   Pa.  St.  133; 

71 


1  Thomp.  C()i'[).  §  S6.]     amendment  of  charters. 

they  have  no  authority  in  the  first  instance  to  apply  to  the  legis- 
lature for,  or  to  accept  for  the  corporation,  an  amendment  of  its 
charter  ;  yet,  if  they  do  accept  such  an  amendment  and  act  under 
it  for  the  corporation,  the  effect  may  follow  of  binding  the  individ- 
ual members,  on  the  principle  oi  ratification  ov acquiescence .^  It  is 
scarcely  necessary  to  add  that,  where  a  fundamental  alteration  of 
a  corporate  charter  is  procured  by  the  unauthorized  action  of 
certain  individual  members  or  ofiicers,  without  any  corporate  ac- 
tion, a  non-assenting  stockholder,  who  has  not  put  himself  in  the 
position  of  ratifying  the  legislation,  will  not  be  bound  by  it.^ 
An  exceptional  rule  exists  in  Illinois,  whereby  the  assent  of  the 
directors  to  an  amendment  of  the  charter  is  held  sufiicient  to 
bind  dissenting  stockholders  and  prevent  them  from  being  dis- 
charged, by  reason  of  the  change  of  contract  produced  by  the 
amendment,  from  their  contract  of  subscription.  That  court 
started  out  by  holding  that  amendments  to  the  charter,  of  an 
essential  character,  might  be  accepted  by  a  majority  of  the 
stockholders.^  It  was  an  easy  transition  from  this  doctrine  to 
the  conclusion  that  the  will  of  this  majority  might  fairly  be  sup- 
posed to  be  evidenced  by  the  action  of  the  board  of  directors, 
their  representative.  It  has  accordingly  been  held  in  that  State 
that  an  acceptance  may  be  made  by  the  board  of  directors  so  as 
to  bind  dissenting  stockholders.  The  court  say:  "There  are 
various  modes  by  which  amendments  to  charters  may  be  ac- 
cepted by  corporations,  or  rather  by  which  such  acceptance  may 
be  established,  either  for  or  against  the  corporation.  The  first, 
and  perhaps  the  most  satisfactory,  is  where  an  amendment  is 
asked  for  in  a  general  meeting  of  the  stockholders,  or  where  an 
amendment,  after  it  is  passed,  is  accepted  by  a  majority  in  inter- 
est at  such  meeting.     But  this  is  not  the  only,  nor  indeed  the 

s.  c.  53  Am.  Dec.  450;  Brown  v.  Fair-  Fire  Ins.  Co.  v.  Stokes,  9  Phila.  (Pa.) 

mount     Mining    Co.,    10   Phila.  (Pa.)  80.     Compare   Blatcliford    v.  Ross,  5 

32.     That  the  directors  cannot  change  Abb.   Pr.   (n.  s.)  (N.  Y.)  434;  s.  c.  37 

essentially  the  business  of  the  cor-  How.  Pr.  (N.  Y.)  110;  54  Barb.  (N.  Y.) 

poration,  see   Abbott  v.  Railway  Co.,  42;  Banks  v.  Judah,  8  Conn,  160. 
33  Barb.  (N.  Y.)  583;  Cherokee  Iron  «  Mississippi    &c.     Boom    Co.     v. 

Co.  V.  .Tones,  52  Ga.  276.  Prince,  34  Minn.  71 ;  s.  c.  24  N.  W.  Rep. 

1  Marlborough  Man.  Co.  v.  Smith,  344. 
2   Conn.    579;    Brown  v.    Fairmount  ^  Ante,  ^  73. 

Min.  Co.,  10  Phila.  (Pa.)  32;  Mutual 
72 


ACCEPTANCE    BY    DIRECTORS.       [1  Thomp.  Corp.   §  87. 

most  usual  mode,  in  this  country,  of  accepting  amendments  to 
corporate  charters.  This  is  generally  done  by  the  board  of  di- 
rectors, who  are  for  the  most  part  vested  with  all  the  corporate 
powers  of  the  company.  We  know  of  no  case  where  it  has  been 
questioned  that  the  board  of  directors  have  power  to  accept  an 
amended  charter,  while  that  power  has  been  expressly  asserted 
in  at  least  two  different  cases  by  this  court."  ^ 

§  87.  When  the  Action  of  the  Directors  Evidence  of  Ac- 
ceptance. —  Where  a  new  power  is  conferred  upon  a  corpora- 
tion, to  be  exercised  within  the  general  powers  of  the  directors, 
conferred  upon  them  by  the  governing  statutes  and  by  the  by- 
laws of  the  company,  the  new  power  thus  conferred  is  impliedly 
to  be  exercised  in  like  manner  as  similar  powers  conferred  by 
the  original  charter  ;  and  when  there  is  nothing  in  the  grant 
which,  expressly  or  by  inference,  demands  action  by  the  stock- 
holders, and  the  privilege  granted  contemplates  an  act  within 
the  scope  of  the  authority  of  the  directors  of  an  existing  organ- 
ization, the  action  of  the  directors  alone  will  be  sufficient  evi- 
dence of  acceptance.^ 


1  Illinois  liiver  R.  Co.  v.  Zimmer, 
20  111.  654,  661;  citing  Banet  f .  Alton 
&c.  R.  Co.,  13  111.  508,  and  Sprague  v. 
Illinois  River  R.  Co.,  19  111.  174,  The 
language  above  quoted  was  re-afBrmed 
in  Illinois  River  R.  Co.  v.  Beers,  27 
111.  185, 189.  In  Illinois  River  R.  Co. 
V.  Zimmer,  supra,  Mr.  Chief  Justice 
Caton,  who  delivered  the  opiuiou  of 
the  court,  further  said:  "Indeed, 
upon  examination,  it  would  probably 
be  found  that  not  one  in  twenty  of  the 
amended,  or  even  original  charters, 
under  which  corporations  in  this  State 
are  now  exercising  their  franchises, 
has  ever  been  accepted  by  a  formal 
vote  of  the  stockholders  at  large,  and 
probably  a  majority  have  never  been 
adopted  by  a  formal  vote  even  of  the 
board  of  directors,  but  have  been  ac- 
cepted by  user  alone,  which  is  another 
and  a  common  mode  of  accepting  an 


original  charter  by  the  corporators, 
and  even  amendments  thereto,  both  of 
which  stand  upon  precisely  the  same 
footing  in  point  of  law.  In  neither 
case  does  the  act  of  incorporation  be- 
come the  law  of  the  corporators,  pre- 
scribing the  extent  of  their  rights  and 
the  measure  of  their  liabilities,  till 
they  have  accepted  Its  benefits  and 
consented  to  be  bound  by  their  liabil- 
ities. If  they  claim  the  one  they  must 
submit  to  the  other."  As  to  what 
body  may  give  assent  to  amendments 
on  application  to  a  judicial  court,  see 
post,  §  127. 

2  Eastern  Railroad  Co.  v.  Boston 
and  Maine  Railroad,  111  Mass.  125, 
130;  citing  Charles  River  Bridge  Co. 
V.  Warren  Bridge,  7  Pick.  (Mass.) 
344;  Middlesex  Husbandmen  •».  Davis, 
3  Mete.  ("Mass.)  133;  Bangor  &c.  R. 
Co.  V.  Smith,  47  Me.  34. 

73 


1  Thomp.  Corp.  §  89.]     amendment  of  charters. 

§  88.  Illustration.  —  A  statute  authorized  a  railroad  company  to 
take  for  a  passenger  station  land  occupied  by  another  railroad.  The 
by-laws  of  the  company  provided  that  the  directors  might  purchase  all 
real  estate  they  deemed  needful  for  the  railroad,  and  exercise  all  pow- 
ers granted  to  the  company  by  their  charter,  for  the  purpose  of  locating, 
constructing  and  completing  the  railroad,  and  all  other  powers  neces- 
sary and  proper  to  carry  out  the  object  of  the  company  and  the  pur- 
poses of  their  charter.  It  was  held  that  an  acceptance  of  the  statutes  by 
the  stockholders  was  not  necessary  to  authorize  the  directors  to  take 
the  land.^ 

§  89.  Effect  of  Reservation  of  Power  to  Alter  or  Repeal. — 

The  reservation  of  the  right  of  alteration  and  repeal  in  the  char- 
ter of  a  corporation  has  none  of  the  characteristics  of  a  mere 
power,  which,  when  once  exercised,  is  exJiausted.  Its  operation  is 
on  the  legislative  grant  itself,  to  prevent  its  becoming,  what  it 
otherwise  might  become,  a  contract  with  the  State.  An  act 
containing  such  a  provision  confers  a  mere  privilege,  subject  at 
any  time  to  be  withdrawn  or  modified  at  the  will  of  the  legisla- 
ture.^ A  different  statement  of  the  same  principle  is  that,  on 
the  acceptance  by  the  corporation,  the  reservation  by  the  legisla- 
ture, of  the  power  to  alter  and  amend  its  charter  at  pleasure, 
becomes  part  of  the  contract  between  the  State  and  the  corpora- 
tors, and  the  exercise  of  it  in  no  manner  impairs  the  obligation 
of  the  contract,  within  the  meaning  of  the  constitution  of  the 
United  States.^ 

1  Eastern  Railroad  Co.  v.  Boston  legislatiire.  Sagei?.  Dillard,15B.Monr. 
and  Maine  Railroad,  111   Mass.  125.  (Ky)  340.     The  absurdity  of  such  a 

2  State  V.  Commissioners,  37  N.  J.  conclusion  suggests  itself  without  a 
L.  228.  moment's  thought.    The  reasoning  by 

'  Sprigg  V.  "Western  Tel.  Co.,  46  which  it  is  attempted  to  enforce  this 
Md.  67.  See  also  Hyatt  v.  Whipple,  conclusion  is  a  strange  abuse  of  rea- 
37  Barb.  (N.  Y.)  595;  Hyatt  t?.  Esmond,  soning  upon  the  impropriety  of  an  act 
37  Barb.  (N.  Y.)  601.  Perrin  v.  Oliver,  of  the  legislature,  by  which  that  body 
1  Minn.  202.  In  a  case  in  Kentucky  undertook,  by  adding  sixteen  new 
this  salutary  principle  is  entirely  frit-  trustees  to  an  educational  corporation, 
tered  away,  by  annexing  to  the  legis-  to  change  entirely  the  control  and  di- 
lative reservation  of  the  power  to  alter,  rection  of  the  corporation.  The  court 
amend  or  repeal  an  act  of  incorpora-  seemed  to  lean  partly  on  the  view  that 
tion,  the  implication  that  the  power  is  the  reserved  power  to  amend  the  con- 
to  be  exercised  subject  to  the  right  of  tract  of  incorporation  which  subsisted 
the  corporation  to  accept  or  reject  any  between  the  corporation  and  the  State, 
amendment  or  alteration  made  by  the  was  a  power  to  amend  it  between  the 
74 


RESERVATION    OF   POWER   TO    AMEND,        [1  Thomp.  Coip.    §   90. 

§  90.  Whether  this  Power  merely  a  Reservation  to  State 
for  Public  Purposes.  —  There  is  a  conflict  of  judicial  opinion  as 
to  the  extent  of  the  power  which  is  reserved  to  the  legislature 
by  a  provision  in  a  charter,  in  a  constitution,  or  in  a  general 
statute  relating  to  corporations,  reserving  to  it  the  power  to  al- 
ter or  repeal  corporate  charters.  One  view  is  that  the  power  is 
plenary,  that  the  reservation  lifts  the  legislature  of  the  State 
above  the  operation  of  the  rule  in  the  Dartmouth  College  case,  by 
a  mere  contract  between  it  and  any  corporation  which  it  creates, 
arising  by  implication  from  an  acceptance  of  the  charter,  so 
that  it  becomes,  in  respect  of  its  power  over  the  charter,  as  pow- 
erful as  is  the  British  Parliament.  Under  this  view,  the  re- 
served power  of  the  legislature  extends  not  only  to  altering  the 
charter,  for  any  purpose  connected  with  the  public  interests,  but 
also  to  altering  it  for  the  mere  purpose  of  changing  the  rights  of 
the  corporators  as  among  themselves.  This  view  has  been  taken 
in  New  York,^  in  Massachusetts,^  in  Illinois,^  in  Missouri,*  and  in 
other  States.  A  necessary  result  of  this  doctrine  is  that  the  legis- 
lature may  authorize  any  change  in  the  organization,  purposes  or 
powers  of  the  corporation  which  the  majority  may  desire,  con- 
trary to  the  will  of  the  minority.  Some  of  the  cases  above 
quoted  qualify  the  rule  so  as  to  state  that  this  may  be  done  pro- 
vided the  change  is  not  a  great  departure  from  the  original  pro- 
same  persons,  and  not  a  power  so  to  2  Durfee  v.  Old  Colony  R.  Co.,  5 
change  it  as  to  divest  the  persons  in  Allen  (Mass.),  230. 
possession  of  their  franchise  and  sub-  ^  Banet  v.  Alton  &c.  R.  Co.,  13  111. 
stantially  vest  such  franchise  in  other      504. 

persons.    But  it  is  apparent  that  no  *  Pacific  R.  Co.  v.  Renshaw,  18  Mo. 

extended  course  of  reasoning  can  be  210;  Pacific  R.  Co.  v.  Hughes,  22  Mo. 
made  on  either  of  these  propositions,  291;  s.  c.  64  Am.  Dec.  265.  See  also 
which  will  not  result  in  the  absurd  Meadow  Dam  Co.  v.  Gray,  30  Maine, 
conclusion  that  the  creature  which  the  548.  It  is  conceded,  however,  in  Mis- 
legislature  has  invested  with  the  mere  souri,  that  the  rule  would  not  apply  in 
privilege  of  existence,  subject  to  its  case  the  power  reserved  by  the  legis- 
plenary  power  and  absolute  will,  is  by  lature  were  so  exercised  as  to  cause  an 
the  judicial  courts  erected  into  a  being  entire  revolution  in  the  character  and 
above  the  legislature  which  created  it.      objects  of  the  corporation,   such  as 

^  New  York  R.  Co.  v.  Miller,  10  changing  a  railroad  company  into  a 
Barb.  CN.  Y.)  260;  White  u.  Syracuse  manufacturing  company,  or  the  like. 
&c.  R.  Co.,  14  Barb.  (N.  Y.)  560;  The  application  of  the  rule  has  been 
Schenectady  &c.  R.  Co.  v.  Thacher,  held  unquestionable  where  all  the 
11  N.  Y.  102;  Buffalo  &c.  R.  Co.  v.  changes  which  were  effected  by  the 
Dudley,  14  N.  Y.  336.  amendments  were  such  as  an  enlight- 

75 


1  Thornp.  Corp.  §  01.]     amendment  of  cpiauters. 

ject;  but  the  principle  remains  the  same.  The  other  view  is 
that  this  reservation  is  intended  to  prevent  the  evils  which  flow 
from  inconsiderate  legislation  under  the  rule  in  the  Dartmouth 
College  case;  that  it  is  intended  merely  as  a  reservation,  on  the 
part  of  the  State,  of  the  power  to  alter  or  repeal  charters,  when 
necessary  to  protect  the  interests  of  the  State  or  of  the  public ; 
and  that  the  legislature  of  a  State  cannot,  with  the  inhibition  of 
the  Federal  constitution  resting  upon  it,  by  such  a  reservation, 
create  for  itself  the  power  to  impair  the  obligation  of  contracts 
subsisting  between  private  parties.  This  latter  view  was  very 
clearly  expressed  by  Chancellor  Green  in  the  following  lan- 
SUiiffe:  *'  It  was  a  reservation  to  the  State  for  the  benefit  of  the 
public,  to  be  exercised  by  the  State  only.  The  State  was  mak- 
ino-  what  had  been  decided  to  be  a  contract,  and  it  reserved  the 
power  of  change  by  altering,  modifying,  or  repealing  the  con- 
tract. Neither  the  words  nor  the  circumstances  nor  apparent 
objects  for  which  this  provision  was  made  can,  by  any  fair  con- 
struction, extend  it  to  giving  a  power  to  one  part  of  the  corpora- 
tors, as  against  the  other,  which  they  did  not  have  before."  ^ 

§  91.  Further  of  this  Subject.  —  Clearly  there  must  be  some 
limitation  on  the  power  of  the  legislature  under  such  a  reserva- 
tion. Taking  the  largest  possible  view  of  the  scope  of  such  a 
reservation  and  conceding  that  it  leaves  the  legislature  of  a 
State  substantially  where  the  Parliament  of  Great  Britain  stands, 
with  plenary  power  over  the  subject,  yet,  as  elsewhere  seen, 
there  is  authority  in  the  judgments  of  the  English  courts  for  the 
proposition  that  the  Parliament  cannot  force  a  man  to  become 
a  member  of  a  corporation  against  his  will.^  This  conclusion 
flows  from  the  consideration  that,  in  the  nature  of  things,  there 
are  implied  reservations  upon  the  power  of  the  legislature  in 
every  free  government,  which  do  not  depend  for  their  sanction 

ened  policy  might  well  have  suggested  Ware    v.  Grand  Junction  &c.  Co.,  2 

as  beneficial  to  the  State  as  well  as  to  Russ.  &  M.  470. 

the  company,  and  such  as  to  preserve  ^  Zabriskie  v.  Hackensack  &c.  R. 

the  company  its  identity,  and  to  pre-  Co.,  3  Green  (N.  J.),  78;   s.  c.  90  Am. 

serve  the  character  which  it  had  when  Dec.  617,  622.    Compare  the  opposing 

first  created.    Pacific  Railroad  r.  Ren-  opinions  in  the  Sinking  Fund  Cases,  99 

shaw,    18    Mo.    210,    216.      Compare  U.  S.  700,  and  in  Munn  v.  Illinois,  94 

U,  S.  113.  2  Ante,  §  §2. 

76 


BY  GENERAL  LAWS.      [1  Tliomp.  Corp.  §  92. 

upon  the  prohibitions  of  written  constitutions.^  It  is  therefore 
supposed  to  be,  under  all  theories  which  obtain  in  American 
courts,  a  necessary  limitation  upon  the  power  of  State  legisla- 
tures that  such  a  legislature  caunot  force  upon  a  body  of  co- 
adventurers  powers  and  privileges  which  even  the  majority  of 
them  are  not  willing  to  accept,  — in  other  words,  that  it  cannot 
force  men  to  engage  in  a  business  of  a  private  character  in  which 
they  do  not  see  fit  to  engage.  On  the  other  hand,  it  can,  of 
course,  incorporate  any  community  or  territorial  subdivision  of 
the  State  for  miuiicipal  or  public  purposes,  against  the  will  of 
the  inhabitants,  in  the  absence  of  any  constitutional  restraint. 
But  here  the  resemblance  between  public  and  private  corpora- 
tions, in  respect  of  this  question,  ends.  The  distinction  taken  by 
the  Missouri  court,  in  two  cases  already  cited, ^  between  puh- 
lic  and  private  corporations,  in  respect  of  this  question,  is  no 
distinction  whatever  in  principle.  It  can  make  no  difference 
whatever  in  respect  of  the  rights  of  the  subscriber,  whether  the 
corporation  be  merely  a  private  venture,  or  whether  the  public 
interest  be  involved  therein;  since  (outside  of  the  power  of 
taxation)  the  public  is  no  more  entitled,  thun  a  man's  co-adven- 
turers in  a  strictly  private  enterprise  would  be,  to  demand  his 
money  for  a  purpose  for  which  he  had  never  agreed  to  give  it. 
If  the  public  want  a  different  enterprise  from  the  one  to  which 
the  subscriber  has  agreed  to  contribute,  the  public  ought  to  pay 
for  it.  A  new  limitation  of  the  power  of  the  State  legislatures 
has  arisen  under  the  Fourteenth  Amendment  to  the  constitution 
of  the  United  States,^  which  provides  :  "  Nor  shall  any  State  de- 
prive any  person  of  life,  liberty  or  property  without  due  process 
of  law."  This  limitation  will  ])robably  prove  more  effective  for 
the  protection  of  the  rights  of  minority  stockholders  than  that 
relating  to  the  oblicration  of  contracts.* 

§  92.    Power  to    Alter  or  Repeal,  reserved    in  a    General 
Law,  applies  to    Future  Special    Charters.  —  The    power    re- 

1  Loan  Association  v.   Topeka,  20  *  Const.  U.  S.,  14th  Amend.,  §  L 
Wall.  (U.  S.)  (;05.  *  See  People  v.  O'Brien,   111  N,  Y. 

2  racific  R.  Co.  V.  Renshaw,  18  Mo.  36;  Chicago  &c.  R.  Co.  v.  Minnesota, 
210;  Pacific  R.  Co.  v.  Hughes,  22  Mo.  134  U.  S.  418. 

291 ;  s.  c.  04  Am.  Dec.  265. 

77 


1  Thomp.  Corp.  §  93.]     amendment  of  charters. 

served  to  the  legislature  by  the  terms  of  a  general  statute,  pros- 
pective in  its  language,  to  amend  or  repeal,  at  the  will  of  the 
le^^lslature,  all  grants  to  corporations  or  amendments  thereof, 
operates  on  all  future  charters,  although  such  charters  are  silent 
on  the  subject  of  such  legislative  right,  and  becomes  a  part  of  the 
contract  created  by  them,  as  much  so  as  if  expressed  in  the 
charter  itself.  The  principle  generalia  specialibus  non  derogant, 
does  not  apply  in  such  a  case,  for  to  make  it  apply  would  be  to 
defeat  the  plain  legislative  intent.  The  principle  rather  applies 
that  grants  by  the  State  to  corporations  are  to  be  strictly  con- 
strued in  favor  of  the  State  and  against  the  corporation,  and 
that  privileges  or  immunities  not  expressly  conferred  are  not  to 
be  regarded  as  passing  by  the  grant,  where  the  instrument  itself 
is  silent,  and  another  statute,  intended  to  be  applicable  to  all 
future  grants  of  such  a  character,  prescribes  that  the  privilege 
or  immunity  shall  not  pass.^ 

§  93.  Illustration.  —  The  legislature  of  Kentucky  passed  a  general 
law  providing  that  "  all  charters  and  grants  of  {sic)  or  to  corpora- 
tions, or  amendments  thereof,  and  all  other  statutes,  shall  be  subject  to 
amendment  or  repeal  at  the  will  of  the  legislature,  unless  a  contrary  in- 
tent be  therein  plainly  expressed,  —provided  that,  whilst  privileges  and 
franchises  so  granted  may  be  changed  by  repeal,  no  amendment  or  re- 
peal shall  impair  other  rights  previously  vested. ' '  It  has  been  held  that 
the  proviso  to  this  statute  was  intended  to  secure  the  rights  of  benefi- 
ciaries and  others,  vested  under  the  charter  before  its  amendment  or  re- 
peal, and  does  not  affect  the  mere  power  to  repeal  the  franchise.  Subse- 
quently to  the  passage  of  this  statute  the  legislature  of  Kentucky  created 
an  insurance  company,  without  expressly  reserving  in  the  charter  the 
power  to  repeal  it.     Three  years  later  the  legislature  passed  an  act  re- 

1  Suydam  v.   Moore,    8  Barb,    (,N.  S.)  500;  Miller  v.  State,  15  Wall.  (U. 

Y.)  3.58;  Read  v.   Fraukfort  Bank,  23  S.)  488;  State  v.  Commissioner,  37  N. 

Me.  318;  Fry  u.   Lexington  &c.  K.  Co.,  J.  L.  228,  237;  Story  v.  Jersey  City  &c. 

2  Mete.  (Ky.)  314;  Griffin  v.  Kentucky  R.  Co.,  16  N.  J.  Eq.  13;  State  v.  Per- 

Ins.    Co.,  3  Bush  (Ky.),  592;  State  v.  son,32N.J.  L.  134;  s.  c.  affirmed,  Id. 

Maine   Central   R.    Co.,  66   Me.   488;  566;  West  Wisconsin R.  Co.  u.  Super- 

Tomlinsonu.  Jessup,  15  Wall.  (U.  S.)  visors,  35  Wis.  257;  General  Hospital 

454,   458;  Tomlinson    v.    Branch,    15  u.  InsuranceCo., 14  Gray  (Mass.),  227; 

Wall.    (U.  S.)  460;  Bangor  &c.  Rail-  Pennsylvania  College  Cases,   13  Wall, 

road  V.  Smith,  49  Me.  9;  Roxbury  v.  (U.  S.)  190,  213;  Sala  u.  New  Orleans, 

Boston  &c.  Railroad,  6  Cush.  (Mass.)  2    Woods    (U.    S.),  188;  Lothrop    r. 

424;  Holyoke  f.  Lyman,  15  Wall.  (U.  Stedraan,  42  Conn,  453. 
78 


BY  GENERAL  LAWS.     [1  Thomp.  Corp.  §  96. 

pealing  the  charter  of  such  company.  It  was  held  that  the  repealing 
act  was  constitutional  and  valid.  ^ 

§  94.  Subsequent  General  Laws  operating  as  Amendments 
of  special  Charters.  —  Where  the  power  to  alter  or  repeal  is  re- 
served in  a  special  charter,  a  subsequent  general  statute,  appli- 
cable to  all  corporations  of  the  kind,  will  operate  as  an  amendment 
of  the  special  charter  of  the  particular  corporation.  Thus,  if  the 
charter  of  a  railroad  company  is  granted  subject  to  the  power 
of  the  legislature  to  amend  it,  a  subsequent  statute  requiring  all 
railroad  companies  to  maintain  fences  on  their  roads  where  run- 
ning within  the  limits  of  any  highway,  will  operate  as  an  amend- 
ment of  the  special  charter,  and  the  corporation  will  be  bound  to 
perform  the  duty  thereby  enjoined,  or  answer  in  damages  to  the 
traveler  injured  through  its  non-performance.^ 

§  95.  Amendments  authorizing  a  Surrender  of  Fran- 
chises.—  As  private  corporations  have  the  general  power  of  sur- 
rendering their  franchises  and  thereby  ceasing  to  exist,^  it 
necessarily  follows  tht^t  a  statute  authorizing  a  strictly  private 
corporation  to  do  this,  does  not  impair  the  obligation  of  the  con- 
tract subsisting  between  the  State  and  the  corporation,  because 
it  merely  operates  as  giving  the  consent  of  the  State  to  what  the 
corporation  has  power  to  do  without  such  consent.*  It  is,  there- 
fore, a  general  principle  that  a  corporation  may  at  any  time  sur- 
render its  charter^  and  accept  a  new  one  with  other  and  different 
provisions.^  An  exception  to  this  rule  exists  in  the  case  of 
corporations  which  have  assumed  duties  toward  the  public  which 
they  may  not  rightfully  cast  off  by  their  voluntary  action.® 

§  96.  Wlien  Acceptance  of  Amendment  not  Necessary. — As 

elsewhere  seen,''^  cases  may  arise  where  an  additional  power,  con- 
ferred upon  a  corporation  by  an  act  of  the  legislature  supple- 
mentary to  its  charter,  will  be  merely  in  furtherance  of  power 

1  Griffin  v.   Kentucky    Ins.   Co.,   ;3  ••  Houston  v.   Jefferson  College,  63 

Bush  (Ky.),  592.  Pa.  St.  428,  437. 

'  Durand  v.  New  Haven  &c.  Co.,  42  '^  Attorney-General   v.     Clergy  So- 

Conn.  211.  ciety,  10  Kich.  Eq.  (S.  C.)  604. 


s  Post,  Ch.  154.  «  Post,  Ch.  154. 

'  Ante,  I  (58,  87, 


79 


1  Thomp.  Coi'i).  §  07.]     amendment  op  charters. 

conferred  upon  the  directors  by  a  by-law  of  the  company,  so  that 
it  will  not  be  necessary  to  the  exercise  of  the  power  by  the  directors 
that  the  stockholders  should  expressly  authorize  them  to  act  in  con- 
formity with  it.* 

§  97.  Evidence  of  Acceptance  of  Amendment  by  Corpora- 
tion. —  It  has  been  well  said  that  it  is  an  acceptance  in  fact  of 
the  amendment  to  the  charter,  and  not  the  filing  of  any 
formal  certificate  of  acceptance,  that  binds  a  corporation  to 
the  amendment.^  It  is  also  a  reasonable  conclusion  that  the 
assent  of  a  corporation  to  an  alteration  of  its  charter  may  be 
inferred  from  such  facts  or  omissions  as  would  raise  such  a  pre- 
sumption in  the  case  of  a  natural  person.^  There  is  ?i  presump- 
tion of  an  acceptance  where  the  amendment  consists  of  a  grant 
beneficial  to  the  corporation.*  Such  an  acceptance  may  be  shown 
by.the  exercise  by  the  corporation  of  the  powers  conferred  by 
the  amendment ;  ^  by  showing  that  the  corporation  has  done 
particular  corporate  acts  authorized  by  the  amendment,  but  with- 
out which  such  acts  would  not  have  been  authorized ;  ^  by  the 
fact  that  the  officers  of  the  corporation  have  exercised  the 
powers  conferred  by  it;  ^  or,  in  general,  by  showing  acts  or 
omissions  on  the  part  of  the  corporation  inconsistent  with  any 
other  hypothesis.^     Where  such  an  assent  is  sought  to  be  proved 

1  Eastern  R.  Co.  v.  Boston  &c.  R.  St.  150;  Penobscot  Boom  Co.  v.  Lam- 
Co.,  Ill  Mass.  125;  s.  c.  15  Am.  Rep.  son,  16  Me.  224;  s.  c.  33  Am.  Dec.  65(3. 
13.  A  general  act,  amounting  to  an  amend- 

2  Cincinnati  &c.  R.  Co.  v.  Cole,  29  meat  of  all  railroad  charters,  was 
Ohio  St.  126;  Zabrisliie  ??.  Cleveland  deemed  to  have  beenacceptedVjy  action 
&c.  R.  Co.,  23  How.  (U.  S.)  331.  under  it  by  the  officers,  who  had  power 

3  Sumrallu.  SuaMutual  Ins.  Co.,  40  to  request  amendments,  no  stocli- 
Mo.  27,  32;  Commonwealth  v.  CuUen,  holders  ever  objecting  to  it.  Sraead 
13  Pa.  St.  133;  s.  c.  53  Am.  Dec.  450.  v.  Indianapolis  &c.  R.  Co.,  11  Ind.  104. 

*  "Where  the  new  grant  is  bene-  And  this  rule  applies  when  the  powers 

flcial  in  its  aspect,  it  is  thought  very  are  conferred  by  a  general  laio,  which 

little  is  required  to  found  a  presump-  is  declared  applicable  to  any  one  of  a 

lion  of  acceptance."    Bell,  J.,  in  Com.  class  of  corporations  that  may  accept 

w.  CuUen,  13  Pa.  St.  133;  s.  c.  53  Am.  its  provisions.     Goodiu  v.  Evans,  18 

Dec.  450,  454.     See  also  Bangor  &c.  Oh.  St.  150. 
R.  Co.  V.  Smith,  47  Me.  34.  ^  Kent  County  Court  v.  Bank  Lick 

5  Wetumpka  &c.  R.  Co.  v.  Bingham,  Turnpike  Co.,  10  Bush  (Ky.),  5-'!). 
5  Ala.  658;  Palfrey  v.  Paulding,  7  La.  '  Story,  J.,  in  U.  S.  v.  Dandridge, 

An.  363;  Bangor  &c.  R.  Co.  v.  Smith,  12  Wheat.  (U.  S.)  64. 
47  Me.  34;  Goodin  v.  Evans,  18  Ohio  *  Hope  &c.  Ins.  Co.  v.  Beckmann, 

SO 


EVIDENCE    OF    ACCEPTANCE.        [1   Thomp.  Corp.    §  98. 

by  a  vote  of  acceptance  on  the  part  of  the  corporation,  it  should 
appear  that  the  vote  was  passed  at  a  general  meeting,  duly  con- 
vened, after  notice  to  all  the  members  :  the  election  of  corporate 
ojQScers,  in  pursuance  of  a  new  charter  or  the  alteration  of  an 
old  charter,  is  but  presumptive  evidence  of  an  acceptance  of  the 
amendment  creating  the  alteration.^  So,  if  the  taking  effect  of 
the  act  depends  upon  the  performance  by  the  corporation  of  con- 
ditions precedent  prescribed  by  the  act,  an  acceptance  in  strict 
conformity  with  the  provisions  is  necessary  to  render  the  act  oper- 
ative, either  as  a  grant  to  or  an  obligation  upon  the  corporation.^ 

§   98.  Evidence    of    Acceptance    by    Stockholders.  —  The 

rule  of  the  preceding  section  does  not,  on  principle,  hold 
as  against  dissenting  stockholders  and  their  privies.^  When 
the  quet^tion  arises  between  a  dissenting  stockholder,  or  his 
privies,  on  the  one  hand,  and  the  corporation  or  the  majority 
shareholders  on  the  other,  and  he  has  not  lost  his  rights  by  laches  or 
estoppel,  — then  it  is  a  fair  view  that  he  is  not  bound,  because  it 
is  one  of  his  rights  as  a  member  to  have  his  dissent  heard  and 
discussed  in  a  corporate  meeting.*  But  circumstances  may  of 
course  exist  from  which  the  assent  of  the  objecting  subscriber  to 
the  alterations  in  the  charter,  which  were  made  subsequently  to 
his  subscription,  may  be  inferred,  without  direct  evidence  of  such 
assent.^  And  where  it  does  not  appear  by  whom  an  amendment 
to  the  corporate  charter  was  accepted,  or  whether  it  was  ac- 
cepted at  all,  it  is  sufficient,  2)ri7na  facie,  if  it  appear  that  the 
corporation  is  organized  and  acting  under  it ;  and  in  an  action  by 
such  a  corporation,  the  plaintiff  is  not  under  the  burden  of  show- 
ing such  an  acceptance.  It  is  said  that,  while  an  issue  might  be 
made  that  would  involve  the  question,  yet  in  the  prosecution  of 

47  Mo.  93 ;  Hope  &c.  Ins.  Co.  v.  Koeller,  ^  Vermont  &  Canada  R.  Co.  v.  Ver- 

47  Mo.  129;  Wetumpka  &c.  R.  Co.  v.  mont  &c.  R.  Co.,   34  Vt.  50;  Owen  r. 

Bingham,  5  Ala.  G57;  State  v.  Sibley,  Piirdy,  12  Oh.  St.  73;  Lyons  v.  Orange 

25   Minn.  387;  Palfrey  v.  Paulding,  7  &c.  R.  Co.,  18  Md.  32;  New  Orleans 

La.  An.  3(13;  Covington   v.  Covington  &c.  R.  Co.  v.  Harris,  27  Miss.  517. 
&c.  R.  Co.,  10  Bush  (Ky.),  69;  Bangor  *  Com.   v.  Cullen,  13  Pa.    St.  133; 

&c.  R.  Co.  V.  Smith,  47  Me.  .34.  s.  c.  53  Am.  Dec.  450. 

1  Com.  V.  Cullen,  13  Pa.  St.  133;  s.  *  See  in  illustration  of  this,    Con- 
c.  53  Am.  Dec.  450.  necticut  &c.    R.  Co.  v.   Bailey,  24  Vt. 

2  Lyons  v.   Orange  &c.  R.  Co.,  32  465;  s.c  58  Am.  Dec.  181,  190. 
Md.  18. 

6  81 


1  Thomp.  Corp.  §  UO.]     amendment  of  charters. 

its  ordinary  business,  the  assent  to  tlie  new  charter  will  be  in- 
ferred from  anj"^  acts  or  omissions  which  are  inconsistent  with  any 
other  hypothesis.^  In  like  manner  it  is  said  by  the  Supreme 
Court  of  Ohio :  **  The  law  protects  any  stockholder  who,  his  as- 
sent being  requisite  to  the  amendment  of  a  charter,  has  not  as- 
sented. If  a  personal  charge  is  sought  to  be  fixed  upon  him  by 
virtue  of  such  amended  charter,  he  may  deny  that  he  assented  ; 
he  is  not  concluded  by  any  presumption,  arising  from  the  acts  of 
the  other  corporators  or  corporate  body.  If  his  interest  in  the 
corporation  or  rights  as  a  stockholder  will  be  affected  by  acting 
under  the  amended  charter  before  it  is  accepted  in  the  prescribed 
mode,  he  may  invoke  the  aid  of  the  State  in  aquo  warranto;  or, 
in  an  action  by  himself,  the  power  of  a  court  to  restrain.  But 
it  cannot  be  permitted  that  a  corporator,  though  his  assent  be  in 
the  first  instance  required,  shall  stand  by,  consenting  to  the 
progress  of  a  corporation,  under  a  charter,  and  then,  when  his 
interest  shall  so  require,  set  up,  either  as  a  claim  or  defense,  that, 
for  want  of  his  direct  assent,  the  grant  of  a  charter  was  not  effect- 
ive, and  the  acts  done  were  illegal,"  ^ 

§  99.  View  that  Assent  of  Stockholder  is  to  be  Presumed, 
and  Dissent  Proved. —  It  is  said  in  an  authoritative  work  that  "  no 
point  is  more  clearly  and  firmly  settled  than  that  if  a  corporation  pro- 
cm'e  an  alteration  to  be  made  in  its  charter,  by  which  a  new  and  differ- 
ent business  is  superadded  to  that  already  contemplated,  such  stock- 
holders as  do  not  assent  to  the  alteration  will  be  absolved  from  liability 
on  their  subscription  to  the  capital  stock. ' '  ^  This  language  has  been 
criticised  as  maintaining  the  proposition  that  affirmative  assent  is  in 
such  a  case  required.*  The  following  proposition  in  the  work  of 
Mr.  Kyd  has  been  judicially  approved:  "It  seems  to  be  the  first 
suggestion  of  reason  that  an  act  done  by  a  simple  majority  of  a 
collective  body  of  men,  which  concerns  the  common  interest,  should 
be  binding  on  the  whole ;  and  that  is  the  principle  of  the  rule  adopted 
by  the  common  law  of  England  with  respect  to   aggregate    corpora- 

1  Hope  Mut.  Fire  Ins.  Co.  v.  Beck-  Connecticut  in  1830:  Banlis  v.  Judah, 
mann,  47  Mo.  93,  97.  8  Conn.  160. 

2  Owen  V.   Purely,    12    Oh.  St.    79,  ^  Ang.  &  A.  Corp.,  §  537. 

The  principle  that  a  minority  stock-  ••  Martin  v.  Pensacola  &c.  R.    Co., 

holder  may,  by  his   laches,  lose  his      8  Fla,    370;    s.   c.   73  Am.   Dec.   713, 
right  to  object  to  a   reorganization,      717. 
seems  to  have  been  first  decided  in 
82 


ASSENT   PKESUxMED,       [1  ThoiJip.  Coip.    §   99. 

tions. ' '  1  Reasoning  from  these  propositions,  the  Supreme  Court  of  Flor- 
ida, speaking  through  Dupont,  J.,  have  said:  "  It  would  seem  that, 
where  the  company  undertakes  to  depart  from  or  add  to  the  original  ob- 
ject or  design, as  set  forth  in  the  articles  of  association,  or  charter  of  incor- 
poration there  is  this  manifest  difference  between  a  simple  partnership  and 
an  incorporated  association :  in  the  former,  the  assent  of  the  individual 
member  is  not  to  be  assumed  — ■  it  is  to  be  affirmatively  established  by 
positive  proof ;  in  the  latter  his  assent  will  be  presumed,  unless  he  affirm 
atively  proves  his  dissent.  The  ground  of  difference  will  be  obvious  to 
any  reflecting  mind.  In  the  former  case,  the  association  being  usually 
Umited  to  a  few  members,  they  are  generally  competent  to  act  in  mass ; 
whereas,  the  latter  being  composed  of  numerous  individuals  residing  in 
remote  locaUties,  they  are  constrained,  by  the  very  necessity  of  the 
case,  to  speak  through  a  conventional  medium,  viz. ,  an  organized  ma- 
jority. If  this  were  not  so,  then  would  great  inconvenience  arise  when- 
ever it  should  become  necessary  for  the  interest  of  the  association  to 
vary  from  or  add  to  the  objects  of  the  original  enterprise.  How  would 
it  ever  be  possible  to  obtain  the  express  assent  of  each  corporator  ?  In 
many  cases  their  particular  localities  would  be  unknown,  and,  if  orig- 
inally known,  may  have  been  changed  from  place  to  place.  If  this  were 
not  so,  then,  in  every  case  of  the  decease  of  a  stockholder,  the  corpo- 
ration could  accept  no  alteration  of  its  charter,  however  such  alterations 
might  promote  its  interest  and  the  consequent  interest  of  each  individ- 
ual corporator,  without  reducing  the  original  capital  by  the  amount  of 
stock  standing  in  the  name  of  the  deceased ;  for  it  would  not  be  pre- 
tended that  the  executor  or  administrator  would  have  the  authority,  in 
such  case,  to  assent,  however  clear  it  is  that  he  would  have  the  right  to 
dissent,  from  the  attempt  to  involve  the  estate  in  the  new  enterprise. 
Again,  if  this  were  not  so,  the  rights  and  interests  of  the  creditors 
would  be  at  the  mercy  of  the  corporation ;  for,  upon  discovering  that 
the  prosecution  of  the  original  design  of  the  charter  had  involved  it  in 
debt,  and  that  its  further  pursuit  was  likely  to  prove  unprofitable  and 
disastrous,  in  order  to  absolve  its  members  from  liability  for  any  further 
calls,  it  would  only  be  necessary  to  obtain  from  the  legislature  an  alter- 
ation of  the  charter,  accepted  by  a  meeting  of  stockholders  composed 
of  a  bare  quorum,  under  the  provisions  of  the  charter ;  and,  as  each 
individual  might  be  sued  upon  his  subscription,  he  would  plead  a  want 
of  express  assent,  and,  unless  it  could  be  affirmatively  proved  that  he 
was  present  at  the  meeting,  he  would  be  released,  and  the  creditors  de- 
frauded of  their  just  rights.     But  how  is  the  fact  of  his  presence  to  be 

1  1  Kyd  Corp.  422;    Martin  v.  Pensarola  &c.  R.  Co.,  8  Fla.  370;    s.  c.  73  Am. 
Dec.  718. 

83 


1  Thomp.  Corp.  §  100.]     amendmen^t  of  charters. 

proved  ?  Who  is  the  witness  who  will  })vove  that  he  was  at  the  meeting 
and  consented  to  the  alteration  ?  The  case  before  us  fully  illustrates 
these  \iews;  for,  of  all  the  witnesses  interrogated,  none  could  remem- 
ber whether  or  not  the  defendant  was  present  at  the  meeting  which  ac- 
cepted the  provisions  of  the  internal  improvement  act,  which,  it  is 
alleged,  made  a  material  alteration  of  the  object  contemplated  in  the 
original  charter.  And  yet  he  may  have  been  present,  consenting  to  the 
act  of  acceptance,  and,  for  the  lack  of  this  proof,  he  is  to  be  absolved 
from  his  liabihty  on  his  subscription,  and  the  creditors,  contractors, 
and  laborers,  who  have  given  credit  in  part  upon  the  faith  of  his  sub- 
scription, to  be  deprived  of  their  just  rights  ;  and  this,  too,  without  the 
slightest  pretense  that  any  injury  or  loss  has  or  was  likely  to  accrue  to 
him  from  the  alleged  alteration.  .  .  ,  The  individual  subscribes 
to  the  contract,  with  the  distinct  knowledge  and  understanding  that  its 
terms  may  be  varied  at  any  time  by  a  concurrence  between  a  majority 
of  his  associates  and  the  legislature,  -ind  that,  too,  without  his  assent 
and  in  defiance  of  his  dissent.  Nay,  he  subscribes  with  the  distinct 
knowledge  that,  with  such  concurrence,  the  terms  of  the  charter  may 
be  totally  altered,  so  that  the  corporation  may  be  authorized  to  embark 
in  new  enterprises  wholly  and  essentially  different  from  those  originally 
contemplated,  and  that  his  only  remedy  is  to  dissent  and  withdraw  from 
the  association.  With  these  distinguishing  features,  can  it  be  seriously 
contended  that  the  mere  subscription  to  the  stock  of  a  corporation  stands 
upon  the  same  footing  and  is  to  be  governed  in  all  respects  by  the  general 
law  of  contracts  as  applicable  to  private  or  individual  agreements  ?' '  The 
court  therefore  held  that  no  error  was  committed  in  gi\ing  the  following 
instruction,  in  an  action  by  a  corporation  against  its  shareholder  for  an 
assessment  on  his  stock:  "That  the  defendant  must  show  that  he 
made  timely  objection  to  the  acceptance  of  the  internal  improvement 
act ;  and  the  presumption  is,  in  the  absence  of  proof  to  the  contrary,  that 
he  assented  to  the  action  of  the  stockholders  who  unanimously  accepted 
the  act ;  and  especiallj^  is  the  presumption  proper  where  the  company 
has  contracted  debts  to  large  amounts  before  any  objection  is  made."  ^ 

§  lOO.  Instances  under  tlie  Foregoing  Rules.  —  An  act  of  the 

legislature,  in  addition  to  a  former  act,  creating  a  corporation  for  the 

1  Martin  v.  Pensacola  &c.  R.  Co.,  8  by    the    constitution   of    the    United 

Fla.   370;    s.    c.    73     Am.    Dec.    713.  States,  yet,  in  the  absence  of  cora- 

'' While  it  is  true  that  each  corporator  plaint,   acquiescence   in    the    change 

may   object   to   the   repeal  or  to  any  may   be   inferred,  and   ultimately   its 

material  modification  of    the  provis-  acceptance      by     the      corporators." 

ions  of  the  charter  granted  for  ot!;er  Western  &c.  R.  Co.  v.  Rollins,  82  N. 

than  municipal  purposes,  and  consti-  C.  523.     Compare  Mills  v.  Williams, 

tuting  a  legislative  contract  protected  11    Ired.  L.  (N.  C.)  558. 

84 


ASSENT   PRESUMED.       [1  Thoilip.  Coi'p.   §   100. 

management  of  a  trust  fund,  was  passed  without  the  knowledge  or  re- 
quest of  the  corporation,  and  was  never  adopted  by  any  direct  vote ; 
but  the  corporation,  ha\dug  elected  certain  officers,  provided  for  by  the 
act  in  addition,  and  such  officers  having  exercised  the  powers  thereby 
conferred  on  them  for  nearly  ten  years,  —  it  was  held  that  these  pro- 
ceedings were  equivalent  to,  or  sufficient  e\idence  of,  a  formal  assent  or 
adoption  by  the  corporation.^  _  _  _  .  Previous  to  the  passage  of 
the  Ohio  general  railroad  act  of  February  11,  1848,  a  railroad  company 
was  chartered  by  a  special  act  of  the  legislature,  which  empowered  the 
directors  to  transact  all  the  business  of  the  company,  but  did  not  ex- 
pressly authorize  subscriptions  to  the  capital  stock  in  real  estate.  This 
pri\dlege  was  conferred  by  §  14  of  the  act  of  1848,  upon  all  railroad 
corporations  then  existing  that  might  accept  tlie  power  so  conferred. 
After  the  passage  of  that  act,  the  directors  entered  on  the  records  of 
the  company  a  resolution  that  subscriptions  to  the  capital  stock  might  be 
made  in  real  estate.  The  company  then  received  real  estate  subscriptions 
to  its  stock,  and  sold  and  conveyed  the  same  to  bona  fide  purchasers 
with  the  knowledge  of  such  subscribers,  and  without  objection  on  their 
part,  until  many  j^ears  after,  when  the  stock  had  become  worthless,  and 
the  enterprise  for  which  the  company  was  organized  had  been  abandoned. 
It  was  held,  that,  in  a  suit  b}--  a  subscriber  against  a  purchaser  from  the 
company,  to  recover  back  the  land  conveyed  by  him  to  the  company  on 
such  subscription,  proof  of  the  exercise  of  the  privileges  conferred  by 
the  act  of  1848,  upon  the  company,  under  a  resolution  of  the  parties  to 
the  suit,  was  sufficient  evidence,  as  between  them,  that  the  company 
had  accepted  the  powers  conferred  in  that  section,  and  was  thereby  au- 
thorized to  take  and  convey  land  received  on  subscription  to  its  capital 
stock. 2  -  -  -  -  Where  a  corporation  was  organized  under  an  act 
of  the  legislature  passed  in  1859  ;  and  an  amendatory  act,  the  acceptance 
of  which  was  drawn  in  question,  was  shown  to  have  been  drawn  up  by  the 
attorney  of  the  corporation,  and  its  passage  procured  upon  the  applica- 
tion of  at  least  a  portion  of  the  directors  ;  and  it  also  appeared  that  the 
board  of  directors  authorized  the  opening  of  books  of  subscription  to 
the  guarantee  fund,  provided  for  by  the  amendment,  at  different  times 
after  the  subscription  which  was  drawn  in  question  ;  and,  also,  that,  at 
various  times,  the  by-laws  of  the  company  recognized  this  subscription 
by  regulating  the  rate  of  interest  to  be  paid  on  the  same,  and  the  date 
at  which  computation  commenced  ;  —  these  acts  were  held  to  operate  as 
an  estoppel  against  the  corporation,  and  to  furnish  evidence  from  which 
an  acceptance  of  the  amendment  might  be  presumed. ^    And  this,  althouo-h 

1  Third  School  District  in  Blaud-  2  Goodiu  v.  Evans,  18  Ohio  St.  150. 

ford  1;.  Gibbs,  2  Cush.  (Mass.)  39.  "  Siimrall  w.Mut.  Ins.  Co..40Mo.  27. 

85 


1  Xlionip.  Corp.  §  101.]     amendment  of  charters. 

as  already  seeu  ^  the  directors  of  a  corporation  have  no  power,  in  the 
absence  of  statute,  to  do  or  consent  to  anything  which  changes  the 
constituent  character  of  the  corporation,  because  their  office  is  merely 
that  of  business  managers.  -  -  -  -  On  a  somewhat  similar  principle, 
where  the  charter  of  a  railroad  company  contains  a  provision  for  obtain- 
ing title  in  case  any  person  shall  own  any  private  right  or  interest  in  any 
of  the  streets  or  avenues  over  or  upon  which  the  railroad  is  authorized  to 
be  laid,  by  accepting  such  a  charter,  the  grantees  must  be  deemed  to  have 
conceded  that  the  nature  of  the  improvement  calls  for  a  new  assessment 
of  damages,  or  must  have  stipulated  to  make  such  an  assessment  in 
consequence  of  the  benefits  acquired  by  them  under  their  act.^ 

§  101.  Estoppel   to  Deny  Acceptance  of  Amendment. —  As 

hereafter  seen,  the  person  who  contracts  with  a  corporation  or 
with  persons  claiming  to  be  a  corporation,  by  its  corporate  name, 
becomes  estopped  to  deny  the  corporate  existence,  when  sued 
upon  the  contract.^  Upon  a  similar  theory  one  who  contracts 
with  a  corporation,  acting  under  an  amended  charter  antl  by  its 
amended  name,  will  not  be  heard  to  complain  that  the  amend- 
ment has  not  been  properly  accepted  by  the  corporation.*  This 
estoppel  works  against  the  corporation,  as  well  as  in  its  favor. 
If,  therefore,  a  statute  is  passed  creating  new  powers,  and  pro- 
viding that  any  existing  corporation  may  accept  it,  and  that,  on 
filing  their  acceptance,  that  part  of  their  charter  which  is  incon- 
sistent with  the  act  shall  be  repealed,  and  a  corporation  assumes  to 
act  under  the  statute  and  exercise  the  powers,  though  without  fil- 
ing the  required  acceptance,  they  cannot  exonerate  themselves 
from  responsibility  upon  contracts  made  in  the  exercise  of  such 
powers,  by  objecting  that  they  had  not  filed  the  evidence  required 
by  the  statute  to  evince  their  decision  to  accept  it.  Although  a 
corporation  cannot  vary  from  the  object  of  its  creation,  and  per- 
sons dealing  with  it  must  take  notice  of  whatever  is  contained  in 
the  law  of  its  organization,  nevertheless,  in  cases  in  which  a  cor- 
poration acts  within  the  range  of  its  general  authority,  it  may  be 
bound,  though  failing  to  comply  with  some  formality  or  regula- 
tion which  should    not    have    been  neglected,    but  has  been.^ 

1  Anle,  §  86,  »  Post,  8  518,  and  Ch.  184. 

2  People  V.  Law,  3-t  Barb.    (N.  Y.)  <  Eppes  v.  Mississippi  R.    Co.,  35 
494.     See  also  Beats  v.  Benjamin,  29      Ala.  33. 

How.  Pr.  (NY.)  109.  «  Zabriskie    v.    Cleveland     &c.    R. 

8G 


ESTOPPEL    TO    DENY    ACCEPTANCE.        [1  Thomp.  Corp.    §   103. 

Where  an  amendment  to  a  charter  of  a  private  corporation  is  en- 
acted by  the  legislature,  upon  conditions  which  are  to  be  accepted 
in  full  of  all  demands  which  the  corporation  has  against  the 
State,  if  the  conditions  are  so  accepted  by  the  governing  body, 
pursuant  to  the  terms  of  the  grant,  by  a  formal  instrument  of 
acce^)^ance,  such  acceptance  will  create  a  binding  contract  between 
the  State  and  the  corporation,  which  the  corporation  can  not 
thereafter  avoid  or  set  aside,  on  the  ground  that  it  was  executed 
by  its  governing  body  in  ignorance  of  the  real  nature  and  extent 
of  their  rights  against  the  State. ^ 

§  102.  View  that  Objection  can  only  be  raised  by  Quo  War- 
ranto, etc.  —  Where  the  amendment  is  such  that  it  does  not  sub- 
stantially change  the  character  or  objects  of  the  corporation,  a 
member  of  the  corporation,  when  sued  upon  his  stock  subscrip- 
tion, or,  in  case  of  a  mutual  fire  insurance  company,  upon  his 
premium  note,  cannot  set  up  the  amendment  as  a  defense  to  the 
action;  he  cannot  object  to  the  legality  of  the  amendment  in  this 
collateral  way ;  he  must  do  it,  if  at  all,  in   a  direct  proceeding. 


2 


§   103.    Amendment  by  Substitution  of  JVew  Charter.  —  The 

alteration  of  the  charter  may  be  as  lawfully  made  by  the  substi- 
tution of  a  new  charter  as  by  an  amendment  of  the  old,  provided 
such  substituted  charter  be  germane,  and  necessary  to  the  objects 
and  purposes  for  which  the  company  was  organized.^  It  has 
been  held  that  a  statute  which  in  form  is  a  new  charter  of 
an  existing  corporation,  which  does  not  purport  to  be  an 
amendment  of  the  old  charter,  but  which  contains  precisely  the 
same  title,  and  which  embodies  most  of  the  provisions  of  the 
old  charter  witii  the  addition  of  certain  new  provisions,  is  to  be 
treated  merely  as  an  amendment  of  the  old  charter,  —  the  court, 
upon  an  examination  of  the  terms  of  the  new  act,  being  of  opin- 
ion that  such  was  the  lejjislativo  intent.* 


Co.,  23   IIow.   (U.   S.)  381.     Compare  pression,  see  Chubb  u.  Uptou,  05  U.  S. 

Conf^rcgalioiial   Society   v.  Curtis,  22  065;  anfe,  §80. 

Pick.  (Mass.)  320.  3  Sprigg   v.   Westeru   Tel.    Co.,   46 

^  St.  John's  College   v.  Purnell,  23  Md.  07. 

Md.  029.  *  Hope  Mut.  Fire  Ins.  Co.  v.  Beck- 

-  Hope  Mut.   Fire  Ins.  Co.  t>.  Beck-  uianii,  47  Mo.  93. 
mann,  47   Mo.  93.     For   a  similar  ex- 

87 


1  Thomp.  Corp.  §  105.]     amendment  of  charters. 

§  104.  Objections  by  Third  Parties :  Contractors. —  If  the  iegis- 
laturc  aud  the  corporatioa  concur  iu  changing,  repeahug  or  surrender- 
iiio-  the  charter  of  the  corporation,  contractors  with  the  corporation 
have  no  standing  to  object,  provided  their  contracts  are  left  intact  and 
their  legal  remedies  preserved. ^ 

§  105.  How  Minority  are  protected  in  England. —  In  England, 
where  in  theory  of  law  the  Parliament  is  supreme,  and  not  subject  to 
any  judicial  checks  whatever,  the  Court  of  Chancery  has,  by  indirection, 
found  a  means  to  protect  the  minority  of  the  shareholders  of  a  com- 
pany against  changes  in  the  contract  afforded  by  the  constating  instru- 
ments, effected  by  Parhament  on  the  petition  of  the  majority, — b}' 
restraining  the  majority,  on  a  bill  in  equity  filed  by  the  minority,  from 
applying  the  fitncls  of  the  corporation  in  procuring  from  Parliament  the 
passage  of  an  act  cliangiug  its  objects  aud  purposes. ^ 

1  Houston  V.  Jefferson  College,  63  Co.,  7  Hare,  114;  Lancashire  &c.  R. 
Pa.  St.  428.  Co.  v.  Northwestern  R.  Co.,  2  Kay  & 

2  Bagshawe  v.  Eastern  Counties  R.      J.  293. 

88 


CaAETERS   GRANTED   BY  THE    COURTS.       [1  Thomp.  Corp.   §  110. 


CHAPTEE    y. 


CHARTERS  GRANTED  BY  THE  COURTS. 


Section 

110.  Devolving  the  power  of  creating 

corporations  on  tlie  courts. 

111.  Objects  for  'whlcli  the  courts  may 

grant  charters  in  Pennsylvania. 

112.  Proceedings  to  obtain  such  char- 

ters must  be  public. 

113.  Requisites  of  charter  submitted 

to    court    under  Pennsylvania 
statute. 

114.  Requisites  of  charter  under  Penn- 

sylvania act  of  1874. 

115.  Reasons  for  whicli  charters  have 

been  refused. 

116.  Charters  refused  which  contain  an 

indefinite  power  of  expulsion. 

117.  Further  of  this  subject. 

118.  Charters  refusedcoutaining  pow- 

ers not  specified  in  the  statute. 


Section 

119.  Charters  refused  with  power  to 

confer  decrees. 

120.  Charters  refused  for  mutual  mar- 

riage benefit  associations. 

121.  Charters  refused  containing  by- 

laws. 

122.  Charters     refused    because    not 

written    on   a  single   piece  of 
paper. 

123.  Charters  under  §  1676  of  Georgia 

Code. 

124.  Referring  the  application  to  an 

amicus  curiae. 

125.  No  appeal  from  decree  refusinsr. 

126.  Charters  amended    by  the  judi- 

cial courts. 

127.  What    body    assent   to   amend- 

ments by  judicial  courts. 


§  110.  Devolving  the  power  of  creating  Corporations  on 
the  Courts. —  In  the  absence  of  a  provision  in  the  constitution 
to  that  effect,  the  legislature  of  a  State  has  no  power  to  author- 
ize the  judicial  courts  to  grant  special  charters  of  incorporation. 
The  reason  is  that,  where  the  constitution  of  the  State  vests  the 
legislative  power  in  the  general  assembly,  it  is  not  competent 
for  that  body  to  delegate  it  to  another  department  of  the  gov- 
ernment.^ The  legislature  may,  however,  even  in  the  absence 
of  a  direct  constitutional  authorization,  prescribe  by  general 
laws  the  conditions  under  which,  and  the  purposes  for  which 
corporations  may  be  organized,  and  may  devolve  upon  the  judi- 
cial department  of  the  government  the  execution  of  those  laws, 
by  examining  the  charters  and  determining  whether  they  are  in 
compliance  with  law,  and  if  so,  passing  a  decree  of  incorporation. 


1  state  V.  Armstrong.  3  Sneed  (Tenn.),  634;  Ex  parte  Chadwell,  50  Teun.  98. 

89 


1  Thomp.  Corp.  §  111.]     chakteus  quanted  by  the  courts. 

In  all  these  cases  the  distinction  lies  between  creating  Jiucl  organiz- 
ing corporations.  In  the  absence  of  an  explicit  constitutional 
authorization  to  the  contrary,  only  the  legislature  can  create 
corporations;  without  the  aid  of  such  an  authorization  it  may, 
however,  empower  the  judicial  courts  to  organize  them  under  a 
general  law,  provided  there  is  no  prohibition  in  the  constitution 
which  disables  the  leojislature  from  devolving  ministerial  duties 
on  the  judicial  courts.^  The  theory  is  that,  in  such  a  case,  the 
legislature  merely  uses  the  courts  for  the  purpose  of  giving  Ze^/a? 
form  to  the  corporation,  and  that  the  act  required  by  the  statute 
to  be  done  by  the  courts  is  not  an  act  involving  even  judicial  dis- 
cretion, but  is  a  purely  ministerial  act,  in  such  a  seu'^e  that  it& 
performance  could  be  compelled  by  mandamus?  Accordingly, 
it  has  been  held  that  the  legislature  may,  in  the  absence  of  a 
direct  constitutional  authorization,  provide  by  law  for  the  cre- 
ation of  village,  town  or  city  corporations,  by  presenting  a  pe- 
tition therefor  to  the  county  court,  that  body  having  no  discretion 
to  refuse  the  petition  when  it  conforms  to  the  statute,  but  being 
required  merely  to  spread  it  upon  its  minutes,  which  done,  the 
corporation  becomes,  ipso  facto,  legally  organized.^  Under  the 
Tennessee  act  of  1871  authorizing  the  chancery  courts  to  grant 
letters  of  incorporation,  it  was  held  that  such  courts  had  na 
power  to  organize  a  corporation  for  any  purpose  not  authorized 
by  general  law  ;  since  this  would  be  to  create  corporations,  which 
was  an  attribute  of  legislative  power,  and  not  merely  to  organ- 
ize them.*  In  other  words,  the  action  of  the  court  extends  na 
further  than  to  furnish  evidence  of  organization.^ 

§  111.  Objects  for  which  the  Courts  may  Grant  Charters  in 
Pennsylvania.  —  In  a  case  where  a  charter  was  applied  for  before  Mm 
in  1871,6  jvjr.  Justice  Paxson,  of  the  Philadelphia  Court  of  Common 
Pleas,  afterwards  a  justice  of  the  Supreme  Court  of  Pemisylvania,  col- 
lected from  the  statute  laws  of  that  State  and  catalogued  the  several 

J  See  the  reasoning  in    Ex  parte  ^  Morristown  v.   Sheltoii,    1    Head 

Chadwell,  59  Tenu.  98;  also  Ex  parte  (Tenn.),  24. 

Burns,  1  Tenn.  Ch.  83;  Railroad  Co.  v.  *  Ex  parte  Chadwell,  59  Tenn.  98. 

Johnson,  72  Tenn.  333;  Greenville  &c.  ^  Greenville  &c.  R.  Co.  v.  Johnson,. 

R.  Co.  V.  Johnson,  G4  Tenu.  332.  G4  Tenn.  332. 

2  Franklin  Bridge  Co.  v.  Wood,  14  «  Re   Charter  of   Philadelphia   Ar- 

Ga.  80.  tisaus'  Institute,  8  Phila.  (Pa.)  229. 
90 


PENNSYLVANIA    STATUTE.       [1   TllOmp.  Coip.    §   113. 

objects  for  which  the  Court  of  Common  Pleas  was  authorized  by  law  to 
grant  charters  of  incorporation.  These  were:  "1.  Associations  for 
literary,  charitable  or  religious  purposes,  benevolent  societies  or  asso- 
ciations, fire-engine  or  hose  companies. ^  2.  Associations  for  the  promo- 
tion of  science  or  agriculture,  cemetery  or  burial  associations,  societies 
for  the  detection  of  thieves  and  the  recovery  of  stolen  property. ^  3. 
Musical  societies  and  associations. ^  4.  Mutual  savings  fund,  loan  or 
building  associations.'*  5.  Associations  for  the  purpose  of  insuring 
horses,  cattle  and  other  Uve  stock  against  loss  by  death,  from  disease  or 
accident,  or  from  being  stolen;  water,  hook  and  ladder  companies, 
building  associations,  musical  clubs  or  associations,  teachers'  institutes 
or  associations,  hotel  companies,  skating  parks ;  associations  and  clubs 
for  the  advancement  of  athletic  sports,  including  base  ball  clubs ;  and 
fire  insurance  companies.^  6.  Saving  fund  associations,  or  societies 
for  the  accumulation  of  funds  and  the  distribution  of  the  same  among 
other  members,  without  banking  or  discounting  privileges."  ^ 

§  112.  Proceedings  to  Obtain  sucli  Charters  must  be  Pub- 
lic. —  In  one  case  the  Pliiladelphia  Common  Pleas  refused  a  charter  to 
a  rehgious  society,  on  the  ground  that  the  charter  had  not  been  exposed 
to  inspection  by  the  public,  but  that  affirmative  means  had  been  taken 
to  prevent  such  inspection,  —  the  court  reasoning  that,  although  this  is 
not  specially  directed  by  the  act,  yet  the  provision  requiring  an  adver- 
tisement of  the  proposed  application  indicates  that  pubhcity  was  the  in- 
tention of  the  legislature.' 

§  113.  Requisites  of  Charter  submitted  to  Court  under 
Pennsylvania  Statute . — In  the  case  before  Mr.  Justice  Paxsou,  re- 
ferred to  in  a  preceding  section,^  the  learned  judge,  in  view  of  the 
very  crude  manner  in  which  charters  were  drawn  which  were  submitted 
to  the  court  for  approval,  restated  at  length  the  essential  features  which 
every  charter  should  contain,  citing  local  decisions  in  support  of  the 
different  features  which  he  catalogued.     They  were  as  follows :      1.  The 

1  CithigPcnn.  Actof  Oct.  3rd,  1840;  «  Citing  renn.  Act  of  March  2Gth, 
Purd.  Dig.  Penn.  Stat.  19G,  pi.  11;  P.  18G7;  Purd.  Dig.  145G,  pi.  3;  P.  L.  44. 
L.  Penn.  5.  e  pgnn.  Act  of  Apr.  12(,h,18G7;  Purd. 

2  Penn.  Actof  Feb,  20th,1834;  Purd.  Dig.  1450,  pi.  4;  P.  L.  70. 

Dig.  197,  pi.  15;  P.  L.  90.  '  Re  Charter  of   Church    of    Holy 

*  Penn.  Act  of  Apr.  Gth,  1859;  Purd.  Communion,  14  Phila.  (Pa.)  121. 
Dig.  197,  pi.  IC;  P.  L.  377.  8  r^   Charter  of   the   Philadelphia 

*  Penn.  Actof  Apr.  12th,  1859;  Purd.  Artisans'  Institute,  8  Phil.  (Pa.)  229. 
Dig.  129,  pi.  1;P.  L.  544. 

91 


1  Tliomp.  Corp.  §  113.]    charters  granted  by  the  courts. 

membership  must  be  restricted  to  citizens  of  this  commonwealth.  ^  2. 
The  name  of  the  proposed  corporation  must  be  stated,  and  said  name 
should  be  entirely  distinctive  from  that  of  any  other  incorporation  in 
the  same  locality. ^  3.  The  objects  of  the  association  must  be  clearly  de- 
fined, so  as  to  satisfy  the  court  that  they  are  within  the  meaning  of  the  law.=^ 

4.  The  articles  should  clearly  define  the  rights  and  duties  of  the  members.'' 

5.  The    conditions    under    which    the    parties    propose   to   associate. 

6.  The  location  where  said  corporation  is  intended  to  be  situated,  or  its 
principal  business  transacted.     7.  That  all  by-laws  to  be  adopted  by 
said  proposed  corporation  for  its  government  shall  be  consistent  with 
the  constitution  and  laws  of  the  United  States,  the  constitution  and  laws 
of  this  commonwealth,  and  with  the  proposed  charter.     8.  Any  clause 
providing  for  an  amendment  to  the  charter  must  set  forth  that  said 
amendment  shall  be  made  in  conformity  with  law.     9.  If  the  power  of 
expulsion  is  introduced,  the  charter  must  clearly  define  the  causes  for 
which  a  member  may  be  expelled.     An  indefinite  or  vague  statement  of 
the  offense  is  not  sufficient.     The  court  will  not  approve  a  charter  which 
gives  a  majority  of  the  association  power  to  expel  any  member  "  guilty 
of   any  offense  against  the  law."     Any  such  or  kindred  expression  is 
too  geueral.5     iq.  In  charters  of  building  associations,  the  number  and 
value  of  the  shares  proposed  to  be  issued  must  be  stated.     11.  In  char- 
ters of   benevolent  societies,   there   must  be  a   clause   restricting  the 
application  of  their  funds  to  the  object  declared  to  be  the  purpose  of 
their  association.     12.  In  all  charters  where  a  cash  capital  is  provided 
for,  the  amount  of  such  capital  must  be  stated,  as  also  the  number  and 
value  of  the  shares.     13.  Every  charter  must  contain  a  limitation  of  the 
amount  of  real  and  personal  estate  to  be  held  by  such  corporation.     The 
limitation  of  real  estate  must  not  exceed  the  maximum  prescribed  by  the 
act  of  Assembly;  and  the  limitation   as  to  the  personal  estate  must 
be  reasonable,  taking  into  view  the  objects  of  the  association,  the  court 
reserving  the  right  to  approve  the  latter  in  its  discretion.     14.  Every 
charter  should   be   written  upon   oae  sheet  of  paper  or  parchment. 
Interlineations  in  a  charter  are  not  proper,  and  if  the  same  occur  in  a 
material  part,  the  charter  will  be  rejected. ^ 

1  Citing  Butchers'  Beneficial  Asso-  cial  Association  of  Brotherly  Unity, 
ciation,  35  Pa.  St.  151.  Id.  299;  Butchers'  Beneficial  Associa- 

2  Citing  GPittsb.  Leg.  J.  161.  tion,  35  Pa.  St.  151;  Commonwealth 

3  Citing  National  Literary  Associ-  v.    St.   Patrick's  Benevolent   Society, 
ation,  30  Pa.  St.  150.  2  Binn.    (Pa.)  448;  Commonwealth  v. 

4  Citing   German    Genl.    Beneficial  Guardians  of   the  Poor,    6  Serg.  &  R. 
Association,  30  Pa.  St.  155,  (Pa.)  469. 

*  Citing  Butchers'   Beneficial   As-  ^  Re  Charter  of  Philadelphia  Arti- 

sociation,    38    Pa,    St.  298;     Benefl-      sans'  Institute,    8    Phila.,   (Pa.)    229. 
92 


PENNSYLVANIA    STATUTE.       [1  Thomp.  Coip.    §   115. 

§  114.  Requisites    of    Charter   under  Pennsylvania   Act  of 

1874. —  These  are:  "  1,  The  name  of  the  corporation.  2.  The  purpose 
for  which  it  is  formed.  3.  The  place  or  places  where  its  business  is 
to  be  transacted.  4.  The  term  for  which  it  is  to  exist.  5.  The  names 
and  residences  of  the  subscribers  and  the  number  of  shares  subscribed 
by  each.  6.  The  number  of  its  directors  and  the  names  and  resi- 
dences of  those  who  are  chosen  directors  for  the  first  year.  7.  The 
amount  of  capital  stock,  if  any,  and  the  number  and  par  value  of 
shares  into  which  it  is  divided."!  This  statute  has  been  held  man- 
datory. ^ 

§  115.  Reasons  for  which    Charters   have   heen  Refused. — 

Charters  have  been  refused  in  that  State  where  the  object  of  the  asso- 
ciation was  not  sufficiently  stated,  —  where  the  charter,  for  instance, 
after  enumerating  four  distinct  purposes  for  which  the  association  was 
formed,  went  on  to  say,  "  for  such  other  purposes  as  may  be  agreed 
upon  by  the  association  in  future."  2.  Where  the  membership  was 
not  confined  to  citizens  of  the  commonwealth.  3.  Where  there  was  no 
limitation  of  the  amount  of  real  and  personal  estate  to  be  held  by  the 
proposed  corporation.  4.  Where  amendments  to  the  charter  were  not 
required  to  be  made  with  the  approval  of  the  court.  In  another  case 
the  approval  of  a  charter  was  denied  where  the  membership  was  not  re- 
stricted to  citizens  of  Pennsylvania,  and  where  there  was  a  provision 
that  membership  should  be  forfeited  upon  enlistment  in  the  army  or 
navy,  the  latter  clause  being  against  public  pohcy.  Paxson,  J.,  said: 
"A  corporation  which  is  a  creature  of  the  law  ought  not  to  proscribe 
its  members  for  aiding  the  government  which  creates  and  protects  it."  ^ 
So,  where  the  charter  of  a  society  called  the  Butchers'  Benevolent 
Association  was  presented  to  the  Supreme  Court  of  Pennsylvania  for 
approval,  several  defects  were  found  in  it  which  prevented  the  court 
from  approving  it.  Said  Lowrie,  C.  J. :  "It  allows  of  any  by-laws  that 
are  not  inconsistent  with  itself;  while  we  cannot  allow  any,  except 
under  the  restriction  that  they  shall  be  consistent  with  the  constitution 
and  laws  of  the  State  and  of  the  Union.  Again,  it  allows  of  member- 
ship to  citizens  of  the  United  States,  when  it  ought  to  be  confined  to 
citizens  of  this  State."  * 

Citing  Alexander  Presbyterian  Church,      ficial    Association,    14     Phila.    (Pa.) 
hO  Pa.  St.  154;   United  Daughters  of      130. 

Cornish,  35  Pa.  St.  80.  3  Re  Charter  of   Rev.    David   Mul- 

>  Pennsylvania  Act   of  April   29th,      holland   Benevolent  Society,  10  Pliila. 
1874.  (Pa.)  19. 

*  Re  Charter  of  Stevedores'  Bene-  *  Butchers'  Beneficial  Association, 

35  Pa.  St.  151. 

93 


1  Thomp.  Corp.  §  117.]     cijauteus  granted  by  thk  courts. 

§  IIG.  Charters  Refused  which  contain  an  Indefinite  Power 
of  Expulsion.  —  Charters  have  beeu  refused  which  contained  an  in- 
definite power  of  expelling  members.^  Thus,  the  charter  of  the 
Butchers'  Beneficial  Association,  when  first  presented  to  the  Supreme 
Court  of  Pennsylvania,  was  rejected,  on  the  ground,  among  others,  that 
it  allowed  the  association  to  expel  members  Avho  should  be  guilty  of  ac- 
tions which  might  injure  the  association.  This  the  court  could  not  ap- 
prove, because  it  gave  to  the  association  an  indefinite  power  over  its 
members.  The  court  reasoned  that  it  is  incompatible  with  the  spirit  of 
our  institutions  to  clothe  any  body  with  such  indefinite  power  over  its 
members,  arguing  that  it  was  equivalent  to  socialism  and  was  a  rejec- 
tion of  all  individual  rights  within  the  association.  The  court  held  that 
it  was  proper  to  found  the  right  of  expulsion  on  the  fact  of  a  member  hav- 
ing been  convicted  of  crime  on  a  trial  in  court.^  So,  where  there  was  an 
article  which  provided,  — ^  "  Should  any  member  of  this  association  be 
guilty  of  unprofessional  indecorum  or  ungentlemanhj  conduct^  he  may  be 
reprimanded,  suspended,  or  expelled  at  the  discretion  of  two-thirds  of 
the  members  present  at  any  stated  meeting:  Provided^  however,  that 
charges  and  specifications  in  writing  shall  have  been  read  by  the  Secre- 
tary and  referred  to  the  Board  of  Directors,  who  shall  investigate  or 
try  the  same,  as  provided  for  in  the  by-laws,  and  report  to  the  associa- 
tion," etc. ,  —  this  article  was  held  objectionable  on  account  of  the  vague 
description  of  the  offenses  for  which  members  might  be  expelled,  and 
because  it  contained  no  proper  provision  for  the  trial  of  the  offending 
party.  ^ 

§  117.  Further  of  this  Subject.  —  The  Supreme  Court  of  Penn- 
sylvania has  refused  to  approve  a  charter  for  the  incorporation  of  an 
association,  where  the  articles  contained  the  statement  that  any  member 
mio-ht  be  expelled  who  should  commit  any  misdemeanor^  or  any  other 
act  that  might  prove  injurious  to  his  character  or  standing  as  a  member 
of  the  association.  The  court  did  not  object  to  the  word  misdemeanor, 
although  that  was  criticised  as  authorizing  expulsions  for  pett}'^  offenses  ; 
but  the  court  said :  "  '  Acts  injurious  to  character  or  standing  as  a  mem- 
ber '  is  no  definition  of  any  offense.  We  might  as  well  sum  up  all  crimi- 
nal law  by  the  expression,  '  acts  contrary  to  the  general  welfare.'  Such 
expressions  state  well  enough  the  principle  of  law ;  but  they  state  no 
law ;  for  every  law  is  grounded  on  some  principle,  and  is  itself  a  definite 

1  Butchers'  Beneficial  Asso.,  38  Pa.  2  Rg  Charter  of  Butchers'  Beneficial 

St.  298;  Beneficial  Asso.  of  Brotherly      Asso.,  35  Pa.  St.  151. 
Unity,  38  Pa.  St.  299.  »  Re  Charter  of  Journalists'  Fund, 

8  Phila.  (Pa.)  272. 

94 


PENNSYLVANIA    STATUTE.        [1  Thomp.  Corp.   §   118. 

statement  of  some  act  or  special  class  of  acts,  which  are  declared  to  be 
approved  or  condemned  by  the  principle.  Under  the  principle  here 
objected  to,  the  majority  may  expel  a  member  for  almost  any  act,  and 
thus  members  are  left  without  any  rights  that  the  majority  may  choose 
to  withhold.  Too  earnest  a  claim  of  rights,  or  too  earnest  a  perform- 
ance of  social  duty,  may  thus  become  a  ground  of  expulsion,  if  the 
majority  pleases."  ^  On  like  ground  that  court  has  refused  to  approve 
a  charter  of  incorporation  for  a  beneficial  society  which  gave  a  majority 
of  the  society  power  to  expel  any  member  who  should  be  "  guilty  of  any 
offense  against  the  law."  The  court  regarded  it  as  "  the  loose  expi'es- 
sion  of  their  scrivener."  Lowrie,  C.  J.,  said:  "  Do  they  really  mean 
that,  if  a  member  should  happen  to  swear  a  little,  or  enjoy  some  Fourth 
of  July  too  freely,  or  leave  his  horse  and  wagon  in  the  street  without  an 
attendant,  or  not  clean  off  his  pavement  as  the  law  requires,  —  he  shall 
be  liable  to  expulsion  ?  We  are  sure  they  do  not  mean  all  the  little  of- 
fenses of  omission  and  commission  which  the  law  proAddes  against ;  for 
many  of  them  are  totally  irrelevant  to  the  purposes  of  their  association. 
But  they  have  taken  this  way  of  defining  offenses  that  may  lead  to  ex- 
pulsion, and  the  definition  is  so  very  general  that  it  puts  the  rights  of 
all,  not  under  the  protection  of  a  constitution,  but  under  the  mere  wWl 
of  a  majority.  If  they  had  provided  that  only  those  who  are  without 
sin  among  them,  should  be  allowed  to  vote  for  the  expulsion  of  a  mem- 
ber, this  might  have  been  an  important  limitation  of  the  expulsive  power. 
A  constitution  that  puts  all  power  over  rights  into  the  hands  of  the 
majority,  is  really  no  constitution  at  all.  It  is  leaving  to  force  the  free 
exercise  of  its  power,  unrestrained  by  rules  of  reason.  Many  members 
whose  sickness  may  become  expensive  might  easily  be  disposed  of  un- 
der this  rule."  ^ 

§  118.  Charters  Refused  containing  Powers  not  Specified  in 
the  Statute. — The  Supreme  Court  of  Pennsjdvania  have  ruled  that 
charters  submitted  to  the  courts  for  approval  should  be  denied  where 
they  contain  powers  not  specified  in  the  statute,^  —  reasoning  that  the 
court  cannot  confer  coiporate  powers,  which  would  be  an  act  of  legisla- 
tion.* Accordingly,  where  the  constitution  of  a  medical  college,  sub- 
mitted to  the  Supreme  Court,  contained  a  clause  authorizing  the  college 
to  confer  degrees  in  medicine  upon  students  and  others,  the  court  de- 
cUned  to  certify  it.^     So,  the  Philadelphia  Common  Pleas  refused  to  in- 

^  Butchers'  Boneflcial  Association,  '  Re   Medical    College,     3     Whart. 

38  Pa.  St.  298.  (Pa.)  455. 

2  Beneficial  Association  of   Broth-  ••  To  the  same   effect   see  Com.    v. 

erly  Unity,  38  Pa.  St.  299.  Conover,  10  Pliila.  (Pa.)  55. 

*  Re  Medical  College,  supra. 
95 


1  Thomp.  Corp.  §  122]     charters  granted  by  the  courts. 

corporate  a  club  with  the  i)rovision  in  its  charter  that  each  share  should 
be  entitled  to  one  vote,  because  the  governing  statutes  only  authorized 
the  court  in  such  a  case  to  confer  such  immunities  as  by  the  common 
law  were  necessary  to  constitute  a  corporation.^ 

§  119.  Charters  Refused  with  Power  to  confer  Degrees.  — As 

already  stated,  the  Supreme  Court  of  Pennsylvania,  in  the  absence  of  a 
direct  statutory  authorization,  refused  to  approve  the  charter  of  a  med- 
ical college,  which  charter  conferred  upon  the  corporation  the  power  to 
confer  degrees  on  students  and  others.'^  In  a  later  case,  and  having 
reference  to  the  terras  of  a  later  statute  prescribing  the  standard  of 
quahfication  for  practitionex'S  of  medicine,^  the  court  refused  a  charter 
to  an  institution  for  instruction  in  electricity  as  a  curative  agent,  with 
power  to  confer  degrees  in  medicine  or  electricity,  —  proceeding  upon 
the  view  that  such  a  qualification  for  the  practice  of  medicine  did  not 
meet  the  standard  required  by  the  statute.* 

§  130.  Chai'ters  Refused  for  Mutual  Marriage  Benefit  Asso- 
ciations.—  Charters  have  been  refused  in  Pennsylvania  for  the  forma- 
tion of  mutual  marriage  benefit  associations,  the  objects  of  such 
associations  being  against  public  policy.^ 

§  121.  Cliarters  Refused  containing  By-laws. —  A  charter 
offered  for  approval  has  been  rejected  on  the  ground  that  it  contained 
provisions  for  the  internal  management  of  the  corporation,  which  were 
properly  the  subject  of  by-laws.^ 

§  122.  Charters  Refused  because  not  Written  on  a  Single 
Piece  of  Paper. —  A  critical  nicety  in  objecting  to  the  charters  handed 
up  by  certain  classes  of  people  has  led  to  the  conclusion  that  a  charter 
ought  to  be  refused  on  the  ground  that  it  was  not  written  upon  a  single 
piece  of  paper  or  parchment, —  the  court  not  explaining  what  should  be 
done  in  case  the  charter  should  contain  too  many  words  to  be  written 
oa  a  single  sheet.  The  court  said:  "This  charter  is  written  upon  a 
number  of  sheets  of  paper  fastened  together  by  ordinary  paper 
fasteners.     All  charters  should  be  written  upon  a  single  piece  of  paper 

1  Com.  V.  Conover,  10  Phila.    (Pa.)  ^  Ke  Charter  of  American  Electro- 
55;    Compare    St.    Mary's  Church,  7  pathic  Institute,  14  Phila.  (Pa.)  128. 
Serg.  &R.  538.                                                     s  Re  Mutual   Aid  Asso.,    15  Phila. 

2  Re  Medical  College,  3  Whart.  (Pa.)  G25;  Re  Helping-Hand  Marriage 
(Pa.)  455.  Asso.,  Id.  644. 

"  Penn.  Act   of  March   24th,   1877;  ^  Re  Charter  of  Stevedores' Bene- 

Purd.  Dig.  2151.  ticial  Association,  14  Phila.  (Pa.)  130. 

96 


PROCEDUUE,       [1  Thomp.  Corp.  §  126. 

or  parchment,  and  the  courts  have  frequently  refused  to  approve  them 
unless  presented  in  this  form.  The  observance  of  this  has  not  been 
uniformly  required,  but  we  think  it  much  the  better  practice,  and  shall 
hereafter  require  it."  ^ 

§  123.  Charter  Under  §1676 of  Georgia  Code. —  Persons  desir- 
ous of  being  incorporated,  under  §  1G76  of  the  Georgia  code,  must  spec- 
ify the  object  of  their  association,  the  particular  business  they  propose 
to  carry  on,  the  place  at  which  they  propose  to  carry  it  on,  and  the 
amount  of  capital  to  be  employed  by  them  in  such  business,  actually 
paid  in ;  and  unless  these  particulars  are  disclosed  in  the  application, 
the  charter  will  not  be  granted.  The  court  will  not  countenance  a  pe- 
tition which  is  so  framed  as  to  mask  the  objects  of  the  applicants. ^ 

§  124.  Referring-  tlie  Application  to  an  Amicus  Curiae. —  In 

Missouri,  some  of  the  courts  are  in  the  habit,  upon  their  own  motion 
and  without  any  statutory  direction,  of  referring  such  an  application  to 
a  member  of  the  bar  as  amicus  curice  ;  and  it  has  been  held  in  that  State 
that  it  is  competent  for  the  court  to  allow  the  amicus  curice  a  reasonable 
compensation  for  his  services,  to  be  taxed  as  costs  against  the  proposed 
incorporators.^ 

§  125.  N^o  Appeal  from  Decree  refusing. —  Under  the  Tennessee 
act  of  1871,  authorizing  the  chancery  courts  to  grant  letters  of  incorpo- 
ration, no  appeal  lay  to  the  Supreme  Court  from  the  refusal  of  a  chan- 
cery court  to  grant  such  letters.* 

§  126.  Charters  Amended  by  the  Judicial  Courts. — Statutes 
have  existed  in  Pennsylvania  empowering  the  judicial  courts  to  grant 
amendments  to  charters  enacted  by  the  legislature.  An  instance  of  this 
occurs  in  a  case  decided  in  1822.5  ^g  early  as  1791  the  legislature  of 
Pennsylvania  passed  a  statute  of  this  kind.  Corporations  which  were 
created  under  special  statutes  prior  to  that  time  could  not  have  their 
charters  amended  in  this  way  without  a  special  enabling  act.  Such  an 
act  was  granted  by  the  legislature  in  the  case  of  a  corporation  called  the 
Roman  Catholic  Societ}''  Worshiping  at  St.  Mary's  Church  in  Phila- 
delphia. In  the  interpretation  of  this  statute  the  court  held  that 
amendments  proposed  by  a  corporation  are  not  to  be  considered  as  the 

1  Re  Charter  of  Stevedores'  Bene-  ^  Ex  parte  Chadwell,  59  Teun.  98. 

ficial  Association,  14  Phila.  (Pa.")  130.  "  Case  of  St.  Mary's  Church,  7Serg. 

2  Re  Deveaux,  54  Ga.  G7li.  &  R.  (Pa.)  517. 

3  Re  St.  Louis  Institute,  27  Mo.  App. 

07 


1  Thomp.  Corp.  §  Iti?.]    ciiarteus  granted  by  tiik  courts. 

act  of  the  corporation,  merely  because  they  are  offered  to  the  inspection 
of  the  attorney-general  and  the  Supreme  Court  under  the  seal  of  the  cor- 
poration, but  that  the  court  may  inquire  into  the  authority  by  which  the 
seal  was  affixed.  The  court  declared,  as  the  principle  to  govern  such  an 
inquiry,  that,  in  corporations  where  there  are  different  classes  of  mem- 
bers, the  majority  of  these  classes  must  consent  before  the  charter 
can  be  altered,  in  the  absence  of  a  provision  in  the  charter  itself 
otherwise  providing.  The  court  also  held  that,  where  the  trustees  of  a 
corporation  consist  of  three  clerical  and  eight  lay  members,  and  one  of 
the  clerical  members  has  been  excluded  from  the  board  by  a  resolution 
of  the  lay  members  without  authority,  —  it  is  not  competent  for  the  re- 
maining members  to  submit  resolutions  for  the  alteration  of  the  charter. i 

§  127.   What    Body    Assent    to    Amendments    by    Judicial 

Courts.  —  This  decision  established  the  doctrine  that,  under  stat- 
utes of  Pennsylvania  authorizing  the  courts  to  grant  amendments  to 
the  charters  of  certain  corporations,  it  is  essential  to  the  granting  of 
the  amendment  that  it  should  appear  to  the  court  that  the  application 
is  the  result  of  corporate  action,  and  not  the  action  of  the  indi^idual 
members. 2  It  has  also  been  ruled  in  that  State  that,  where  it  is  denied 
that  a  proposed  amendment  has  been  adopted  by  a  corporation,  the 
court  before  approving  it  will  direct  a  stock  vote  to  be  taken. ^ 

1  Case  of  St.  Mary's  Church,  supra.  ^  St.  Mary's   Church,    6  Serg.  &  R. 

From  this  last  point  Gibson,  J.,  dis-  (Pa.)  408. 

sented.     As  to  the  amending  of  char-  ^  Matter  of  Mercantile  Library  Co., 

ters  so  as  to  bind  dissenting  members  2  Brews.  (Pa.)  447. 
see  ante,  §  Gfi,  et  seq. 
98 


EXAMPLES   FROM   STATUTES.       [1  Thomp.  Corp. 


CHAPTEK    VI. 

ORGANIZATION  UNDER  GENERAL  LAWS. 

Art.  I.  PcRPosEs  for  which  Incorporation  Permitted,  §§  132-210. 
ISUBDIV.     I.  Examples  from  Various  Statutes,  §§  132-192. 
SUBUIV.  II.  Decisions  Construing  Particular  Statutes,  §§  200-210. 
Art.  II.  Steps  Necessary  to  Perfect  Organization,  §§  215-249. 


ARTICLE  I. 


Purposes  for  which  Incorporation  Permitted. 


SUBDIVISION  I.  Examples  from  Various  S  atutes. 
Section 


Section 

132.  Statutes  authorizing  the  forma- 

tioQ  of  corporations. 

133.  Agricultural  fairs. 
l'6i.  Alumni. 

185.  Aveuues. 
136.  B:inks. 

IJar  associations. 

Bre  d  ng  domestic  animals. 

Bridges. 

Buildiug  and  loan  associations. 

Building  towns. 

BuHiue  s purposes:  raining,  man- 
ufacturing, merchandising,  etc. 

Camp  meetings. 

Canals. 

Ceraett-ries. 

Chambers  of  commerce:  mer- 
chants' exchanges:  boards  of 
trade. 

Colleges. 

Co-opt-rative  associations. 

Cruelty  to  animals. 

Cruelty  to  children. 

Detective  associations. 

Fencing  land. 

Ferries. 

Fire  companies. 


137 
138 

ia9 

140 
141, 
142 

143 
144 
145 
140, 


147 
148 
149 
150 
151 
152 
153 
154 


155.  Fire  department  relief. 

156.  Gaslightiug. 

157.  Gnano:  fertilizers. 

158.  Guaranty:     suretyship:     indem- 

nity: safe  deposit. 

159.  Gymnastic  purposes. 

160.  Health     resorts:       sanitariums: 

medicines,  etc. 

161.  Horticulture. 

162.  Hydraulic  power. 

163.  Insurance. 

164.  Lawful  purposes. 

165.  Lodges:    fraternities:    societies, 

166.  Masonic  buildings. 

167.  Mining:  manufacturing,  etc. 

168.  Navigation. 

169.  Patrons  of  husbandry. 

170.  Pipe  lines. 

171.  Police  relief. 

172.  Political  clubs. 

173.  Public  libraries. 

174.  Railroads. 

175.  R'lfting:  booming  logs. 

176.  Religion :  education :  benevolence. 

177.  Savings  banks. 

178.  Slack-water  navigation. 
170.  Soldiers'  monuments. 

99 


1  Thomp.  Corp.  §  13'i.]     purposes  for  which  permitted. 


Section 

180.  Sporting. 

181.  Stage  coaches. 

182.  Street  railroads. 

183.  Telegraphs:  telephones. 

184.  Tobacco  warehouses. 

185.  Toll  roads:  plank,  gravel,  mac- 

adamized, turnpike  roads,  etc. 

186.  Traininu  nurses. 

187.  Tramways,  elevated. 


Skction 

188.  Trust  companies. 

189.  Union  depots. 

190.  Water  works. 

191.  Indiana:    enumeration    of    pur- 

poses for  which  corporations 
may  be  formed. 

192.  Texas:  enumeration  of  purposes 

for  which  corporations  may  be 
formed. 


§  132.  Statutes  authorizing  the  Formation  of  Corpora- 
tions.—  Statutes  are  multiplying  in  many  of  the  States  extend- 
ing the  objects  for  which  corporations  may  be  formed.  These, 
in  some  instances,  take  the  form  of  amending  statutes  already  in 
existence;  in  others  they  furnish  within  themselves  an  entire 
scheme  of  incorporation.^  In  this  subdivision  an  attempt  is 
made  to  exhibit  the  purposes  for  which  corporations  may  be 
formed  under  general  laws  by  extracts  from  the  legislation  of 
several  of  the  States:  Alabama,  California,  Colorado,  Illinois, 
Indiana,  Missouri,  Ohio,  and  New  York.  A  more  striking  il- 
lustration could  not  be  given  of  the  fantastic  patchwork  of  which 
American  legislation  consists.  It  suggests  the  reflection  whether 
it  would  not  be  better  in  all  cases  to  enact  a  consolidated  statute, 
enumerating  all  the  purpose  for  which  corporations  have  hitherto 
been  allowed  in  the  particular  State,  either  under  general  or 
special  laws,  and  to  enact  that  corporations  may  be  formed  for 
such  purposes  and  for  any  other  purposes  for  which  individuals 
may  lawfully  associate,^ — leaving  it  to  be  ascertained  in  every 


1  In  California  a  recent  statute  au- 
thorizes the  formation  of  corporations 
to  act  as  executor,  administrator, 
guardian  of  estates,  assignee,  receiver, 
depositary,  or  trustee;  Act  March  5, 
1887;  L.  1887,  c.  26,  p.  21.  In  Col- 
orado, to  warrant  or  insure  the  title 
to  real  property,  authorized.  Act 
April  7,  1887 ;  L.  1887,  p.  234.  In  Min- 
nesota the  provisions  of  the  General 
Statutes  of  1878  (Gen.  Stats.  Minn. 
ch.  34,  §  31),  for  the  incorporation  of 
railway  and  other  companies  "  which 
require  the  takin'^  of  private  property 
or  any  easement  therein,"  have  been 
100 


amended  by  including  therein  com- 
panies for  building,  etc.,  ''pneumatic 
tube  lines,  subway  conduits  for  the 
passage,  operation  and  repair  of  elec- 
tric and  other  lines  or  pipes."  Act 
March  7,  1887;  Gen.  L.  1887,  c.  161,  p. 
269.  In  Dakota  Territory  the  pro- 
visions of  the  civil  code  relating  to 
the  formation  of  private  corporations 
were  amended  in  1887,  by  specifying 
what  business  such  corporations  might 
pursue.  Dakota  Act  of  Feb.  7th, 
1887;  Dak.  Laws  1887,  chap.  35,  p.  84. 
2  As  in  §  164,  post. 


EXAMPLES    FROM    STATUTES.       [1  Thomp.  Corp.   §  136. 

case  where  the  lawfulness  of  the  purpose  is  not  fixed  by  an  ex- 
press statute,  to  be  determined,  on  petition  to  a  court  of  general 
jurisdiction,  subject  to  an  appeal  to  a  court  of  last  resort,  either 
by  the  applicants  or  by  the  State,  whether  the  incorporation 
shall  be  allowed.  In  such  case  the  State's  attorney  should 
have  notice  of  the  application,  and  it  should  not  be  allowed  to 
take  the  form  of  a  mere  ex  parte  proceeding,  in  which  no  one 
save  the  petitioners  is  interested.  In  the  following  sections  the 
necessity  of  condensation  has  induced  a  departure  from  the  exact 
language  of  the  statutes,  but  the  substance  has  been  given. 

§  133.  Agricultural  Fairs. —  All  county  societies  which  have  been 
or  may  hereafter  be  organized  are  declared  bodies  corporate  and  politic, 
and  as  such  shall  be  capable  of  suing  and  being  sued,  and  of  holding 
in  fee  simple  such  real  estate  as  they  have  heretofore  purchased  or  may 
hereafter  purchase  as  sites  whereon  to  hold  their  fairs. ^ 

§  134.  Alumni. —  The  alumni  of  any  college  or  university,  or  of 
one  or  more  colleges  of  any  university,  located  in  this  State,  may  be 
incorporated.  2 

§  135.  Avenues. —  Companies  may  be  incorporated  in  any  county 
ha\dng  not  less  than  one  hundred  thousand  inhabitants,  for  the  purpose 
of  constructing  avenues  in  such  county. •"' 

§  136.  Banks.  —  Corporations  may  be  formed  to  carry  on  the  busi- 
ness of  banking  without  the  issue  of  bills  or  notes  for  chcula- 
tion."*  -  -  -  -  Any  number  of  persons,  not  less  than  three,  may  be 
incorporated  as  a  bank  of  discount  and  deposit.^  -  -  -  -  On  a 
ratification  of  this  act  by  a  vote  of  the  people  in  accordance  with  the 
constitution  of  this  state,  it  shall  be  lawful  to  form  banks  and  banldng 
associations  for  the  purpose  of  discount  and  deposit,  and  to  buy  and 
sell  exchange,  and  do  a  general  banldng  business,  excepting  only  issuing 
bills  to  circulate  as  money,  and  shall  have  power  to  loan  money  on 
personal  and  real  security  and  accept  and  execute  trusts.*^  -  -  -  _ 
Any  number  of  persons,  not  less   than  five,  may  form  themselves  into 

1  1  Rev.  Stat.  Ohio  [Giauque],  1890,  *  1  Code  of  Ala.  188G,  p.  3C9,  §  1521. 
§  3700.                                                                 s  Gen,    State     Colo.  1883,  p.     189, 

2  3  Rev.   Stat.  New  York  [Banks  &      §  271. 

Bros.  8th  ed.],  p.  2029.  6  Laws  of  111.  1887,  p.  89, 

3  1  Rev.  Stat.  Ohio  [Giauque],  1890, 
§  3822. 

101 


1  Thomp,  Corp.  §  139.]     purposes  for  which  permitted. 

a  corporation,  as  a  bauk  of  discoiiut  and  deposit. ^  -  -  -  -  Any 
five  or  more  persons  may  be  incorporated  as  a  bank  of  deposit  or 
discount,  or  of  both  deposit  and  discount,  under  any  name  or  title 
desii2:natiug  sucli  business. ^  -  -  -  -  Any  number  of  persons  may 
associate  to  establish  ofBces  of  discount  and  deposit,  they  must  execute 
a  certain  certificate.^     _     .     _     - 

§  137.  Bar  As.sociations.  —  Any  nine  or  more  attorneys  or  coun- 
selors of  the  Sui)reuie  Court  of  this  State,  who  wish  to  cultivate  the 
science  of  jurisprudence,  to  promote  reform  in  the  law,  to  facilitate  the 
administration  of  justice,  elevate  the  standard  of  integrity,  honor  and 
courtesy  in  the  legal  profession,  etc.,  may  be  incorporated.* 

§  138.  Breeding  Domestic  Animals.  —  Any  number  of  persons, 
not  less  than  twenty-five,  residing  in  any  county  of  this  State,  who  col- 
lectively shall  own  property  of  not  less  than  $50,000  in  value,  $20,000 
of  which  shall  consist  of  insurable  live  stock  which  they  desire  to  have 
insured,  may  form  a  corporation  for  the  purpose  of  mutual  live  stock 
insurance  against  loss  by  death  from  any  cause. ^  _  _  _  _  Any  num- 
ber of  persons  not  less  than  five  may  form  a  corporation  to  raise,  im- 
prove and  breed  horses.^  _  _  -  _  Any  number  of  persons,  not  less 
than  thirteen,  may  associate  and  form  a  corporation  for  the  purpose  of 
importing,  raising  and  improving  and  breeding  poultry,  small  birds,  do- 
mestic and  pet  animals,  and  fish  culture,  and  collecting  and  disseminating 
useful  knowledge,  concerning  them.'  -  -  -  -  Any  number  of  per- 
sons, not  less  than  five,  may  form  a  corporation  to  import,  raise,  improve 
and  breed  domestic  animals.^ 

§  139.  Bridges. —  Any  number  of  persons  may  form  themselves 
into  a  corporation  to  construct  and  own  a  bridge  across  any  river, 
creek,  or  other  water-course. ^  -  -  _  -  Any  number  of  persons 
may  be  incorporated  to  construct  and  own  a  bridge  across  any  of  the 
rivers  and  streams  forming  the  boundary  of  the  State  of  Indi- 
ana.**    -     _     -     -     Any  number   of  persons,   not  less  than  five,  may 

1  Rev.  Stat.  Ind.  1888  [Myers  &  '  3  Rev.  Stat,  of  New  York  [  Banks 
Co.],  §  2684.  &,  Bros.  8th  ed.],  p.  2074. 

2  Rev.  Stat.  Mo.  1889,  p.  699,  §  2743.  «  3  Rev.  Stat,   of  New  York  [Banks 

3  2  Rev.  Stat,  of  New  York  [Banks  &  Bros.  8th  ed.],  p.  2073. 

&  Brothers'  8th  ed],  p.  1522.  =>  2   Rev.  Stat.  Ind.  1888  [Myers   & 

*  3  Rev.  Stat,  of  New  York  [Banks  Co.],  §  3528. 

&  Bro-i.  8th  ed.],  p.  2031.  J"  2  Rev.   Stat.    Ind.  1888  [Myers  & 

5  Laws  of  111.  1887,  p.  197.  Co.],  §  8547. 

6  3  Rev.  Stat,  of  New  York  [Banks 
&Bros.  8th  ed.],  p.  20G7. 

102 


EXAMPLES    FROM    STATUTES.       [1  Thomp.  Coip,    §  142. 

incorporate  themselves  into  a  corporation  to  construct  and  own  a 
bridge  or  causeway  across  any  stream  or  channel  of  water,  or  adjoining 
bay,  swamp,  marsh  or  water,  which  it  maj^  be  necessary  to  cross  to  form 
a  continuous  roadway.  ^ 

§  140.  Building  and  Loan  Associations.  —  Three  or  more 
persons  may  be  incorporated  as  a  building  and  loan  associa- 
tion.^  -  -  -  -  Any  number  of  persons  not  fewer  than  ten,  after  at 
least  one  hundred  shares  of  stock  have  been  subscribed  for,  may  in- 
corporate themselves  for  the  purpose  of  organizing  a  building,  loan 
fund  and  sa\ings  association. ^  -  _  _  .  Any  number  of  persons, 
not  less  than  five,  may  become  incorporated  as  a  mutual  building, 
loan  and  homestead  association  for  the  purpose  of  building  and  im- 
proving homesteads  and  loaning  money  to  the  members  there- 
of.* -  -  -  -  Any  ten  or  more  persons  in  any  city  or  county  in 
this  State,  who  shall  have  associated  themselves  by  articles  of  agree- 
ment in  writing,  as  pro\4ded  by  law,  for  the  purpose  of  forming  a 
mutual  saving  fund,  loan  or  building  association,  may  be  incorporated 
under  any  name  or  title  designating  such  business. ^  _  _  _  . 
Any  number  of  persons,  not  less  than  nine,  may  associate  and  form  an 
incorporated  company  to  accumulate  money  to  purchase  real  estate, 
erect  buildings,  make  improvements  on  lands  or  pay  off  incumbrances 
thereon,  or  to  aid  its  members  in  acquiring  real  estate,  maldug  improve- 
ments thereon,  and  remo\'ing  incumbrances  therefrom,  and  to  accumu- 
late a  fund  to  be  its  members  who  do  not  obtain  advances.^ 

§  141.  Building  Towns.  —  Where  any  persons  may  have  hereto- 
fore associated  themselves  together  for  the  purpose  of  building  a  town 
within  any  county  in  this  State,  they  may  be  incorporated.''' 

§  142.  Business  Purposes :  Mining-,  Manufacturing,  Mer- 
chandising, etc.  —  Two  or  more  persons,  associating  for  the  purpose  of 
mining,  quarrying  or  manufacturing,  may  be  incorporated.^  _  _  _  _ 
Corporations  may  be  formed  in  the  manner  provided  by  this  act  for  any 
lawful  purpose  except  banking,  insurance,  real  estate  brokerage,  the 
operation  of  railroads  and  the  business  of  loaning  money :     Provided. 

1  2  Rev.  Stat,  of  New  York  [Banks  ^  1  Rev.  Stat.  Mo.  1889,  p.  715, 
&  Brothers'  8th  ed.],  p.  1509.  §  2808. 

2  Code  of  Ala.  188G,  vol.  1,  p.  378,  c  2  Rev.  Stat,  of  New  York  [Banks 
§  1553.  &  Bros.  8th  cd.],  p.  1587. 

8  2  Rev.  Stat.  Ind.  1888  [Myers  &  ^  2  Rev.  Stat.  Ind.    1888    [Myers  & 

Co],  §.^,t07.  Co.],  §  3493. 

4  1  111.  Annot.  Stat.  [Starr  &  Curtis]  ^  1  code  Ala.  1886,  p.  380,  §  1557. 

1885,  p.  029. 

103 


1  Thomp.  Corp.  §  142  ]     purposes  fou  which  permitted. 

that  horse  aud  dummy  raih'oads,  and  organizations  for  the  purchase  and 
sale  of  real  estate  for  burial  purposes  only,  may  be  organized  and  con- 
ducted under  the  pro\isions  of  this  act :  And  provided  further,  that 
corporations  formed  for  the  purpose  of  constructing  railroad  bridges 
shall  not  be  held  to  be  railroad  corporations. ^  -  -  -  -  Any  three 
or  more  persons  may  be  incorporated  under  any  name  or  title  designat- 
ing such  business  for  the  following  purposes :  First,  to  carry  on  any 
kind  of  mining,  mechanical,  chemical,  manufacturing,  smelting,  printing, 
coal  oil  or  petroleum  business ;  second,  to  encourage  and  promote  agri- 
culture and  the  improvement  of  stock,  and  for  these  purposes  may  es- 
tablish fair  grounds ;  third,  to  construct  toll  bridges  ;  fourth,  to  erect 
hotels,  halls,  market  houses,  warehouses,  exchange  aud  other  buildings, 
and  for  the  purpose  of  purchasing,  owning  and  renting  buildings  already 
erected ;  fifth,  to  build  whai'ves,  docks,  grain  elevators,  levees,  and  to 
construct  canals  and  embankments  for  the  reclaiming  of  lands ;  sixth, 
to  convey  and  transport  persons  and  freights  on  land  or  water  by  any 
mode  of  conveyance  whatever ;  seventh,  to  construct  and  operate  horse 
railroads ;  eighth,  to  purchase  and  use  fire  engines,  hose,  hooks  and 
ladders,  and  all  other  apparatus  necessarj'^  or  useful  to  prevent  and  ex- 
tinguish fires;  ninth,  to  supply  any  town,  city,  district,  neighborhood, 
or  village  with  gas  or  water ;  tenth,  to  establish  steam  or  other  ferries ; 
eleventh,  for  any  other  purpose  intended  for  pecuniary  profit  or  gain  not 
otherwise  specially  provided  for,  and  not  inconsistent  with  the  constitu- 
tion and  laws  of  this  State. ^  -  -  -  -  Three  or  more  persons  may 
form  a  corporation  to  carry  on  any  kind  of  manufacturing,  mining,  me- 
chanical or  chemical  business,  or  to  furnish  motive  power  to  carry  on 
such  business ;  or  to  supply  any  city  or  village  with  water,  or  to  form 
union  stock  yards  and  transit  companies,  and  operating,  maintaining 
and  transacting  the  business  incident  to  such  companies ;  or  to  form 
grain  elevator  companies,  and  constructing,  maintaining  and  operating 
elevators,  and  transacting  the  business  incident  thereto ;  or  to  form 
companies  for  the  purpose  of  buying  and  selling  dry  goods,  carpets, 
boots  and  shoes,  millinery  goods,  fancy  goods,  or  jewelry,  in  connec- 
tion with  the  manufacture  of  such  goods,  and  articles,  into  any  articles 
for  which  they  are  suitable,  and  for  the  sale  of  such  articles,  when  they 
are  so  manufactured. ^  _  _  _  _  Corporations  may  be  formed  for 
manufacturing,  mining,  mechanical,  chemical,  agricultui-al,  horticultural, 
medical,  curative,  mercantile  or  commercial  purposes.* 

1  nil.  Annot.  Stat.  [Starr &  Curtis]  3  2  Rev.    Stat.   Ind.  1888  [Myers  & 
1885,  p.  609.  Co.],  §  3851. 

2  1   Rev.    Stat.    Mo.    1889,  pp.  705,  *  3  Rev.  Stat,  of  New  York  [Banks 
706,  §§  2768,  2771.  &  Bros.  8th  ed.],  p.  1953. 

104 


EXAMPLES    FROM    STATUTES.        [1  Thomp.  Coi'p.    §  146. 

§  143.  Camp  Meetings.  —  Any  number  of  persons,  not  less  than 

fifteen,  may  incorporate  themselves  for  the  purpose  of  holding  camp 
meetings  for  religious  services.^  _  _  _  _  Corporations  may  be 
formed  to  acquii-e  residences  for  presiding  elders  of  the  Methodist 
Episcopal  church  and  camp  grounds  for  camp  meeting  purposes.^ 

§  14:4r.  Canals.  —  Any  number  of  persons  may  form  themselves 
into  a  corporation  to  construct  and  own  anj'  canal  hereafter  built  in  this 
State,  or  to  operate,  repair  and  rebuild  any  canal  or  part  thereof  al- 
ready constructed  by  agreement  with  the  parties  owning  the  same.^ 

§  145.  Cemeteries.  —  Any  number  of  persons,  not  less  than  three, 
may  be  incorporated  for  the  pui'pose  of  procuring  and  establishing  a 
cemetery  or  place  of  sepulture*  _  _  -  _  A  majority  of  the  persons 
resident  in  any  county,  owning  burial  lots  in  any  cemetery  (public  or 
private),  wherein  a  portion  of  the  lots  are  occupied  for  the  burial  of 
the  dead,  may  have  the  saine  incorporated. ^  _  _  _  _  Any  indi- 
viduals, who  may  unite  themselves  together  for  the  purpose  of  receiv- 
ing donations  of  lands,  or  purchasing  the  same,  for  cemeteries,  may  be 
incorporated.^  _  _  _  _  Any  number  of  persons,  not  less  than 
seven,  may  form  a  corporation  for  the  purpose  of  procuring  and  hold- 
ing lands  to  be  used  exclusively  for  a  cemetery.'''  -  -  -  -  Private 
or  family  cemeteries  may  be  incorporated.^ 

§  146.  Chambers  of  Commerce:  Merchants'  Exchanges: 
Boards  of  Trade.  —  Corporations  may  be  formed  for  the  formation 
and  organization  of  chambers  of  commerce,  boards  of  trade,  mechanic 
institutes,  and  other  associations  for  the  extension  and  promotion  of 
trade  and  commerce,  or  the  advancement,  protection  and  improvement 
of  the  mechanic  arts  and  sciences.^  _  _  _  _  Any  nuiuber  of  per- 
sons, not  less  than  ten,  may  incorporate  themselves  for  the  purpose  of 
maintaining  boards  of  trade,  commercial  or  real  estate  exchanges, 
chambers  of  commerce,  or  other  commercial  organizations. I''    _     _     _     _ 

1  2  Rev.  Stat.  Ind.  1888  [Myers  &  «  2  Rev.  Stat.  Ind.  1888  [Myers  & 
Co.],  §  3421.  Co.],  §  3832. 

2  3  Rev.  Stat,  of  New  York  [Banks  '  3  Rev.  Stat,  of  New  York  [Banks 
&  Bros.  8th  ed.],  p.  1919.  &Bros.  8th  ed.],  p.  1935. 

3  2  Rev.  Stat.  Ind.  1888  [Myers  &  «  3  Rgy.  Stat,  of  New  York  [Banks 
Co.],  §3505.  &  Bros.  8th  ed.],  p.   1945. 

*  Gen.  Stat.  Colo.  1883,  p.  218,  »  2  Deeriug's  Aunot.  Code  &  Stat. 
§  379.  of  Cal.,  §  286. 

*  2  Rev.  Stat.  lud.  1888  [Myers  &.  '"  2  Rev.  Stat.  Ind.  1888  [Myers  & 
Co.],  §  3589.  Co.],  §§  3518,  3519. 

105 


1  Thump.  Cor[).  §  151.]     puuposes  for  which  permitted. 

Any  twelve  or  more  persons  may  form  a  corporation  commonly  called 
board  of  trade  or  exchange,  or  a  builder's  exchange  or  association,  for 
the  purpose  of  fostering  trade  and  commerce,  etc.^ 

§  147.  Colleges.  —  Any  number  of  persons,  who  may  desire  to 
establish  a  college  or  seminary  of  learning,  may  incorporate  them- 
selves. ^  -  -  -  -  Any  citizens,  not  less  than  ten,  who  desire  to 
found  and  endow  a  mm>ml  college,  school  or  academy,  within  this 
State  may  be  incorporated.^ 

§  148.  Co-operative  Associations.  —  Any  number  of  persons,  not 
less  than  three  nor  more  than  seven,  may  be  incorporated  as  a  co-oper- 
ative association  for  the  purpose  of  prosecuting  any  branch  of  indus- 
try.4  -  _  -  -  Any  number  of  persons,  not  less  than  three,  may 
associate  and  form  an  incorporation  for  the  purpose  of  uniting  their 
labor,  capital  and  patronage,  in  any  business  or  occupation  on  the  co- 
operative plan.  5 

§  149.  Cruelty  to  Animals.  —  Any  five  or  more  persons  of  full 
age,  a  majority  of  whom  shall  be  citizens  of  this  State,  may  form  a  cor- 
poration for  the  purpose  of  preventing  cruelty  to  animals.^ 

§  150.  Cruelty  to  Children.  —  Any  five  or  more  persons  of  full 
age,  a  majority  of  whom  shall  be  citizens  of  this  State,  may  form  a 
corporation  for  the  purpose  of  preventing  cruelty  to  children.'' 

§  151.  Detective  Associations.  —  Any  number  of  citizens,  not  less 
than  ten,  may  form  themselves  into  a  corporation  for  the  purpose  of  de- 
tecting and  apprehending  horse  thieves,  incendiaries  and  all  other  crim- 
inals against  the  laws  of  the  State  of  Illinois. »  -  -  -  -  Any  number 
of  persons,  citizens  of  Indiana,  not  less  than  ten,  may  form  a  corporation 
to  detect  and  apprehend  horse  thieves  and  other  felons,  and  for  mutual 
protection  and  indemnity  against  the  acts  of  such  horse  thieves  and 
felons.^     -     -     -     -     Any  number  of  persons,  not  less. than  fifteen,  a 

1  3  Rev.  Stat,  of  New  York  [Banks  ^  3  Rev.  Stat,  of  New  York  [Banks 
&  Bros.  8tti  ed],  p  2057.  &  Bros.  8th  ed.J,  p.  19:12. 

2  2  Deering's  Annot.  Code  &  Stat.  ^  3  Rev.  Stat,  of  New  York  [Banks 
of  Cal.,  p.  159,  §  649,  «&  Bros.  8th  ed.],  p.  1931. 

3  3  Rev.  Stat,  of  New  York  [Banks  »  Laws  of  111.  1887,  p.  UO. 

&  Bros.  8lh  ed.],  p.  2044.  ^  2  Rev.    Stat.   Ind.  1888  [Myers  & 

*  111.  Laws  of  1887,  p.  134.  Co.],  §  3428. 

5  3  Rev.  Stat,  of  New  York  [Banks 
&  Bros.  8th  ed.],  p.  2045. 

106 


EXAMPLES  FROM  STATUTKS.     [1  Thomp.  Corp.  §  157. 

majority  of  whom  shall  be  residents  of  the  State  of  Ohio,  are  hereby 
authorized  to  become  incorporated  for  the  purpose  of  apprehending  and 
convicting  horse  thieves  and  other  felons.^  _  -  _  -  An}'- ten  or  more 
persons  may  form  a  corporation  for  the  prevention  of  the  stealing  of 
horses,  wagons,  sleighs,  harness,  or  robes. ^ 

§  152.  Fencing  Land.  —  Any  number  of  persons,  not  less  than 
five,  who  are  interested  in  closing  under  one  general  fence  improved 
lands,  used  for  cultivation,  which  are  near  a  water-course  and  subject  to 
overflow,  or  in  doing  any  other  work  necessary  to  protect  such  lands 
and  to  secure  the  crops  raised  thereon,  may  be  incorporated. ^ 

§  153.  Ferries.  — Any  three  or  more  persons  may  form  a  company 
to  conduct  and  manage  a  ferry.'* 

§  154.  Fire  Companies.  —  Any  ten  or  more  persons,  residents  of 
the  State,  may  associate  themselves  together  in  a  coi-porate  capacity  as 
a  fire,  hose,  or  hook  and  ladder  company.^ 

§  155.  Fire  Department  Relief.  — Any  fire  department  existing 
by  authority  of  law  in  any  city  or  county  in  this  State  having  a  popu- 
lation of  fifty  thousand  inhabitants  or  over,  can  form  a  pension  fund 
and  rehef  association  under  the  incorporation  laws  for  benevolent  asso- 
ciations to  create  a  fund  to  pension  retired  firemen  and  to  afford  relief 
to  members  when  sick,  or  who  may  become  disabled,  and  to  provide  a 
fund  for  the  rehef  of  their  famiUes  in  case  of  their  deaths.*^ 

§  156.  Gaslighting.  —  Any  three  or  more  persons  may  incorpo- 
rate to  manufacture  and  supply  gas  for  fighting  the  streets  and  pubhc 
and  private  buildings  of  any  city,  village  or  town,  or  two  or  more  col- 
lages or  towns,  not  over  five  miles  distant  from  each  other.' 

§  157.  Guano  :  Fertilizers. —  Any  five  or  more  persons  may  form 
a  corporation  to  mine,  import  and  export  guano  and  other  fertilizers, 

1  1  Rev.  Stat. Ohio  [Giauque],  1890,  ^  3  Rev.  Stat,  of  New  York  [Banks 
§  3709.  &  Bros.  8th  ed.],  p.  2055. 

2  3  Rev.  Stat,  of  New  York  [Banks  «  1  Rev.  Stat.  Mo.  1889,  p.  739, 
&  Bros.  8th  ed.],  p.  2072.  §  2887. 

3  2  Rev.  Stat.  Ind.  1888  [Myers  &  ^  3  Rev.  Stat,  of  New  York  [Banks 
Co.],  §  3465.  &  Bros.  8th  ed.],  p.  2075. 

*  5  Rev.  Stat,  of  New  York  [Banks 
&Bros.  8th  ed],  p.  1847. 

107 


1  Thomp.  Corp.  §  163.]     purposes  for  which  permitted. 

aud  to  purchase  or  charter  steam  or  sailing  vessels,  and  to  buy  real  or 
personal  property  to  transact  such  business.^ 

§  158.  Guaranty :  Suretyship  :  Indemnity :  Safe  Deposit.  — 

Any  number  of  persons,  not  less  than  thi-ee,  may  incorporate  to  carry 
on  the  business  of  suretyship,  with  authority  to  make  loans  on  real 
estate  and  personal  security ;  to  receive  cash  deposits  and  pay  interest 
thereon  ;  to  insure  the  fidehty  of  persons  in  places  of  trust ;  to  receive 
valuables  for  safe-keeping ;  to  act  as  agents  for  issuing  certificates  for 
shai-es  of  stock,  and  for  the  management  of  sinldng  funds ;  and  to  be 
sole  and  sufficient  security.^  -  -  -  -  Any  five  or  more  persons  may 
form  a  company  for  the  purpose  of  keeping  safe  valuable  personal 
property  and  guarantying  its  safety. ^  Any  number  of  persons,  not 
less  than  eleven,  may  form  an  incorporated  company  to  guaranty  and 
indemnify  those  engaged  in  business  and  giving  credit  from  loss  and 
damage  by  reason  of  gi\'ing  credit  to  those  deahug  with  them.*  _  -  - 
Any  number  of  persons,  not  less  than  three,  may  form  a  corporation 
to  insure  owners  of  real  estate,  mortgages  and  others  interested  in  real 
estate  from  loss  by  reason  of  defective  titles,  liens  and  incumbrances, 
and  to  iusui-e  loans  of  every  and  all  kind.^ 

§  159.  Gymnastic  Purposes. —  Any  number  of  persons  not  less 
than  ten  may  form  an  incorporated  society  for  gymnastic  purposes.^ 

§  160.     Health    Resorts :    Sanitariums :    Medicines,   etc.  — 

Three  or  more  persons  may  form  a  corporation  to  carry  on  or  conduct  a 
health  resort,  hospital  or  sanitarium,  to  manufacture  and  sell  chem- 
icals and  medicines,  and  to  sell  mineral  waters.'^ 

§  161.  Horticulture. —  Associations  of  persons  for  horticultural 
purposes,  whether  State,  District  or  County  Associations,  maybe  incor- 
porated.^ 

§  162.  Hydraulic  Power. —  Any  number  of  persons,  not  less  than 
ten,  being  subscribers  of  the  stock  of  any  contemplated  hydrauhc  com- 

1  3  Rev.  Stat,  of  New  York  [Banks  *  Sess.  Laws.  Colo.  1887,  p  234. 

&  Bros.  8th  ed.],  P-  2084.  «  2  Rev.  Stat.   Ind.  1888  [Myers   & 

2  Sess.  Laws  Colo.  1889,  p.  447.  Co.],  3464«. 

3  2  Rev.  Stat,  of  New  York  [Banks  ^  Indiana  Acts  1889,  p.  95. 
&Bros.  Sthed.],  p.  1604.  s  2  Rev.    Stat.   Ind.  1888    [Myers  & 

*  3  Rev.  Stat,  of  New  York  [Banks      Co.],  §  3490. 
&  Bros.  8th  ed.],  p.  1719. 
108 


EXAMPLES  FROM  STATUTES.     [1  Thomp.  Corp.  §  163. 

pany,  may  be  fonned  into  a  corporation  for  the  purpose  of  constructing, 
maintaining  and  owning  such  hydraulic  power.  ^ 

§  163.  Insurance.  —  Corporations  maybe  formed  to  insure  lives, 
or  persons  or  property  against  accident,  or  to  insure  against  fire  or 
against  the  perils  and  risks  of  the  sea  or  of  navigable  streams.  ^  -  -  -  - 
Any  number  of  persons,  not  less  than  thirteen,  majdncorporate  to  make 
insurance  on  dwelKng  houses,  stores  and  all  kinds  of  buildings,  and 
upon  household  furniture  and  other  property,  against  loss  or  damage  by 
fire,  lightning  and  tornadoes,  or  either  or  any  of  said  causes,  and  the 
risks  of  inland  navigation  and  transportation. ^  -  _  -  -  Any  num- 
ber of  persons,  not  less  than  twenty-five,  residing  in  any  county  in  this 
State,  who  shall  collectively  own  property  of  not  less  than  $50,000  in 
value,  which  they  desire  to  have  insured,  may  form  an  incorporated 
company  for  the  purpose  of  mutual  insurance  against  loss  or  damage  by 
wind  storms.'*  -  -  -  -  Any  number  of  persons,  not  less  than  nine, 
may  form  a  corporation  to  make  contracts  and  issue  pohcies  and  certifi- 
cates insuring  and  protecting  persons  against  loss  of  hfe  or  personal 
injury  resulting  from  accident.^  -  -  -  -  Any  number  of  persons,  not 
less  than  twenty-five,  residing  in  any  county  in  this  State,  who  col- 
lectively shall  own  property  of  not  less  than  $50,000  in  value,  which 
they  desire  to  have  insured,  may  form  an  incorporated  company  for  the 
purpose  of  mutual  insurance  against  loss  or  damage  by  fire  or  light- 
mno-,6  _  _  _  _  Any  number  of  persons,  not  less  than  twenty-five,  re- 
siding in  any  congressional  or  poUtical  township,  or  in  one  or  more 
adjoining  congressional  or  political  townships  in  this  State,  not  ex- 
ceedino-  six  in  number,  who  collectively  shall  own  property  of  not  less 
than  $50,000  in  value,  which  they  desire  to  have  insured,  may  form  an 
incorporated  company  for  the  purpose  of  mutual  insurance  against  loss 
or  damap-e  by  fire  or  lightning.'  -  -  -  -  Corporations  may  be  or- 
ganized to  furnish  life  indemnity  or  pecuniary  benefit  to  the  widows  or 
representatives  of  members,  or  accident  or  permanent  disability  indem- 
nity to  members,  and  where  the  funds  for  the  payment  of  such  benefits, 
shall  be  secured,  in  whole  or  in  part,  by  assessment  upon  the  surviv- 
inty  members.^    _     _     -     -    Any  number  of  persons,  not  less  than  nine, 

1  2  Rev.  Stat.  Ind.    1888  [Myers  &  «  Laws  of  111.  1889,  p.  160. 

Co.],  §  3G96.  ^  1  111"   Aiuiot  Stat.   [Starr  &  Cur- 

2  Code  of  Ala.  1886,  vol  1,  p.  373,      tis]  1885,  p.  1335. 

§1531.  ''  1  111.  Anuot.  Stat.  [Starr  &  Cur- 

3  1  111.  Annot.  Slat.  [Starr  &  Cur-      tis]  1885,  p.  1338. 

tis]  188G,  p.  1310.  "  1  111.  Aniiot.  Stat.   [Starr  &  Cur- 

*  Laws  of  111.  1889,  p.  191.  tis]  1885,  p.  1348. 

109 


1  Thomp.  Coil).  §  164.]     purposes  for  which  permitted. 

may  be  incorporated  as  a  live  stock  insurance  company. ^  -  .  -  _ 
Mutual  fire  insurance  companies  may  be  incorporated. 2  -  -  -  - 
Any  number  of  persons,  not  less  than  five  nor  more  than  thirteen,  may 
or<''anize  a  corporation  to  transact  the  business  of  life  insurance  on  the 
assessment  plan.^  -  -  -  -  Mutual  insurance  companies  may  be 
organized  for  the  insurance  of  the  lives  or  health  of  persons,  or  against 
accident  to  persons.*  -  -  -  -  Any  number  of  persons,  not  less 
than  ten,  may  form  an  incorporated  company,  for  the  purpose  of 
mutual  insui-ance  of  the  property  of  its  members  against  loss  by  fire  or 
damage  by  lightning.^  -  -  -  -  Any  number  of  persons,  not  less 
than  thirteen  in  number,  may  form  an  incorporated  company  for  either 
of  the  following  purposes,  to  wit:  To  make  marine  insurance,  to  make 
fire  insurance,  or  to  make  insurance  on  the  health  or  lives  of  indi- 
viduals.*^  .  -  -  -  Any  number  of  persons,  not  less  than  twenty, 
may  form  a  corporation  for  mutual  insurance  against  loss  or  damage,  by 
having  had  stolen  any  horse  or  horses,  cattle  or  sheep,  or  any  loss  or 
expense  incurred  in  recovering  such  animals  as  may  have  been  stolen, 
or  in  the  apprehension  of  the  thief  or  thieves. "^^  _  -  .  .  Any  num- 
ber of  persons,  not  less  than  thirteen,  may  form  a  company  to  make 
insurance  upon  the  lives  of  individuals,  and  every  insurance  appertain- 
ing thereto  or  connected  therewith,  on  the  mutual  or  stock  plan,  and 
grant,  purchase  or  dispose  of  annuities. ^  -  -  -  -  Any  number  of 
persons  may  adopt  and  sign  articles  of  incorporation  for  the  purpose  of 
transacting  insurance  business. ^ 

§  164.  Lawful  Purposes.  —Two  or  more  persons,  associating 
themselves  for  the  carrying  on  of  any  industrial  business,  or  for  any 
lawful  enterprise,  if  not  otherwise  provided  by  law,  may  form  them- 
selves into  a  private  corporation.  1°  -  -  -  -  Private  corporations 
may  be  formed  for  any  purpose  for  which  individuals  may  lawfully  as- 
sociate themselves.il  -  -  -  -  Any  three  or  more  persons,  citizens 
of  the    United   States,    who   shall    desire  to  associate  themselves  for 

1  2  Rev.  Stat.  Ind.  1888  [Myers  &  «  3  Rev.  Stat,  of  New  York  [Banks 
Co.],  §  3708-  &Bros.  8tli  ed.],  p.  16-'7. 

2  2  Rev.  Stat.  Ind.  1888  [Myers  &  '  3  Rev.  Stat,  of  New  York  [Banks 
Co.],  §3745.  &Bros.  8th  ed.],  p.  2070. 

3  2  Rev.  Stat.  Ind.  1888  [Myers  &  »  1  Rev.  Stat.  Ohio  [Giauque], 
Co.],  §  37G2a.  1890,  §  3587. 

*  2  Rev.  Stat.  Ind.   1888  [Myers  &  ®  2  Sayles  Tex.  Civil  Stat.  1888,  p. 

Co.],  §  3763.  29,  §  2910. 

'->  2  Rev.  Stat.  Ind.  1888  [Myers  &  i"  1  Code  Ala.  1886,  p.  404,  §  1659. 

Co  1    §  3774.  1'  2  Deering's  Auuot.  Code  &   Stat. 


of  Cal.  65,  §  286. 


110 


EXAMPLES  FROM  STATUTES.     [1  Tliomp.  Corp.  §  168. 

anj^  lawful  purpose  (other  than  pecuniary  profit)  may  be  incorpo- 
rated, i  -  -  -  -  Corporations  may  be  formed  to  carry  on  any  law- 
ful business. 2  -  .  -  -  Societies,  corporations  and  associations 
(not  for  pecuniary  profit)  may  be  formed  as  hereinafter  pro- 
vided.3  -  .  -  _  "  Corporations  may  be  formed  in  the  manner 
provided  in  this  chapter  for  any  purpose  for  which  individuals  may 
lawfully  associate  themselves,  except  for  dealing  in  real  estate,  or  car- 
rying on  professional  business ;  and  if  the  organization  is  for  profit,  it 
must  have  a  capital  stock."  * 

§  165.  Lodges:  Fraternities:  Societies. — Any  persons,  con- 
gregation, society,  chui-ch,  or  any  lodge  of  Freemasons  or  Odd-Fellows 
(whether  chapter,  encampment  or  subordinate)  and  any  temple  or 
division  of  the  Sons  or  Daughters  of  Temperance,  and  any  other  volun- 
tary association  for  religious,  educational,  scientific  or  benevolent  pur- 
poses, may  be  incorporated. ^  -  -  .  .  Whenever  ten  or  more  per- 
sons desire  to  form  a  society  for  the  social  and  literary  advancement  of 
its  members,  they  may  become  incorporated.^ 

§  166.  Masonic  Buildings.  —  Whenever  three  or  more  persons 
may  desire  to  form  a  company  to  build  and  maintain  buildings,  to  be 
used  or  occupied,  in  whole  or  in  part,  for  Masonic  meetings  or  purposes, 
or  in  any  way  for  the  use,  accommodation,  or  convenience  of  Masonic 
bodies  or  lodges,  they  may  be  incorporated.'' 

§167.  Mining:  Manufacturing,  etc.  —  Two  or  more  persons 
may  form  a  corporation  for  mining,  quarrying,  or  manufacturing. ^ 

§  168.  Navigation. —  Any  two  or  more  persons  may  be  incorpo- 
rated to  operate  a  line  of  steamships  or  other  water-craft  navigating  the 
sea  to  and  from  the  port  of  Mobile  to  any  other  port  of  the  United 
States  or  of  any  foreign  country. ^  _  _  _  _  ^^y  seven  or  more 
persons  may  form  a  company  to  build  for  their  own  use,  equip,  furnish, 
fit,  purchase,  charter,  navigate  and  own  vessels,  to  be  propelled  by 
steam  or  other  expansive  fluid,  to  be  used  in  all  lawful  commerce  and 

1  Gen.  Stat.  Colo.  1883,  p.  215,  «  2  Rev.  Stat.  Ind.  1888  [Myers  &. 
§  367.                                                                  Co.],  §  3816. 

2  Gen.    Stat.   Colo.    1883,    p.    180,  «  1  Code  Ala.  1886,  p.  412,  §  1702. 

§  238.  7  2    Rev.  Stat.  Ind.  1888   [Myers  & 

3  1  111,  Annot.  Stat.    [Starr  &  Cur-      Co.],  §  3838. 

tis]  1885,  p.  020.  8  Code  of  Ala.  1886,  vol.    1,  p.  380, 

<  1  Rev.  Stat.  Ohio  [Giauque],  1890,      §  1557. 
§  3235.  9  1  Code  Ala.  1886,  p.  402,  §  1655. 

Ill 


1  Thomp.  Corp.  §  171.]     purposes  for  which  permitted. 

navigation  upon  the  ocean,  seas,  sounds  and  rivei'S,  and  for  the  trans- 
portation of  passengers,  freight  and  mails. ^  -  -  -  _  Any  five  or 
more  persons  may  incorporate  a  company  to  navigate  the  lakes  and  riv- 
ers by  steam,  sail  or  other  boats,  ships  or  vessels. ^  _  _  _  _  Any 
seven  or  more  persons  may  form  a  company  to  navigate  the  waters  of 
Lake  George  by  steamboats.^  _  _  _  _  Any  number  of  persons  may 
form  themselves  into  a  corporation  for  the  purpose  of  establishing, 
maintaining  and  operating  steam-packet  comjDanies  for  the  transportation 
of  freights  and  passengers  on  the  navigable  streams  of  the  State  of  In- 
diana, the  rivers  bordering  thereon,  and  other  navigable  waters. ^ 

§  169.  Patrons  of  Husbandry. —  Associations  of  the  order  of  the 
Patrons  of  Husbandry,  organised  in  accordance  with  the  rules  and 
regulations  of  said  order,  may  become  incorporated.^ 

§  170.  Pipe  Lines.  — Any  number  of  persons,  not  less  than  twelve, 
may  incorporate  a  company  to  construct  and  operate,  for  the  public  use, 
lines  of  pipe  for  conveying  or  transporting  therein  petroleum,  gas, 
liquids,  or  any  products  or  property,  or  to  operate  for  the  like  pubhc 
use  any  line  of  pipe  akeady  constructed.^ 

§  171.  Police  Relief. — Any  pohce  force  existing  by  authority  of 
law  in  any  city  having  over  one  hundred  thousand  inhabitants  may  in- 
corporate a  relief  association  and  create  a  fund  to  afford  relief  to  mem- 
bers, who  become  sick  or  disabled  in  the  discharge  of  their  duties,  or 
become  incapacitated,  or  to  aid  the  famihes  of  those  who  die  in  the  serv- 
ice, and  for  other  similar  purposes.''  -  -  -  -  Any  police  force  organ- 
ized and  existing  by  authority  of  the  laws  of  this  State  in  any  city  having 
a  population  of  over  one  hundred  thousand  inhabitants  can  f  oi'm  a  relief 
association  under  the  general  incorporation  laws  of  this  State,  and 
create  a  fund  to  relieve  members,  who  have  become  sick  or  disabled 
or  incapacitated,  and  to  aid  the  families  of  those  who  die  in  the  service, 
and  for  such  other  similar  purposes  as  may  be  set  forth  in  their  articles 
of  incorporation.^ 

1  3  Rev.  Stat,  of  New  York  [  Banks  ^  2  Rev.  Stat.  Ind.  1888  [Myers  & 
&  Bros.  8th  ed.],  p.  1850.  Co.],  §  3880. 

2  3  Rev.  Stat,  of  New  York  [Banks  «  3  Rev.  Stat,  of  New  York  [Banks 
&  Bros.  8th  ed.],  p.  1854.  &Bros.  8th ed.],  p.  18G2. 

3  3  Rev.  Stat,  of  New  York  [Banks  '  1  Rev.  Stat.  Mo.  1889,  p.  738, 
&  Bros.  8th  ed.],  p.  1853.  §  2885. 

*  2  Rev.  Stat,  lud.  1888   [Myers   &  «  1  Rev.    Stat.    Mo.    1889,   p.    738, 

Co.],  §  4130.  §  2885. 

112 


EXA51PLES  FROM  STATUTES.      [1  Tliomp.  Corp.  §  171. 

§  173.  Political  Clubs.  —  Any  five  or  more  persons  of  full  age, 
citizens  of  the  United  States,  a  majority  of  whom  are  also  citizens  of 
this  State,  who  desire  to  form  themselves  into  a  political  club,  may  be 
incorporated.* 

§173.  Public  Libraries. — The  inhabitants  of  any  city,  town, 
village  or  neighborhood  may  subscribe  to  a  pubhc  library  and  form  a 
corporation  therefor,^  -  -  -  -  Any  number  of  persons,  not  less 
than  seven,  may  be  incorporated  for  the  pui-pose  of  establishing  and 
maintaining  a  pubhc  library  in  any  city  or  county  in  this  State  for  the 
general  benefit  and  advantage  of  all  the  inhabitants  of  such  city  or 
county.^  -  -  _  _  Twenty  persons  or  more  in  any  county,  town,  vil- 
lage or  neighborhood,  may  incorporate  themselves  for  the  purpose  of 
procuring  and  erecting  a  public  library.'* 

§  174.  Railroads. — Any  number  of  persons,  not  less  than  seven, 
desiring  to  form  a  corporation  to  construct  a  railroad,  may  file  vrith 
the  Secretary  of  State  a  written  declaration  signed  by  themselves,  set- 
ting forth,  etc.,  etc.^  _  -  _  _  Purchasers  of  a  railroad,  by  judicial 
sale  or  otherwise,  foreclosing  a  mortgage,  may  constitute  themselves  into 
a  body  politic  with  all  the  powers  and  franchises  of  the  corporation 
originally  owning  the  raikoad,  if  such  mortgage  embraced  the  fran- 
chises thereof.^  _  -  -  _  Anynumber  of  persons,  not  less  than  five, 
may  be  incorporated  to  construct  and  operate  a  railroad.'^  _  _  _  _ 
Any  number  of  persons,  not  less  than  five,  may  become  an  incorporated 
company  for  the  purpose  of  constructing  and  operating  any  railroad  in 
this  State.  8  _  _  _  _  Corporations  may  be  incorporated  under  the 
laws  of  this  State  to  construct,  maintain  and  operate  any  elevated  way 
or  conveyor. 9  -  _  >  _  Any  number  of  persons,  not  less  than  fifteen, 
being  subscribei-s  to  the  stock  of  any  contemplated  railroad,  may  be 
formed  into  a  corporation  for  the  purpose  of  constructing,  owning  and 
maintaining  such  railroad. ^'^  -  -  -  -  It  shall  be  lawful  for  two  or 
more  railroad  companies,  running  railroads  to  the  same  town  or  city,  to 
locate,  construct,  keep  up,  repau-  and  use  a  common  or  union  railroad 

»  3  Rev.  Stat,  of  New  York  [Banks  e  i    ^.la.    Code   of     188G,   p.    392, 

&  Bros.  8th  ed],  p.  2027.  §  1598. 

2  2  Rev.  Stat.  Ind.  1888  [Myers  &  "  Gen.  Stat.  Colo.  1883,  p.  205,  §333. 
Co.],  §  3791.  «  2  111.  Annot.  Stat.    [Starr  &  Cur- 

3  2  Rev.  Stat.  Ind.    1888  [Myers  &  tis]  1885,  p.  1907. 

Co.],  §  380G.  »  2  111.  Annot.  Stat.    [Starr  &  Cur- 

*  3  Rev.  Stat,  of  New  York  [Banks  tis]  1885,  p.  1977. 

&Bros.  8th,ed.],  p.  2033.  ^»  2  Rev.  Stat.  Ind.    1888    [Myers  & 

'^  i  Ala.  Code  of  188G,  p.  384,  §  1573.  Co.],  §  3885. 

3  113 


1  Thorap.  Corp.  §  174.]     purposes  for  which  permitted. 

of  oue  or  more  tracks,  connecting  the  railroads  of  such  companies,  for 
business  purposes,  and  to  incorporate  the  same. ^  _  _  _  -  Any  owner 
or  owners,  or  their  lessees,  of  lands,  mills,  blast  furnaces,  quarries, 
irou  ore,  coal  mines  or  other  minerals,  or  other  real  estate,  or  for  any 
compau}^  of  persons,  who  shall  desire  to  construct  a  lateral  railroad,  not 
exceeding  ten  miles  in  length,  to  locate  and  construct  the  same  to  any 
other  railroad,  canal  or  slack-water  navigation,  on,  over,  through  or 
under  any  intervening  lands,  and  such  persons  may  be  incorpo- 
rated.2  -  -  -  -  Any  number  of  persons,  not  less  than  five,  may 
form  a  company  for  the  purpose  of  constructing,  maintaining  and  oper- 
ating a  railroad  for  public  use  in  the  conveyance  of  persons  and  prop- 
ert}^^  _  -  -  _  Any  number  of  persons,  not  less  than  twenty-five, 
may  form  a  company  to  construct,  maintain  and  operate  a  railroad  for 
public  use,  or  to  maintain  and  operate  any  incorporated  railroad  al- 
ready constructed  for  the  hke  pubhc  use.^  -  -  -  -  Any  individual, 
joint-stock  association  or  corporation,  engaged  in  the  manufacture  of 
raih-oad  cars,  may  lay  down  and  maintain  such  railroad  tracks,  not  ex- 
ceeding one  mile  in  length,  as  may  be  necessary  to  connect  such  estab- 
hshment  with  the  tracks  of  any  railroad,  provided  they  have  the  con- 
sent of  the  local  authorities  coutrolUng  the  street  or  highway  proposed 
to  be  occupied  and  the  consent  of  the  owners  of  one-half  in  value  of  the 
property  bounded  on  such  street ;  or  if  the  consent  of  the  latter  cannot 
be  obtained  the  court  may  appoint  commissioners  to  determine  whether 
such  railroad  ought  to  be  constructed.^  _  _  -  -  Any  number  of 
persons,  not  less  than  ten,  being  subscribers  to  the  stock  of  any 
contemplated  railroad,  may  be  formed  into  a  corporation  for  the  pur- 
pose of  constructing,  owning,  maintaining  and  operating  such  rail- 
road.^ _  _  -  -  Any  number  of  persons,  not  less  than  ten,  a  majority 
of  whom  shall  be  inhabitants  of  this  State,  may  form  a  company  to 
construct,  maintain  and  operate  in  any  foreign  country  a  railroad  or 
raih'oads  for  public  use  in  the  conveyance  of  persons  and  property,  or 
a  railroad  or  railroads  aheady  constructed  in  whole  or  in  part  for  the 
like  pubhc  use,  with  power  to  construct,  maintain,  and  operate  telegraph 
hues  and  hues  of  steamboats  or  saiUng  vessels,  as  may  be  proper  or 
convenient  for  use  in  connection  therewith.'  -  -  -  -  Any  number 
of  persons,  not  less  than  ten,  may  form  themselves  into  a  company  to 

1  2  Kev.   Stat.  Ind.  1888  [Myers  &  ^  3  Rev.  Stat,  of  New  York  [Banks 
Co.],  §§  3954,  3964a.                                       &  Bros.  8th  ed,],  pp.  1839,  1840. 

2  2  Rev.   Stat.  Ind.  1888  [Myers  &  «  2  Sayles'  Tex.  Civ.  Stat.,  p.  410, 
Co.],  §  3987.                                                    §  4099. 

3  1  Rev.  Stat.  Mo.  1889,  §  2542.  '  3  Kev.  Stat,  of  New  York  [Banks 
*  3  Rev.  Stat,  of  New  York  [Banks      &  Bros.  8th  ed.],  p.  1767. 

&  Bros.  8th  ed.],  p.  1738. 

114 


EXAMPLES    FROM    STATUTES.       [1  TllOmp.  Coi'p.    §  176. 

construct,  maintain  and  operate  a  railway  for  public  use,  in  the  con- 
veyance of  persons  and  property,  by  means  of  a  propelling  rope  or 
cable  attached  to  stationary  power.  ^ 

§175  Rafting:  Booming  Logs. —  Any  five  or  more  persons  may 
be  incorporated,  under  any  name  or  title  designating  such  business,  to 
carry  on  the  business  of  running,  driving,  booming  and  rafting  logs, 
timber,  lumber  or  other  floatables  on  any  of  the  streams  or  waters  in 
this  State,  or  for  the  construction  of  booms  across  or  in  any  such  waters 
or  streams.  2 

§  176.  Religion :  Education  :  Benevolence.  —  The  members 
of  any  church  or  rehgioms  society,  of  an  educational  society,  benevolent 
society,  or  the  owners  of  a  graveyard,  may  be  incorporated.-*  -  -  -  - 
Whenever  the  regulations,  rules  or  disciphne  of  any  church  or  religious 
society  require  for  the  administration  of  the  temporalities  thereof,  or 
for  the  management  of  the  property  or  estate  thereof,  any  diocese, 
synod  or  district  organization  of  such  church  or  religious  society  may 
elect  directors  and  become  incorporated.'*  -  -  -  -  Any  church, 
congregation  or  society  formed  for  religious  worship,  educational  or 
benevolent  purposes,  may  be  incorporated.^  _  _  _  _  Any  joint 
stock  company  or  organization,  which  may  have  been  heretofore  organ- 
ized in  this  State  for  religious,  educational  or  benevolent  purposes,  may 
be  incorporated. 6  _  _  -  >  Any  church,  congregation,  or  society 
formed  for  the  purpose  of  rehgious  worship,  may  become  incorporated 
in  the  manner  following."^  _  _  _  _  Any  number  of  persons  may  incor- 
porate themselves  to  establish  a  high  school,  academy,  college,  university, 
theological  institute,  or  missionary  board.  ^  _  _  _  _  When  the 
members  of  two  or  more  churches  desire  to  form  a  union  and  assume 
a  new  name,  they  are  authorized  to  do  so  and  may  be  incorpo- 
rated.^ _  -  _  -  The  wardens  and  vestrymen  of  any  parish  or 
congregation  of  any  church  in  this  State,  duly  chosen  in  accordance 
with  the  usages  of  said  church,  after  a  record  of  such  election 
shall  have  been  made  as  herein  provided,  shall  be  deemed  a  body 
corporate.^®    -     .     -     _     Any    church   or   religious  society,  after  ten 

1  3  Rev.  Stat,  of  New  York  [Banks  ?  1  111.  Annot.  Stat.  [Starr  &  Cur- 
&  Bros.  8th  ed.],  p.  1763.  tis]  1885,  p.  (ilJl. 

2  1  Rev.  Stat.  Mo.  1889,  p.  741,  §  »  2  Rev.  Stat.  Ind.  1888  [Meyers  & 
2892.  Co.],  §  3433. 

3  1  Code  Ala.  1886,  p.  411,  §  1694.  ?  2  Rev.   Stat.  lud.  1888  [Meyers  & 
*  2  Decring's  Anuot.  Code  &  Stat.      Co.],  §  3597. 

of  Cal.  153,  §  603.  w  2  Rev.  Stat.  lud.  1888  [Meyers  & 

5  Gen.  Stat.  Colo.  1883,  p.  216,  §  372.      Co.],  §  3604. 


«  Gen.  Stat.  Colo.  1883,  p.  219,  §384. 


115 


1  Thoinp.  Corp.  §  176.]     purposi^s  for  which  permitted. 

days'  public  notice,  may  at  au}^  regular  or  special  meeting  elect  or  ap- 
point, according  to  the  usages  of  such  society,  not  less  than  three  nor 
more  than  nine  trustees,  who  shall  be  a  bod}'-  corporate,  by  such  name 
as  the  society  may  designate,  for  any  educational,  benevolent  or  charit- 
able purpose.^  -  -  -  -  Any  number  of  persons,  not  less  than  three, 
who  shall  have  associated  themselves  by  articles  of  agreement  in  writing, 
as  a  society,  company,  association  or  oi-ganization,  formed  for  benevo- 
lent, rehgious,  scientific,  fraternal,  beneficial,  or  educational  purposes, 
may  be  consolidated  and  united  into  a  corporation, ^  -  -  -  -  Six 
male  persons  or  more,  belonging  to  any  congregation  in  communion 
with  the  Protestant  Episcopal  church,  may  incorporate  such  congrega- 
tion. This  act  also  applies  to  citizens  of  this  State,  belonging  to  any 
congregation  in  communion  with  the  Protestant  Episcopal  church  in 
this  State,  whose  place  of  worship  is  situated  outside  of  this  State  and 
in  a  country,  whose  laws  do  not  in  terms  provide  for  the  incorporation 
of  such  congregation. "^  _  _  _  _  The  persons  of  full  age,  belonging 
to  any  church,  congregation  or  religious  society,  may  incorporate  the 
same.^  _  _  -  -  Where  one  priest,  clergyman  or  minister  serves  two 
or  more  incorporated  religious  societies,  a  corporation  may  be  formed 
to  take  and  hold  title  to  ground  purchased  for  parsonage  purposes  for 
such  societies.^  -  -  -  -  A  corporation  may  be  formed  to  hold 
property  given,  devised  or  purchased  by  any  diocesan  convention,  pres- 
bytery, classis,  synod,  annual  conference,  or  other  religious  body 
having  jurisdiction  over  a  number  of  churches,  congregations  or  relig- 
ious societies.^  >  _  _  _  An  act  created  a  corporation  to  hold  the 
title  to  real  estate  owned  in  foreign  lands  by  parishes  organized  there, 
and  in  communion  with  the  Protestant  Episcopal  church  of  the  United 
States.*^  _  _  _  _  Any  five  or  more  persons  of  full  age,  a  majority 
of  whom  shall  be  citizens  of  this  State,  may  organize  themselves.into  a 
corporation  for  benevolent,  charitable,  literary,  historical,  scientific, 
missionary  or  mission  or  Sunday-school  purposes.^  _  _  _  -  Any 
twenty  or  more  persons,  being  citizens  of  this  State,  may  form  them- 
selves into  a  Young  Men's  Chi-istian  Association  corporation. ^ 

1  2  Rev.  Stat.  Ind.  1888  [Meyers  &  ^  3  Rev.  Stat,  of  New  York  [Banks 
Co.],  §  3614.  &  Bros.  8th  ed.],  p.  1908. 

2  1  Rev.    Stat.  Mo.  1889,  p.   719,  §  '  3  Rev.  Stat,  of  New  York  [Banks 
2821.  &  Bros.  8tli  ed.],  p.  1913. 

3  3  Rev.  Stat,  of  New  York  [Banks  «  3  Rev.  Stat,  of  New  York  [Banks 
&  Bros.  8th  ed.],  pp.  1881,  1883.  &  Bros.  8th  ed.],  p.  1922. 

3  Rev.  Stat,  of  New  York  [Banks  »  3  Rev.  Stat,  of  New  York  [Banks 

&  Bros.  8th  ed.],  p.  1884.  &  Bros.  8th  ed.],  p  1933. 

6  3  Rev.  Stat,  of  New  York  [Banks 
&  Bros.  8th  ed.],  p.  1900. 

116 


EXAMPLES    FROM    STATUTES.        [1  TllOmp.  Corp.   §   178. 

§  177.  Savings  Banks. —  Any  number   of  persons,  not  less   than 
three,  may  be  incorporated  as  a  savings  bauk.^     -     -     -     -     Any  num- 
ber of  persons,  being  voters  of  this  State,  not  less  than  seven  nor  more 
than  twenty-one,  who  shall  have  been  citizens  of  the  county  where  they 
then  reside  for  at  least  five  years  then  next  preceding,  and  who  shall 
severally  own  unincumbered  real  estate  therein  worth  at  least  five  thou- 
sand dollars,  exclusive  of  perishable  improvements,  may  associate  them- 
selves together  for  the   purpose  of  organizing  and  managing  a  savings 
bank  in  such  a  county  as  a  body  pohtic  and   corporate. ^     -     -     -     - 
Any  thirteen  or  more  citizens  of  the  State,  two-thirds  of  whom  shall  re- 
side in  the  county  where  the  proposed  society  shall  be  located,  may 
associate  themselves  together  and  incorporate  a  savings  society  or  insti- 
tution for  sa\'ings.3     _     _     _     _     Any  five  or  more  persons  in  any  coun- 
ty of  this  State  may  be  incorporated  for  the  purpose  of  establishing  a 
bankof  deposit  or  discount,  or  of  both  deposit  and  discount.^     _     .     _     - 
Any  ten  or  more  persons  may  be  incorporated  as  a  mutual  saving  fund, 
loan  or  buildmg  association,  under  any  name  or  title  designating  such 
business.^     _     _     -     -     Any  number  of  persons,  not  less  than  nine,  may 
associate  themselves  together  for  the  purpose  of  organizing  a  savings 
society  or  institution  for  savings. 6     -     -     -     -     Any  number  of  persons  ^ 
not  less  than  nine,  may  be  incorporated  as  a  sa\ings  society  or  institu- 
tion for  savings.'^     _     _     _     _     Any  number  of  persons,  not  less  than 
thirteen,  may  associate  themselves  together  for  the  purpose  of  organiz- 
ing a  sa^dngs  bank.s     -     -     -     -     Any  fifteen  or  more  persons,  being  of 
full  age,  may  form  a  co-operative  saving  and  loan  association. ^ 

§  178.  Slack-water  Navigation. —  Any  number  of  persons,  not 
less  than  ten,  may  form  themselves  into  a  corporation  for  the  purpose 
of  building  dams  across  any  stream,  so  as  to  jifford  slack- water  naviga- 
tion. ^^  -  _  _  -  For  the  improvement  of  the  navigation  of  any 
na\igable  river  within  the  jurisdiction  of  this  State,  and  for  the  creation 
of  hydraulic  power  thereon  not  impeding  the  navigation  of  the  same, 
any  nural)er  of  persons,  not  less  than  thirteen,  may  form  themselves 
into  a  corporation.  ^1 

1  Geu.  Stat.  Colo.  1883,  p.  192,  §  '  1  Rev.  Stat.  Mo.  1889,  p.  728,  § 
281.  28i9. 

2  2  Rev.  Stat.  Ind.  1888  [Myers  &  «  2  Rev.  Stat,  of  New  York  [Banks 
Co.],  §  2703.  &  Bros.  8th  ed.],  p.  1563,  §  236. 

3  Laws  of  111.  1887,  p.  77.  ^  2  Kev.  Stat,  of  New  York  [Banks 
*  1  Rev.  Stat,  of  Mo.  1889,  p.  699,  §      &  Bros.  8tli  ed.l,  p.  1592. 

2743.  10  2  Rev.  Stat.   Ind.   1888  [Myers  & 

5  1     Rev.  Stat.    Mo.     1889,   p.  715,  Co.],  §  4118. 

§  2808.  *'  2  Kev.   Stat.  lud.    1888  [Myers  & 

«  IRev.  Stat.  Mo.  1889, p. 728,  §2849.  Co.],  §  4099. 

117 


1  Thonip.  Corp.  §  183.]     puuposks  fou  which  i'ermittku. 

§  170.  Soldiers'  Moniiinents. —  Any  number  of  persons,  not  less 
than  three,  may  form  a  corporation  for  the  purpose  of  erecting  a  monu- 
ment or  monuments  to  perpetuate  the  memory  of  the  soldiers  and 
sailors  who  served  in  the  late  war.^ 

§  180.  Sporting.  —  Any  five  or  more  persons  of  full  age,  a  majority 
of  whom  shall  be  citizens  of  this  State,  who  shall  desire  to  associate 
themselves  for  social,  temperance,  benefit,  gymnastic,  athletic,  military 
drill,  musical,  yachting,  hunting,  fishing,  bathing  or  lawful  sporting 
purposes,  may  incorporate  themselves  therefor. ^ 

§  181.  Stage  Coaches.  —  Any  number  of  persons,  not  less  than 
five,  may  incorporate  a  company  to  maintain  and  operate  any  stage  or 
omnibus  route  or  routes  for  public  use  in  the  conveyance  of  persons 
and  property  elsewhere  than  in  the  city  of  New  York.^ 

§  182.  Street  Railroads.  — Any  number  of  persons,  not  less  than 
five,  may  become  a  corporation  to  construct  and  use  a  street  railroad  in 
any  of  the  cities  or  towns  of  this  State.  ^  _  _  _  _  Any  number  of 
persons,  not  less  than  five,  being  subscribers  to  the  stock  of  any  con- 
templated street  or  horse  railroad  company  may  be  formed  into  a  cor- 
poration for  the  purpose  of  constructing,  owning  and  maintaining  street 
or  horse  railroads,  switches  or  side  tracks  upon  and  through  the  streets 
of  the  cities  or  towns  within  this  State. ^  _  _  _  _  Any  number  of 
persons,  not  less  than  thirteen,  may  form  a  company  to  construct,  main- 
tain and  operate  a  street  surface  railroad  for  public  use  in  the  convey- 
ance of  persons  and  property  in  cars  for  compensation  in  any  of  the 
cities,  towns  or  villages  of  this  State. "^ 

§  183.  Telegraphs  :  Telephones.  —  Any  number  of  persons  may 
form  themselves  into  a  corporation  for  the  purpose  of  estabhshing, 
maintaining  and  operating  lines  of  electric  telegraph  within  this 
State.'  -  -  -  -  Any  number  of  persons,  not  less  than  five,  may 
from  a  corporation  to  construct,  own  operate  and  maintain  lines  of 
telephone  or  magnetic  telegraph.^     _     _     _     _     Any  number  of  persons 

1  3  Rev.  Stat,  of  New  York  [Banks  ^  2  Rev.  Stat,  Ind.  1888  [Myers  &- 
&  Bros.  8th  ed.J,  p.  2058.  Co.],  §  4143. 

2  3  Rev.  Stat,  of  New  York  [Banks  ^  3  Rev.  Stat,  of  New  York  [Banks 
&  Bros.  8th  ed.],  p.  1953.  &  Bros.  8th  ed.],  p.  1810. 

3  3  Rev.  Stat,  of  New  York  [Banks  ■»  2  Rev.  Stat.  Ind.  1888  [Myers  & 
&  Bros.  8th  ed.],  p.  1876.  Co.],  §  4162. 

*  1  Code    of  Ala.    1886,   p.  393,    §§  »  1  Rev.  Stat.  Mo.  1889,  §  2716. 

1603,  1604. 

118 


EXAMPLES    FR03I    STATUTES.       [1  Thomp.  Corp.   §   187. 

may  incorporate  themselves  for  the  purpose  of  constructing  a  line 
of  wires  of  telegraph  through  this  State. ^  _  .  _  _  Telegi'aph 
companies,  incorporated  by  this  or  any  other  State,  shall  have 
the  right  to  construct  and  operate  lines  of  telegi-aph  along  any  of 
the  railroads  or  other  public  highways  in  the  State,  and  over  the 
lands  of  other  persons  and  corporations  upon  making  just  compensa- 
tions as  now  provided  by  law.^  _  _  _  _  Any  number  of  persons 
may  form  themselves  into  a  corporation  for  the  purpose  of  establishing, 
maintaining  and  operating  telephones,  telephone  lines,  and  telephone 
exchanges  within  this  State. ^ 

§  184.  Tobacco  Warehouses.  —  Any  number  of  persons  may 
form  themselves  into  a  corporation  for  the  purpose  of  constructing 
warehouses  in  which  to  inspect,  store  and  sell  tobacco.* 

§  185.  Toll  Roads  :  Plank,  Gravel,  Macadamized,  Turnpike 
Roads,  etc. — Any  number  of  persons,  not  less  than  seven,  can  be 
incorporated  for  the  purpose  of  constructing  and  operating  a  macada- 
mized, turnpike,  plank,  wooden,  shelled,  graded,  or  other  improved 
toll-road. 5  -  -  -  -  Any  number  of  persons  may  form  themselves 
into  a  corporation  to  construct  or  own  plank,  macadamized,  gravel, 
clay  and  dirt  roads. ^  _  _  _  _  Any  number  of  persons  not  less  than 
five  may  be  incorporated  to  construct  aud  own  a  plank-road  or  a  turn- 
pike road  by  complying  with  the  following  requirements.'  -  -  -  - 
Any  five  or  more  persons  may  form  themselves  into  a  corporation  to 
construct  and  own  a  graded  or  gravel  road,  or  plank  or  macadamized 
road,  or  a  road  composed  partly  of  plank,  macadam  or  gravel  for  a 
covering,  so  as  to  form  a  hard  and  smooth  surface.^ 

§  186.  Training  IS'urses.  —  Any  five  or  more  persons  may  form  a 
corporation  to  educate,  train  and  provide  skilled  nurses  for  the  sick, 
and  to  do  such  other  practical  or  charitable  work  in  hospital  and  else- 
where, as  may  be  consistent  therewith,^ 

§  187.  Tramways,  Elevated.  —  Any  member  or  persons,  not  less 
than  thirteen,  may  incorporate  a  company  to  construct,  maintain  and 

1  3  Rev.  Stat,  of  New  York  [Bauks  ^  i  Code  Ala.  188G,  p.  396,  §  1613. 
&Bro8.  8th  etl.],  p.  2060.                                  «  2  Rev.  Stat.  Ind.    1888  [Myers  & 

2  ICodo  of   Ala.  1886,  pp.  401,  402,       Co.],  §.^.624. 

§§  1652-1654.  7  2  Rev.  Stat,  of  New  York  [Banks 

3  2  Rev.    Stat.  Ind.  1888    [Myers  &      &  Bros.  8th  ed.],  p.  1477. 

Co.],  §  4181.  8  1  Rev.  Stat.    Mo.  188!),  §  2690. 

■•  2  Rev.  Stat.    Ind.    1888  [Myers  &  »  3  Rev.  Stat,  of  New  York  [Banks 

Co.],  §  4193.  &  Bros.  8th  ed.],  p.  2087. 

119 


1  Thomp.  Corp.  §  191.]     ruiiposios  for  which  tekmitted. 

operate  an  elevated  tramway  for  the  transportation  of  freight  in  sus- 
pended buckets,  cars  or  other  receptacles,  for  hire.i 

§  188.  Trust  Companies.  —  Any  number  of  person,  not  less  than 
three,  may  be  incorporated  to  carry  on  a  trust,  deposit  and  security 
business. 2  -  -  -  -  Any  three  or  more  persons  may  be  incorpo- 
rated, under  any  name  or  title  designating  such  business,  as  trust  com- 
panies, to  receive  moneys  in  trust,  and  to  execute  any  trusts  confided 
to  them,  and  to  guarantee  the  fidelity  of  any  persons  holding  places  of 
public  or  private  trust,  and  to  act  as  guardian  or  curator  of  any  in- 
fant or  insane  person,  and  to  hold  any  real  or  personal  estate  in 
trust. ^  _  _  -  -  Any  number  of  natural  persons,  not  less  than 
thirteen,  may  organize  a  trust  company,  but  three-fourths  of  such  per- 
sons shall  reside  in  this  State.^ 

§  189.  Union  Depots.  —  Any  number  of  persons,  not  less  than 
five,  may  form,  or  any  two  or  more  railroad  companies  may  form,  or 
join  others  in  forming,  a  corporation  to  construct,  estabhsh  and  main- 
tain a  union  station  for  passenger  or  freight  depots,  or  for  both,  in  any 
city,  town,  or  place  in  this  State.^  -  -  -  -  The  presidents  of  two  or 
more  railroad  companies  running  railroads  to  the  same  city,  town  or  vil- 
lage may  by  consent  and  under  the  direction  of  their  respective  boards  of 
directors,  file  articles  of  incorporation,  for  the  purpose  of  purchasing  depot 
grounds,  and  locating,  constructing  and  maintaining  a  common  or  union 
station-house  and  passenger  depot,  and  a  union  railroad  by  two  or  more 
tracks  connecting  the  raikoads  of  such  companies  for  business  purposes. ^ 

§  190.  TTatcr  Works.  —  In  case  of  the  sale  of  any  water-works 
property  within  the  State,  by  the  judgment  and  decree  of  any  court  of 
competent  jurisdiction  within  this  State,  the  purchaser  or  purchasers 
thereof  may  form  a  corporation. '  -  -  -  -  Any  number  of  persons, 
not  less  than  seven,  may  hereafter  organize  in  any  town  or  village  of  this 
State  a  water-works  company  under  the  provisions  of  this  act.^ 

§  191.  Indiana :  Enumeration  of  Purposes  for  which  Cor- 
porations may  be  Formed.  —  Any  number  of  persons  may  associate 

1  3  Rev.  Stat,  of  New  York  [Banks  ^  2  111.  Anaot.  Stat.  [Starr  &  Cur- 
&  Bros.  8th  ed.],  p.  1879.  tis]  1885,  p.  1925. 

2  Gen.  Stat.  Colo.  1883,  p.  195,  §  ^  i  Rev.  Stat.  Ohio  [Giauque],  1890, 
294.  §  3446. 

3  1  Rev.  Stat.  Mo.  1889,  pp.  724,  725,  '  2  Rev.  Stat.  Ind.  1888  [Myecs  & 
2§  2836,  2839.  Co.],  §  4200. 

4  2  Rev.  Stat,  of  New  York  [Banks  &  ^  3  Rev.  Stat,  of  New  York  [Banks 
Bros.  8th  ed.],  p.  1596.  &  Bros.  8th  ed.],  p.  2047. 

120 


TEXAS  STATUTE.     [1  Tliomp.  Corp.  §  192. 

themselves  together  and  be  incorporated :  First.  To  establish  associa- 
tions for  horticultural  or  agricultural  purposes,  or  to  promote  and  en- 
com-age  the  mechanical  arts,  or  for  literary  or  scientific  purposes,  or 
for  dredging  or  deepening  the  channels  of  rivers  and  creeks,  or  for  the 
improvement  of  harbors.  Second.  To  estabhsh  and  maintain  schools  or 
institutions  for  the  education  of  males  or  females.  Third.  To  estabhsh 
and  maintain  asylums  for  the  care,  support,  disciphne  and  education 
of  orphan  children  ;  or  to  estabhsh  and  maintain  homes  for  the  care  and 
support  of  aged  females,  who  cannot  support  themselves,  or  for  the  care 
and  support  of  crippled  persons.  Fourth.  To  purchase  and  hold  suit- 
able grounds  for  the  burial  of  the  dead.  Fifth.  To  organize  lodges  or 
other  bodies  of  Masons  or  Odd-Fellows,  Knights  of  Honor  and  Knights 
and  Ladies  of  Honor :  also  divisions  or  associations  of  temperance  or 
other  charitable  associations  or  orders  ;  to  organize  churches,  conferences, 
and  rehgious  societies  ;  to  organize  societies  for  the  prevention  of  cruelty 
to  either  animals  or  childi-en ;  and  to  organize  a  State  Grange  of  Pat- 
rons of  husbandry  and  subordinate  Granges.  Sixth.  To  organize  mil- 
itary or  fire  companies,  companies  to  erect  buildings  suitable  for  pubhc 
meetings,  and  companies  to  plant  shade  trees.  Seventh.  To  organize 
safe  deposit  and  loan  companies.  Eighth.  To  organize  associations  to 
build,  own  and  operate  hotels.  Ninth.  To  organize  associations  to  buy, 
hold  and  sell  real  estate.  Tenth.  To  organize  associations  to  buy,  lease 
and  hold  mineral  springs  and  to  build  and  carry  on  hotels,  cottages  and 
bath-houses  there.  Eleventh.  To  organize  companies  to  sink  and  operate 
oil  and  gas  wells.  Twelfth.  To  establish  companies  to  import  hve  stock 
into  the  United  States  and  to  keep  registers  of  all  imported  live  stock.^ 

§  192.  Texas  :  Enumeration  of  Purposes  for  which  Corpo- 
rations may  he  Formed.  —  Private  corporations  may  be  formed  by  the 
voluntary  association  of  thi-ee  or  more  persons,  for  the  following  pur- 
poses, viz. :  1.  The  support  of  pubUc  worship.  2.  The  support  of  any 
benevolent,  charitable,  educational  or  missionary  undertaking,  3.  The 
support  of  any  hterary  undertaking,  the  maintenance  of  a  library,  or 
the  promotion  of  painting,  music  or  other  fine  arts.  4.  The  encourage- 
ment of  agriculture  and  horticulture  by  associations  for  the  maintenance 
of  pubUc  fairs  and  exhibitions  of  stock  and  farm  products.  5.  The 
maintenance  of  a  public  or  private  cemetery.  G.  The  construction  and 
maintenance  of  any  species  of  road  except  a  railroad  and  a  bridge  in 
connection  therewith.  7.  The  construction  and  maintenance  of  a 
bridge.  8.  The  construction  and  maintenance  of  a  telegraph  or  tele- 
phone hne.  9.  The  establishment  and  maintenance  of  a  ferry. 
10.  The  establishment  and  maintenance  of  a  line  of  stages.     11.  The 

1  2  Rev.  Stilt.    lud.    1888    [Myers  &  Co.],  §  3502. 

121 


1  Thomp.  Corp.  §  200.]     purposes  for  which  PKUiMriTKi). 

building  and  navigation  of  steamboats,  and  the  carriage  of  persons  and 
property  thereon.  12.  The  supply  of  water  to  the  public.  13.  The 
manufacture  and  supply  of  gas,  or  of  the  supply  of  light  or  heat  to  the 
pubhc  by  any  means.  14.  The  transaction  of  any  manufacturing  or 
mining  business.  15.  The  transaction  of  a  printing  oi-  publishing  busi- 
ness, and  in  connection  therewith  the  sale  of  goods,  wares  and  mer- 
chandise of  a  stationery  and  blank  book  manufacturing  business. 
16.  The  establishment  and  maintenance  of  a  hotel.  17.  The  erection 
of  buildings  and  the  accumulation  and  loan  of  funds  for  the  purchase 
of  real  property  in  cities,  towns  and  villages.  18.  The  transportation 
of  goods,  wares  and  merchandise  or  any  valuable  thing.  19.  The  pro- 
motion of  immigration.  20.  The  construction  and  maintenance  of 
sewers.     21.  The   construction  and   maintenance  of  a  street  railway. 

22.  The  erection  and  maintenance  of  market  houses  and  market  places. 

23.  The  construction  and  maintenance  of  canals  for  the  purposes  of 
irrigation,  navigation  and  manufacturing.  24.  The  purchase  and  sale 
of  agricultural  and  farm  products,  goods,  wares  and  merchandise,  pro- 
vided that  the  capital  stock  of  such  corporations  shall  not  exceed 
twenty  thousand  dollars.  25.  The  construction  of  harbors  and  canals 
^n  the  coast  of  the  Gulf  of  Mexico.  26.  The  growing,  purchasing  and 
selling  seeds,  plants,  trees,  etc.,  for  agricultural,  horticultural  andiorna- 
mental  purposes.  27.  The  construction  and  maintenance  of  mills  and 
gins.  28.  The  accumulation  and  loan  of  money ;  but  this  subdivision 
shall  not  permit  incorporation  with  banking  or  discounting  privileges. 

29.  The    construction    and    maintenance   of    stock   yards   and   pens. 

30.  The  construction  and  maintenance  of  estabhshments  for  slaughter- 
ing, refrigerating,  canning,  curing  and  packing  meat.  31.  The  con- 
struction and  maintenance  of  establishments  for  the  preserving  and 
canning  of  fruits,  vegetables  and  fish.  ^ 

SUBDIVISION  II.     Decisions  Construing  Particular  Statutes. 
Section 

200.  Corporations    for    internal    im-      200.   *'  Beneficial    or    protective  pur- 

provemeuts.  poses." 

201.  ''Lawful  sporting  purposes.''  207.  " Mauuf actm-ing  purposes." 

202.  Erection  of  buildings.  208.  "  Works  of  public  utility." 

203.  Industiial  pursuits.  209.  "  Pecuniary  profit." 

204.  "  For  any  other  purpose  intended  210.  "Loan,        mortgage,       security, 

for  mutual  profit,"  eic.  guaranty,       indemnity      com- 

205.  "  Other  lawful  business."  pany." 

§  200.  Corporation  for  Internal  Improvements. — The  con- 
stitution of  West  Virginia  of  1861-3   contains  this  prohibition:   "No 

1  1  Sayles'  Texas  Civil  Stat.  1888,  pp.  212,  213,  §§  5G5,  560. 
122 


PAUTICULAR    STATUTES    CONSTRUED.       [1  Thoilip.  Corp.    §   20'2. 

special  act  iucorporating  or  granting  peculiar  privileges  to  any  joint 
stock  company  or  association  not  ha^dng  in  view  tlie  issuing  of  bills  to 
circulate  as  money  or  the  construction  of  some  work  of  internal  improve- 
ment shall  be  passed."  It  has  been  held  in  that  State  that  a  corpora- 
tion created  by  a  special  act  of  the  legislature  for  the  purpose  of  con- 
structing and  maintaining  a.  pipe  line  for  the  conveyance  of  petroleum 
was  valid,  the  purpose  of  the  corporation  being  an  internal  improve- 
ment within  the  meaning  of  the  above  prohibition.  1  It  was  further  held 
that  the  legislature  might  confer  upon  such  a  company  the  power  of 
appropriating  lands  necessary  for  its  pipe  line  in  virtue  of  the  right  of 
eminent  domain. ^ 

§  201.  **  Lawful  Sporting  Purposes"  —  Actions  for  Viola- 
tion of  Game  Laws. —  A  statute  ^  which  authorizes  incorporations  for 
"  social,  gymnastic,  esthetic,  musical,  yachting,  hunting,  fishing,  boating 
or  lawful  sporting  purposes,"  does  not  allow  incorporations  for  the 
purpose  of  instituting  actions  to  recover  penalties  for  violations  of  the 
game  laws.  The  authority  given  to  the  corporation  by  the  act,  to  sue 
and  be  sued,  is  subject  to  the  quaMfication  that  it  is  in  relation  to  some 
matter  within  the  scope  of  the  statute  and  the  legitimate  purpose  of  the 
organization.* 

§  202.  Erection  of  Buildings. — A  general  statute  authorizing 
the  formation  of  corporations  "  for  the  erection  of  buildings  "  is  under- 
stood to  authorize  the  formation  of  corporations  engaged  or  to  be  en- 
gaged in  the  business  of  erecting  buildings,  —  in  other  words,  in  the 
formation  of  building  companies  or  associations.  It  may  be  that  such 
a  company  may  erect  buildings  on  its  own  property,  but  it  is  reasoned 
that  the  leading  object  of  such  an  association  must  be,  not  the  mere 
purchase  and  improvement  of  real  estate,  and  a  subordinate  and  inci- 
dental object  the  erection  of  buildings  thereon,  as  one  of  the  modes  of 
such  improvement ;  but  that  the  leading  object  of  the  associates  must 
be  to  carry  on  the  business  of  erecting  buildings  for  themselves  or 
others,  and  not  to  confine  themselves,  as  the  primary  and  sole  object 
of  their  organization,  to  the  erection  or  improvement  of  a  single  build- 
ing upon  a  single  property  of  their  own,  for  its  more  convenient  and 
lucrative  development  and  use.^ 

1  West  Virginia  Transportation  Co.  ^  AncicMit  City  Sportsman's  Club  v. 

V.  Volcanic  Oil  and  Coal  Co.,  5  West  Miller,  7  Lans.  (N.  Y.)  412. 

Va.  382.  ''  People    v.  Troy    House    Co.,   44 

^  Ibid.  Barb.  (N.  Y.)  G25.     In  this  case  the  coi*- 

■^  New  Yoirk  Act  of  18G5,  chap.  368.  pnrati m  was  ousted  of  its  franchises. 

123 


1  Tbomp.  Corp.  §  205.]     purposes  for  which  permitted. 

§  303.  "Industrial  Pursuits."  —  A    corporation    organized    to 

carr)^  ou  the  business  usually  performed  by  an  exprci^s  company,  is  a 
corporation  organized  for  tlie  prosecution  of  an  industrial  pursuit, 
within  the  meaning  of  section  1889  of  the  Revised  Statutes  of  the 
United  States. ^ 

§  204.  *'  For  any  other  Purpose  intended  for  Mutual  Profit," 
etc. —  A  statute  of  Texas,  after  enumerating  twenty-six  special  purposes 
for  which  corporations  could  be  chartered,  contained  a  twenty-seventh  sub- 
division reading  as  follows :  ' '  For  any  other  purpose  intended  for  mutual 
profit  or  benefit,  not  otherwise  specially  provided  for,  and  not  inconsistent 
with  the  constitution  and  laws  of  this  State."  ^  Construing  this  statute, 
it  has  been  held  that  a  corporation  which,  according  to  a  recital  in  its 
articles  of  association  (called  its  charter)  was  formed  "  for  the  purpose  of 
bujdng,  selling,  and  dealing  in  real  estate,  live  stock,  bonds,  securities, 
and  other  properties  of  all  kinds,  on  its  own  account  and  for  commis- 
sion, in  the  United  States  and  elsewhere,"  —was  legally  incorporated, 
there  being  recited  in  the  constitution  and  laws  of  the  State  no  express 
or  impUed  prohibition  of  the  business. ^ 

§  305.  ror*'Otlier  Lawful  Business." — The  question  recently 
arose  under  the  Minnesota  statute  enabhng  corporations  to  be  formed 
for  the  carrying  on  of  certain  enumerated  kinds  of  business  and  also  for 
"  other  lawful  business,"*  whether  a  corporation  whose  purpose,  as  stated 
in  its  articles  of  association,  was  "  the  purchasing  and  holding  of  real 
estate,  subdividing  the  same  into  town  or  village  lots  and  town  sites, 
and  seUing  and  disposing  of  the  same,"  was  a  lawful  corporation.  The 
Supreme  Court  of  Minnesota  held  that  the  statute  covered  a  business  of 
this  kind.  The  court  regarded  the  point  as  turning  entirely  on  the 
words  of  this  statute,  "or  other  lawful  business." '^  -  -  -  -  A 
corporation  formed  to  carry  on  a  manufacturing  or  mechanical  business 
and  to  purchase  the  stock  of  an  insolvent  corporation,  may  stand  under 
such  a  statute,  although  its  organization  purports  to  be  under  an- 
other.*^ _  -  -  -  la  Penns3'lvania,  an  application  under  a  statute  for 
a  charter  for  the  maintenance  of  a  private  park  on  a  lake  is  for  a  law- 
ful purpose,  it  not  appearing  that  the  object  is    to  reduce   a  public 

1  Wells  V.  Northern  Pacific  R.  Co.,  ^  Minn.  Stat.  1866,  chap.  34,  §  45,  aS 
23  Fed.  Rep.  469.  amended  byMinu.  Laws  1873,  chap.  13. 

2  Rev.  Stat. Tex.  art.  566,  subdiv.  27.  «  Brown  v.  Corbin  (Minn.),   42  N. 

3  National  Bank  V.Texas  Investment  W.  Rep.  481;  s.  c.  40  Minn.  508. 

Co.,  74  Tex.  421;  s.  c.  12  S.  W.  Rep.  ^  state     v.     Minnesota     Thresher 

101;  criticising  Navigation  Co.  v.  Gal-  Manuf  g  Co.,  40  Minn.  213;  41  N.  W. 

veston  Co.,  45  Tex.  272.  1020. 
124 


PAETICULAR    STATUTES    CONSTRUED.        [1  Thomp.  Corp.    §   208. 

lake  to  private  dominion. i  -  -  -  -  Wliere,  as  in  Indiana,  the  law 
permits  the  consolidation  of  corporations,  it  is  not  against  pubhc  pohc}^ 
for  a  corporation  to  be  organized  with  the  ulterior  purpose  of  consolida- 
tion with  another. 2  _  -  .  -  Corporations  to  protect  the  personal 
property  of  the  members  against  theft ;  to  confer  with  the  State  author- 
ities, therefor;  to  employ  counsel  to  assist  in  prosecuting  persons 
charged  with  crime  ;  to  employ  detectives  to  co-operate  with  the  author- 
ities ;  and  to  raise  means  by  uniform  assessments  on  the  personal  prop- 
erty of  the  members,  are  within  the  purview  of  that  subdivision  of  the 
Texas  statute  ^  prescribing  the  purposes  for  which  corporations  may  be 
formed  which  includes  "  any  other  purpose  intended  for  mutual  profit 
or  benefit  .  .  .  not  inconsistent  with  the  constitution  and  laws  of 
this  State."  ^  _  _  _  _  A  corporation  for  "  buying,  selling,  and  deal- 
ing in  real  estate,  live-stock,  bonds,  securities,  and  other  properties  of 
all  kinds,  on  its  own  account  and  for  commission,"  — is  authorized  by 
the  same  statute. ^ 

§  206.  **  Beneficial  or  Protective  Purposes.**  —  An  incorpora- 
tion for  the  purpose  of  recovering  stolen  property,  and,  in  case  of  failure 
to  recover  it,  to  pay  a  part  of  its  value  to  the  loser,  has  been  held  not  to 
be  an  incorporation  ' '  for  the  maintenance  of  a  society  for  beneficial  or 
protective  purposes  "  under  section  2  of  the  Pennsylvania  Act  of  April 
29, 1874,  and  a  charter  for  such  a  purpose  should  be  refused.^ 

§  207.  *' Manufacturing  Purposes."  —  The  fiHsmess  of  preparing 
ice  in  its  natural  condition  for  use  as  an  article  of  consumption  is  within 
a  statute  authorizing  the  formation  of  corporations  for  manufacturing  pur- 
poses,' The  manufacture  of  lumber,  flour  and  meal  is  within  the  meaning 
of  the  Illinois  act  of  1849  authorizing  "  the  formation  of  corporations 
for  manufacturing,  agricultural,  mining  and  mechanical  purposes."  ^ 

§  208.  "Works  of  Public  Utility." —  The  establishment  and 
maintenance  of  a  wharf-boat  and  steam  elevator  at  Monroe,  for  a  general 
storage  and  forwarding  business,  is  a  "  work  of  public  utility,"  within 
La.  Rev.  St.,  sec.  G83,  for  which  a/corporation  may  be  authorized. ^ 

1  Lake  Wynola  Assoc,  3  Pa.  Coun-  ^  Solebury  Mut.  Protection  Asso., 
ty  Ct.  0:^6.  3  Pa.  Couuty  Ct.  637. 

2  Ilill  V.  Nisbct,  100  Ind.  341.  '  Attorney- General  v.  Lormaa,  59 

3  Rev.  Stat,  art  5G6,  subd.  27.  Mich.  157. 

4  Guadalupe  &c.  Stock  Asso.  v.  ^  crossu.  Pinckneyville  Mill  Co.,  17 
West,  70  Tex.  391.  III.  54. 

^  National   Bank   v.  Texas  Invest-  ^  Glen  v.  Breard,  35  La.  An.  875. 

ment  Co.,  74  Tex.  421 ;  s.  c.  12  S.  W.  101. 

125 


1  Thomp.  Corp.  §  210.]     stkps  to  perfect  organization. 

§  209.  "Pecuniary  Profit."  —  A  corporation  organized  entirely 
for  educational  purposes  is  not  "  a  corporation  for  pecuniary  profit, "  by 
reason  of  the  fact  that  fees  are  charged  for  tuition.^ 

§  210.  "Loan,  Mortgage,  Security,  Guaranty,  Indemnity 
Company."  —  incorporation  authorized  to  establish  a  public  exchange 
for  receiving  deposits  of  and  transferring  earnest  moneys,  stocks,  bonds, 
and  other  securities,  procuring  and  making  loans  thereon,  and  guaran- 
teeing the  payment  of  bonds  and  other  obligations,  is  a  "loan,  mort- 
gage, security,  guaranty,  and  indemnity  company,"  and  a  corporation 
"having  the  power  of  recei\ang  money  on  deposit,"  within  N.  Y.  Acts 
1874,  ch.  324,  requiring  reports  from  such  corporations  to  the  superin- 
tendent of  the  banking  department.^ 

Article  II.     Steps  Necessary  to  Perfect  Organization. 


Sectiox 

215.  Corporations  may  be    organized 

under  general  laws. 

216.  Theory  of  tlie  nature  of  a  charter 

where  the  incorporation  is  un- 
der a  general  law. 

217.  When  life  of  corporation   com- 

mences. 

218.  Distinctions      between      actions 

against  the  supposed  corpora- 
tion and  actions  against  a  sup. 
posed  corporator. 

219.  Necessity  of  articles  or  certifi- 

cate of  incorporation. 

220.  Corporate   existence    proved  by 

user  under  an  instrument  of 
Incorporation. 

221.  Defective    certificate    not  prima 

facie  evidence  of  incorporation. 

222.  Distinction  between  us<t   under 

special  charter  and  compliance 
with  conditions  under  general 
law. 

223.  Originals  evidence  where  statute 

prescribes  copy. 

224.  Literal  compliance  with   statute 

not  necessary  :  Substantial 
compliance  sufficient. 


compliance    neces- 


Srction 

225.  Substantial 

sary. 
2i.'G.  Distinctions  between   conditions 
precedent  and  conditions  di- 
rectory. 

Illust  ations. 

Defects  in  the  articles  or  certifi- 
cate which  do  not  vitiate. 

Claiming  more  than  the  law  al- 
lows. 

Provision  as  to  expulsion  of  mem- 
bers. 

Specifying  the  objects  of  the  as- 
sociation. 

Illustrations. 

Stating  the  place  where  the  busi- 
ness of  the  corporation  is  to 
be  carried  on. 

Stating  the  manner  of  carrying 
on  the  busine  s. 

235.  Provision  as  to  manner  of  pay- 

ment of  stock. 

236.  Fatal  defects    not    supplied  by 

parol  evidence. 

237.  Acknowledgment  of  articles. 

238.  Amendment  of  the  articles  or  cer- 

tificate. 


227. 
228. 


229. 


230. 


231. 


232. 
233. 


234. 


1  St.  Clara  Female  Academy  v.  Sul- 
livan, 116  111.  375;  s.  c.  56  Am.  Rep. 
776. 

126 


2  People  V.  Mutual  Trust  Co.,  96  N. 
Y.  10. 


THEORIES    OF    CHARTERS.       [1  Thoilip.  Corp.    §   216. 

Section  Sectiox 

239.  Filing,  publishing  and  recording      245.  Provision  as  to  assent  and  appro- 

articles,  bation  of  a  judge. 

240.  Filing    copy    with    secretary  of      246.  Subscription  of  the  whole  amount 

state,  etc.  of  the  capital  stock. 

241.  Illustrations.  247.  Payment  of  a  certain  amount  of 

242.  Recording  in  the  wrong  book.  capital  stock. 

243.  Fraudulent  and  surreptitious  re-  248.  Certificate    of    treasury    board, 

cording.  comptroller  of  currency,  etc., 

244.  Non-compliance  with  provisions  conclusive. 

directing  publication  of  arti-       249.  Letters-patent  of  incorporation 
cles.  conclusive  evidence  of  corpo- 

rate existence. 

§  215.  Corporations  may  be  Organized  under  General 
Laws.  — As  already  seen,  a  corporation  can  only  be  created  by  or 
under  authority  of  the  sovereign  power,  which  power  is  in  this 
country  expressed  in  acts  of  the  legislature.^  It  has  already 
been  observed  that  it  is  a  principle  of  American  constitutional 
law  that  legislative  power  cannot  be  delegated  ;  that,  where  cer- 
tain power  is  vested  in  the  general  assembly  of  the  State  by  the 
constitution,  it  is  not  competent  for  that  body  to  cast  it  off  on 
some  other  body  or  agency.^  A  limitation  of  this  rule  is  that  it 
is  competent  for  the  legislature  to  provide  for  the  organization  of 
corporations  through  the  action  of  judicial  or  ministerial  officers 
under  general  laws ;  ^  and,  as  hereafter  seen,  constitutional  pro- 
visions exist  in  many  of  the  States  forbidding  their  creation  by 
special  laws.* 

§  216.  Theory  of  the  Nature  of  a  Charter  where  the  Incor- 
poration is  under  a  General  Law.  —  Where  a  corporation  is 
organized  under  a  general  law,  it  may  frequently  become  a  ques- 
tion what  provisions  of  its  articles  of  association  are  to  be  deemed 
to  have  the  force  and  effect  of  a  charter  granted  by  the  legisla- 
ture, and  what  are  to  be  deemed  to  have  the  force  and  effect  of 
hy-laws  with  which  the  public,  in  the  absence  of  notice  of  their 
terms,  have  no  concern.  This  question  was  considered  in  a  case 
where  it  became  material  to  inquire  whether  a  provision  in  the 

1  Ante,  §  35.  is  no    longer  a  debatable  question." 

2  Ante,  §  3G.  Black,  J.,  in  Granby  Mining  &c.  Co.  v. 
s  Ante,   §  37.     "That  corporations      Kichards,  95  Mo,  106,  112. 

may  be  organized  under  geuoral  l:nvs  *  Po.si,  §  573,  et  seq. 

127 


1  Thomp.  Corp.  §  216.]     steps  to  perfect  organization. 

articles  of  association  of  a  banking  corporation,  \vhich  limited 
every  stockholder  to  an  ownership  of  one  hundred  shares,  was  to 
be  considered  as  having  the  force  of  a  charter  requirement,  or 
only  that  of  a  corporate  by-law.  It  was  said  by  Lewis,  P.  J. : 
«*  We  cannot  say  that  there  is  no  charter  in  the  case.  For  with- 
out a  charter  in  the  generic  sense  there  can  be  no  such  thing  as  a 
corporation.  The  general  statute,  when  aroused  into  specific 
operation  by  a  compliance  with  its  terms  on  the  part  of  an  asso- 
ciation of  persons  and  capital,  unites  itself  with  the  terms  and  de- 
tails of  such  a  compliance ;  the  law  and  the  articles  of  association 
become,  as  it  were,  the  compact  between  the  State  and  the  asso- 
ciation, and  this  constitutes  a  charter  of  the  body  politic.  Thus, 
when  the  law  requires  that  the  articles,  to  be  filed  with  a  particular 
oflScer,  shall  set  forth  the  amount  of  the  capital  stock,  and  the 
capital  stock  is  thus  set  forth  at  fifty  thousand  dollars,  these  con- 
current declarations  are  the  equivalent  of  a  charter  provision  that 
the  new  corporation  shall  be  entitled  to  hold  and  operate  a  capital 
stock  amounting  to  the  sum  specified.  But  no  provision  in  the 
articles,  which  is  not  responsive  to  some  specification  in  the  law, 
can  have  any  such  force  or  effect.  Such  a  provision,  not  called 
for  by  the  law,  will  be  a  mere  voluntary  proposal  from  the  asso- 
ciation. It  will  be  lacking  in  the  essential  elements  of  a  com- 
pact, will  derive  no  operative  energy  from  the  statute,  and  can 
have  no  claim  to  the  dignity  and  efi'ectiveness  of  a  charter  regu- 
lation."^  Where,  in  preparing  a  certificate  of  incorporation, 
the  corporators  employ  only  the  words  used  in  the  statute  to 
describe  the  general  purposes  of  such  incorporation,  it  will  be 
presumed  that  they  intended  to  create  a  corporation  of  the  same 
general  nature  and  with  the  same  general  powers  granted  by  the 

1  O'Brien    v.    Cummings,    13  Mo.  held  one  hundred  shares    was,    not- 

App.  197.     It    was    accordingly  held  withstanding  the    prohibition  in  the 

that,  as  the  provisions  of  the  general  articles  of  association,  valid  and  ef- 

law  contained  no  limitation  as  to  the  fectual  as  between  the  parties  to  it; 

number  of    shares  which  any  share-  and  accordingly  that,  the  corporation 

holder  might  own,  the  provisions  of  the  becoming  insolvent,  a  subsequent  judg- 

articles  in  question  were  inoperative,  ment  creditor  of  it  could  not  have  an 

in  so  far  as  concerned  the  title  of  a  execution  against  the  transferor,  by 

stranger    to    the    corporation     who  motion  under    the     statute,    on    the 

mighr  become  the  purchaser  of    Its  theory  that  he  was  still  the  owner  of 

shares ;  and  that  a  transfer  of  shares  the  shares. 
made  in  good  faith  to  one  who  already 
128 


DISTINCTIONS.        [1  Thomp.  Corp.  §  218. 

statute,  rather  than  that,  by  such  words,  they  sought  to  apply 
special  limitations  on  the  powers  of  the  corporation.^ 

§  217.  When  Life  of  Corporation  Commences. —  "  The  life  of 
a  corporation  dates  from  its  organizatio)i,  and  not  from  the  time 
it  begins  to  do  business."  ^  Where  the  statute  points  out  the 
manner  in  which  the  corporation  shall  be  organized,  and  the  di- 
rection of  the  statute  is  followed,  this  brings  the  corporation  into 
existence,  so  that  it  may  enter  upon  the  objects  of  its  creation.^ 

§  218.  Distinctions  between  Actions  against  the  Supposed 
Corporation   and  Actions  against  a  Supposed  Corporator.  — 

Essential  distinctions  exist,  in  respect  of  the  question  when  a 
corporation  is -deemed  to  be  in  existence,  between  cases  where 
the  action  is  against  the  supposed  corporation  itself,  and  cases 
where  the  action  is  against  one  of  the  supposed  corporators,  to 
charge  him  personally  upon  a  contract  entered  into  in  tiie  name 
of  the  supposed  corporation.  In  the  former  case,  the  courts 
generally  decline  to  enter  into  an  inquiry  as  to  the  regularity  of 
the  organization  of  the  c^irporation,  for  public  reasons,  —  that  is 
to  say,  in  view  of  the  public  inconvenience  of  litigating  the 
question  of  existence  of  a  corporation  in  a  collateral  proceedins:. 

1  Whetstoue  v.  Ottawa  University,  way  and  for  depot  grounds ;  and  books 
13  Kan.  320.  were  opened  for  subscription  to  the 

2  Hanna  v.  International  Petroleum  capital  stock,  and  the  stock  was  all 
Co.,  23  Ohio  St.  622.  But  it  does  not  taken;  and  the  company  obtained  per- 
foUow  that  a  corporation  has  no  legal  mission  of  the  commissioners  of 
existence,  from  the  fact  that  it  com-  highways  to  locate  and  operate  tracks 
mences  business  in  a  foreign  State,  along  and  across  all  roads  and  high- 
where  there  is  a  provision  in  its  char-  ways  upon  its  route,  and  obtained 
ter  authorizing  it  so  to  do,  without  permission  from  the  City  of  Chicago 
having  done  any  business  in  the  State  to  locate  and  operate  a  track  through 
of  its  creation.  PAd.  a  portion  of  the  city  and  to  build  a 

3  Columbia  Bottom  Levee  Co.  v.  bridge  over  the  Chicago  river,  which 
Meier,  39  Mo.  53;  People  v.  Bowen,  grants  were  duly  accepted;  and  the 
30  Barb.  (N.  Y.)  24.  Where  the  per-  capital  stock  was  also  increased  and 
sons  named  in  the  charter  of  a  railway  the  new  stock  subscribed  for,  —  it  was 
company  mot  within  a  few  days  after  held  that  the  charter  was  in  opera- 
the  passage  of  the  charter,  and,  by  a  tion,  within  the  meaning  of  a  clause 
resolution,  adopted  the  same,  and,  on  of  the  new  constitution  of  Illinois 
the  following  day,  elected  ofDcers,  and  (111.  (^oust.  of  1870,  art.  II,  §  2),  ab- 
thereafter  authorized  the  president  to  rogating  corporate  charters  not  in 
survey  routes  and  locate  the  road,  operation.  McCartney  v.  Chicago  &c. 
and  to  make  contracts  for  the  right  of  R.  Co.,  112  111.  (Wl. 

9  129 


1  Thomp.  Corp.  §  219.]     steps  to  perfect  organization. 

On  the  contrary,  they  hold  the  corporation,  on  the  one  hand, 
and  the  party  contracting  with  it,  on  the  other,  estopped  from 
questioning  the  validity  of  it.s  organization. ^  In  such  a  case  it 
has  been  said:  '•  If  the  papers  filed,  by  which  the  corporation  is 
sought  to  be  created,  are  colorable,  but  so  defective  that,  in  a 
proceeding  on  the  part  of  the  State  against  it,  it  would  for  that 
reason  be  dissolved,  yet,  by  the  acts  of  user  under  such  organ- 
ization, it  becomes  a  corporation  de  facto,  and  no  advantage  can 
be  taken  of  such  defect  in  its  constitution,  collaterally,  by  any 
person."  2  But  where  the  action  is  brought  against  an  alleged 
corporator,  to  charge  him  on  a  contract  made  for  the  pi'etended 
corporation,  if  the  corporation  does  not  exist,  he  will  ordinarily 
be  liable  as  a  partner^  on  the  theory  of  a  breach  of  warranty  of 
agency,  elsewhere  explained  ;  ^  and,  in  such  an  action,  it  will  be 
open  to  the  plaintiff  to  show  that  there  was  no  corporation;  and 
the  defendant  must  show  a  valid  corporate  organization,  in  or- 
der to  escape  personal  liability.* 

§  219.  Necessity  of  Articles  or  Certificate  of  Incorpora- 
tion.—  It  has  already  been  seen  that  a  number  of  individuals,  by 
the  mere  act  of  uniting  and  calling  themselves  a  corporation,  can- 
not constitute  themselves  such,  but  that  a  corporation  can  only 
be  created  by  the  sovereign  power. ^  It  will  hereafter  be  pointed 
out  that  the  principle  which  validates  irregularities  in  the  organ- 
ization of  corporations,  when  their  corporate  existence  is  ques- 
tioned in  collateral  proceedings,  applies  only  in  cases  where  the 
corporation  might  have  existed.  If  we  attend  to  these  princi- 
ples, we  shall  see  that  a  corporation  cannot  be  deemed  to  exist, 
even  de  facto,  where  the  adventurers  never  had  any  charter  at  all.* 
It  is  elsewhere  shown  ^  that  the  voluntary  act  of  individuals  in 

»  Post,  §  3573,  et  seq.  «  Post,  §  2859,  et  seq. 

2  Buffalo  &c.  R.  Co.  v.  Gary,  26  N.  *  Kuiser  v.   Lawrence   Sav.    Bank, 
Y.  77.     Substantially   the   same  doc-  56  Iowa,  104.     The  case  of  Humphreys 
trine  is  announced  in  Krutz  v.  Paola  v.  Mooney,  5  Colo.  282,  holding  that 
Town  Co.,  20  Kan.  403;  Pape  v.  Capi-  in  such  an  action  the  plaintiff,  by  rea- 
tol  Bank,   20  Kan.  440.     It  is  recog-  son  of  having  entered  into  an  express 
nized    in    Kaiser   v.   Lawrence    Sav.  contract  with  the  assumed  corpora- 
Bank,  56   Iowa,  104,   108,   where   the  tion,  is  estopped,  is  denied, 
distinction  stated  in  the  text  is  taken,           *  Ante,  §  35. 
and  in  other    cases  almost    without           ^  Post,  §  505. 
number.                                                               '  Ante,  §  216. 
130 


CERTIFICATE :  ARTICLES.     [1  Thomp.  Corp.  §  220. 

compliance  with  a  general  law,  whereby  they  sign,  acknowledge 
and  file  articles  of  association,  makes  them  a  corporation,  and  that 
the  articles  of  association,  read  in  connection  with  the  general 
law,  constitute  their  charter.  It  must  follow,  from  a  considera- 
tion of  these  premises,  that  where  a  collection  of  persons  claim 
to  have  organized  themselves  into  a  corporation  under  a  general 
law,  their  claim  will  not  be  good,  even  when  questioned  collat- 
erally, provided  they  tile  no  articles  of  association  at  all;  and 
such  is  the  adjudged  law.^  The  rule  is  the  same  where  the  ad- 
venturers file  articles  which  hvq  fatally  defective  by  reason  of  not 
conforming  to  the  essential  requirements  of  the  governing  stat- 
ute.^  On  the  other  hand,  the  corporation  is  generally  deemed 
to  exist  from  the  time  when  the  certificate  of  incorporation,  ar- 
ticles of  association,  or  other  instrument  of  incorporation  pre- 
scribed by  statute,  is  executed,  acknowledged,  and  recorded  or 
filed  for  record,  in  accordance  with  the  governing  statute;  and 
thereafter  the  lawfulness  of  the  existence  of  the  corporation  can- 
not be  denied  in  any  controversy,  except  in  an  action  by  the 
State  to  vacate  its  franchises. ^  Thus,  under  the  statutes  of 
Pennsylvania,  where  articles  of  association  have  been  approved 
by  the  attorney-general  and  Supreme  Court  of  the  State  and 
duly  enrolled,  such  association  becomes  a  corporation,  and  such 
articles  cannot  be  collaterally  questioned.* 

§  220.  Corporate  Existence  Proved  by  User  under  an  In- 
strument of  Incorporation.  —  As  more  fully  explained  here- 
after,°  the  existence  of  a  corporation  is  usually  proved  by  show- 
ing a  valid  instrument  of  incorporation  and  acts  of  user  there- 
under. This  instrument  of  incorporation  may  consist  of  a 
special  charter,  that  is,  a  special  act  of  the  legislature  incor- 
porating the  particular  company,  or  a  certificate  or  articles  of 

1  Abbott  V.  Omaha  Smelting  &c.  »  Palmer  v.  Lawrence,  3  Sandf.  (N. 
Co.,  4  Neb.  41G;  Chiids  v.  Smith,  55  Y.)  161;  Hunt  v.  Kansas-Missoari 
Barb.  (N.  Y.)  45,  53.  Bridge  Co.,  11  Kan.  412.     See  Valk  v. 

2  Fifth  Baptist  Church  v.  Baltimore  Crandall,  1  Saudf.  Ch.  (N.  Y.)  179. 
&c.  R.  Co.,  4  Mackey  (D.  C),  43;  New  *  Society  for  Visitation  of  the  Sick 
York  Cable  Co.  v.  Mayor,  104  N.  Y.  1;  v.  Commonwealth,  62  Pa.  St.  125. 
McCallion  v.  Hibernia  &c.  Co.,  70  Cal.  &  Post,  §  497,  and  Ch.  184,  Art.  HI. 
163;  s.  c.  12  Pac.  Rep.  114;  post,  §221. 

131 


1  Thomp.  Corp.  §  '220]     stkps  to  perfect  organization. 

incorporation,  by  whatever  name  designated,  executed  and  filed 
in  some  public  office,  in  pursuance  of  a  general  law.^  The 
usual  method  of  proving  the  existence  of  a  corporation  created 
by  special  charter  is  to  prove  the  act  of  incorporation  (it  being 
a  special  law,  of  which  the  courts  do  not  take  judicial  notice), 
and  to  prove  acts  of  user  under  it.^  If  it  is  a  corporation 
created  by  a  foreign  statute,  the  statute  must  be  proved  as  a 
fact,  in  the  mode  prescribed  by  the  law  of  the  forum  for  the  proof 
of  foreign  laws.  If  the  statute  is  a  special  law  of  a  foreign  State, 
the  mode  of  proving  it  will  usually  be  by  an  exemplified  copy, 
certified  by  the  Secretary  of  State,  or  otherwise  authenticated  as 
provided  by  the  act  of  Congress.  If  the  corporation  is  organized 
under  a  general  law  of  another  State  of  the  Union,  it  will  usually 
be  sufficient,  under  the  rules  of  evidence  in  most  of  the  States, 
statutory  or  resting  in  adjudged  cases,  —  to  prove  it  by  the  pro- 
duction of  a  book  of  the  statutes  of  such  other  State,  which  pur- 
ports on  its  face  to  be  published  by  the  authority  of  such  State.^ 
If  the  corporation  purports  to  be  organized  under  a  general  law 
of  the  State  of  the  forum,  it  will  usually  be  sufficient  to  prove  the 
charter  or  the  making  and  filing  of  the  certificate,  articles  of 
association,  or  other  instrument  of  incorporation,  required  by 
the  statute,  and  to  prove  acts  of  user  thereunder.*     But  it  is,  no 

1  "The  proof  of  the  act  of  incor-  87;  s.  c.  13  Atl.  Rep.  137;  6  New  Eng. 

poration,  of  the  action  under  it,  and  Rep.  921. 

of  the  dealings  of  the  respondent  with  ^  Williams  v.  Bank  of  Michigan,  7 
the  petitioner  as  such  corporation,  is  "Wend.  (N.  Y.)  539. 
presumptive  evidence  that  the  cor-  ^  jq  the  absence  of  a  local  statute 
poration  was  legally  organized,  and  in  relatioa  to  proving  the  incorpora-  • 
is  siifHcient  for  the  maintenance  of  a  tion  of  a  foreign  corporation,  the 
petition  in  the  corporate  name."  certificate  of  incorporation,  duly  ac- 
Braintree  Water  Supply  Co.  v.  Brain-  linowledged  before  a  notary  public, 
tree,  146  Mass.  482,  488.  See  also  and  authenticated  by  the  certificate  of 
Narragansett  Bank  U.Atlantic  Silk  Co.,  the  Secretary  of  State,  and  byacertifi- 
3  Met.  (Mass.)  282;  Middlesex  Hus-  cate of  a  commissioner  of  the  State  of 
bandmenw.  Davis,  3  Met.  (Mass  ;  133;  the  forum,  is  a  sufiicient  autheutica- 
Worcester  Medical  Institution  v.  tion.  Hammer  v.  Garfield  Mining  Co., 
Harding,  11  Cush.  (Mass.)  285;  Ap-  130  U.  S.  291;  32  Lawyer's  ed.  964;  9 
pleton  Ins.  Co.  v.  Jesser,  5  Allen  Sup.  Ct.  Rep.  548. 
(Mass.),  446;  Topping  u.  Bickford,  4  ■*  Bank  of  Toledo  v.  International 
Allen  (Mass.),  120;  Hawes  v.  Anglo-  Bank,  21  N.  Y.  542;  Leonardsville 
Saxon  Petroleum  Co.,  101  Mass.  385;  Bank  v.  Willard,  25  N.  Y.  574.  When- 
Wood  V.  Wyley  Const.  Co.,  56  Conn,  ever  it  is  shown  that  the  organization 
132 


certificate:  articles.     [1  Thomp.  Corp.  §  220. 

doubt,  competent  for  the  legislature  to  declare  what  shall  be 
evidence i  prima  facie,  of  the  formation  of  a  corporation  ;^  and 
many  of  the  statutes  provide  that  a  duly  certified  copy  of  the 
articles  of  association  shall  be  prima  facie  evidence  of  the  in- 
corporation of  the  company.  Of  course,  the  terms  of  the 
statute  are  not  uniform.  Some  of  them  call  for  a  duly  certified 
copy  of  the  articles,  and  also  of  the  affidavit  required  by  the 
governing  statute  to  be  annexed  thereto.  The  effect  of  such  a 
provision  is  to  cast  the  burden  u[)on  the  party  attacking  the 
validity  of  the  corporate  organization,  to  prove  the  non-perform- 
ance of  any  condition  precedent  prescribed  by  the  governing 
statute,^  —  as,  for  instance,  the  payment  into  the  treasury  of 
the  corporation  of  the  percentage  of  capital  stock  required  by 
the  statute,  if  such  is  to  be  deemed  a  condition  precedent.  If 
the  acts  and  proceedings  of  a  company  or  association  consist 
only  of  such  acts  and  proceedings  as  might  be  performed  by  in- 
dividuals without  an  incorporating  act,  or  corporate  grant  or 
franchise,  a  corporation  cannot  be  inferred  from  such  acts.' 
It  has  been  held  that  the  acts  and  admissions  of  a  party  to  a  suit, 
such  as  that  he  served  as  the  president  of  a  corporation,  or  gave 
a  note  to  it  in  its  corporate  name,  constitute,  as  against  him, 

of  a  corporation  ha8  taken  place  in  Flandrau,  J.,  in  an  early  case  in  Min- 

the  manner  directed   by  its  charter,  nesota,  that,  under  a  statute  of  that 

there  is  a  legally  constituted  company  State  providing  that  "every  written 

authorized  by  the  charter  to  proceed  instrument  purporting  to  have   been 

to  carry  out  the  purposes  of  its  crea-  signed   or  executed  by    any    person, 

tion.    And  where  a    majority  of  the  shall  be  proof  that  it  was  signed  and 

persons  to  be  affected  by  the  purposes  executed,  until  the  person  by  whom  it 

of  a  corporation  are  required  to  as-  purports  to  have  been  signed  or  exe- 

sent  to  its  organization,  it  seems  that  cuted  shall  deny  the  signature  or  exe- 

such  consent  may  be  shown  by  indi-  cution  of  the  same  by  his  oath  or  affi- 

rect  acts  of  acquiescence,  and  that  it  is  davit"  (Comp.  Stats.  Minn.,  p,  685, 

not  necessary  that  it  should  appear  §  80),  — the  articles  of  association  of 

that   a   majority    of    such      persons  au    assumed    corporation    were,     of 

actually  voted  at  an  election  of  direct-  themselves,    proof    that    they    were 

ors,  or  that  the  directors  were  elected  signed  or  executed,  until  the  persons 

by    a    majority  of    persons    actually  by  whom  they  purported  to  be  signed 

voting.    Columbia  Bottom  Levee  Co.  and  executed  denied  the  signatures  of 

V.  Meier,  39  Mo.  53.  execution  under  oath.     Pennsylvania 

1  Holmes  V.  Gilliland,  41  Barb.  (N.  Ins.  Co.  v.  Murphy,  5  Minn.  37. 

Y.)  569,  per  Leonard,  .J.  *  Abbott  v.    Omaha    Smelting   &c. 

2  Eastern     Plank      Road     Co.    v.      Co.,  4  Neb.  414,  420;  citing  Greene  v. 
Vaughn,  14  N.  Y.  540.     It  was  held  by      Dennis,  6  Conn.  302. 

133 


1  Thomp.  Corp.  §  221.]     steps  to  perfect  organization. 

prima  facie  evidence  of  user  of  the  corporate  franchises,  under 
the  rule  of  the  preceding  section.^ 

§  221.  Defective  Certificate  not  Prima  Facie  Evidence  of 
Incorporation.  —  A  certificate  which  fails  to  comply  with  the 
essentials  required  by  the  statute  will  not  be  effective  to  bring 
the  corporation  into  existence,  and  will  not  be  proof  of  its  cor- 
porate existence. 2  Thus,  where  the  governing  statute  prescribes 
that  the  certificate  shall  be  signed  by  the  stockholders,  if  it  is 
signed  by  the  directors  only,  it  is  not  suflScient,  and  the  proceedings 
thereunder,  though  in  good  faith,  are  void ;  and  there  is  no  cor- 
poration, and  a  mortgage  given  to  the  assumed  corporation  by 
one  of  its  oflicers  to  secure  a  stock  subscription,  cannot  be  en- 
forced.^ So,  where  the  governing  statute  required  that  the 
articles  of  incorporation  should,  among  other  matters,  <'  set 
forth  .  .  .  that  a  majority  of  the  members  of  such  asso- 
ciation .  .  .  voted  at  such  election,"  etc.,*  and  the 
articles  failed  to  state  this  fact,  it  was  held  that  they  were  not 
sufficient  to  constitute  the  association  a  corporation.^  If,  how- 
ever, the  object  of  the  incorporation  is  expressed  in  the  articles, 
and  is  an  object  contemplated  by  the  governing  statute,  and  the 
articles  are  substantially  in  the  form  prescribed  by  the  statute, 
and  their  provisions  indicate  an  intention  to  form  a  corporation 
rather  than  a  voluntary  association,  —  the  associates,  it  has  been 
held,  may  be  deemed  a  corporation,  notwithstanding  the  fact 
that  the  articles  do  not  conform  to  the  statute  in  some  particu- 
lars,—  e.gr.,  in  stating  the  residence  of  the  subscribers,  and  in 
referring  to  the  statute.^ 

1  Williams  v.  Bank  of  Michigan,  7  trict  of  Columbia,  §  535,  a  recorded 
Wend.  (N.  Y.)  539.  certificate  of  incorporation  of  a  reli- 

2  McCallion  v.  Hibernia  &c.  So-  gious  society  is  not  evidence  of  a  cor- 
ciety,  70  Cal.  163;  s,  c.  12  Pac.  Rep.  porate  organization,  unless  it  state  the 
114;  Fifth  Baptist  Cliurchr.  Baltimore  date  of  the  eZec^ion  or  appointment  of 
&c.  R.  Co.,  4  Mackey  (D.  C),  43;  the  trustees,  the  length  of  time  for 
People  V.  Selfridge,  52  Cal.  331 ;  Har-  which  the  trustees  were  elected  or  ap- 
ris  V.  McGregor,  29  Cal.  124.  pointed,  and  also  unless  it  is  verified 

3  Valk  V.  Crandall,  1  Sandf.  Ch.  by  an  affidavit  of  one  of  the  persons 
(N.  Y.)  179.  making  the  certificate.     Fifth  Baptist 

*  Cal.  Civ.  Code,  §  594.  Church    v.    Baltimore    &c.  R.    Co.,  4 

5  People  V.  Selfridge,  52  Cal.  331.  Mackey  (D.  C),  43. 
Under  the  Revised  Statutes  of  the  Dis-  *  Rogers    v.    Danby    Universaliat 

134 


certificate:  articles.     [1  'Jhomp.  Corp.  §  223. 

§  222.  Distinction  between  User  under  Special  Charter  and 
Compliance  with  Conditions  under  General  Law.  —  "There 
is,"  said  Sheldon,  J.,  "a  manifest  difference  where  a  corporation  is 
created  by  special  charter  and  there  have  been  acts  of  user,  and  where 
individuals  seek  to  form  themselves  into  a  corporation  under  the  provis- 
ions of  a  general  law.  In  the  latter  case,  it  is  only  in  pursuance  of  the 
provisions  of  the  statute  for  such  purpose,  that  the  corporate  existence 
can  be  acquired.  And  there  would  seem  to  be  a  distinction  between 
the  case  where,  in  a  suit  between  a  corporation  and  a  stockholder  or 
other  individual,  the  plea  of  mil  tiel  corporation  is  set  up  to  defeat  a 
Mability  which  the  one  may  have  contracted  with  the  other,  and  the 
case  of  a  suit  against  individuals  who  claim  exemptions  from  individual 
hability  on  the  ground  of  their  having  become  a  corporation  formed 
under  the  provisions  of  a  general  statute.  In  the  latter  case,  a  stricter 
measure  of  compliance  with  statutory  requirements  will  be  required  than 
in  the  former. ' '  ^ 

§  223.  Originals  Evidence  where  Statute  prescribes  Copy. — 

By  a  statute  of  North  Carolina  when  certain  things  are  done  and  the 
articles  of  incorporation  prescribed  are  recorded,  "  the  clerk,  under 
the  seal  of  the  Superior  Court,  shall  issue  letters,  declaring  said 
persons  and  their  successors  to  be,  and  henceforth  they  shall  be, 
a  corporation,  for  the  purpose  and  according  to  the  terms  prescribed  in 
said  articles,"  etc.^  Another  section  of  the  same  statute  provides  that 
"  all  such  letters  issued  under  the  authority  of  this  chapter,  and  copies 
thereof,  certified  by  the  clerk  of  the  Superior  Court  of  the  county  where 
the  same  are  recorded,  shall,  in  all  cases,  be  admissible  in  evidence,  and 
the  letters  aforesaid  shall,  in  all  judicial  proceedings,  be  deemed  py-ima 
facie  evidence  of  the  complete  organization  and  incorporation  of  the 
company  purporting  thereby  to  have  been  established."^  It  is  per- 
ceived that  this  statute  makes  two  things  evidence:  1.  Copies  of  the 
record.  2.  The  letters  of  incorporation,  which  in  substance  and  effect 
are  copies  of  the  recorded  articles  of  incorporation.  It  has  been  held  that 
the  original  record  —  that  is  the  record  book  itself,  —  is  evidence,  since 
*'  the  record  or  entry  itself  is  as  certain  and  effective  as  a  copy  of  it."  * 

Society,  I'J  Vt.  187.     Where  the  gov-  ment     was     regarded     as     directory 

erniug  statute  of  a  railroad  corpora-  merely.     Eakriglit  v.  Logansport  &c. 

tion  required  that  the  directors  should  R.  Co.,  13  Ind.  404. 

he  named  in  the  articles  of  a>socia-  ^  Bigelowv.  Gregory,  73  111. Itl4,  201. 

tion,  it  was  deemed  a  sufficient  com-  ^  Code  of  North  Car.,  §  67!i. 

pliance  with  the  requirement  that  the  '  Ibid.,  §  682. 

articles  were  adopted  at  the  time  of  *  Carolina  Iron   Co.  v.  Abernathy, 

electing  the  directors.     The  require-  94    N.    C.    545.     In    an    earlier    case 

135 


1  Thomp.  Corp.  §  226]     steps  to  perfect  organization. 

§  224.  liiteral  Compliance  with  Statute  not  Necessary  ; 
Substantial  Compliance  Sufficient.  —  A  literal  compllauce  with 
the  recitals  prescribed  by  the  statute  to  be  contained  in  the  certi- 
ficate of  incorporation  is  not  necessary.  A  substantial  compli- 
ance is  sufficient.^ 

§  225.  Substantial  Compliance  Necessary. — On  the  other 

hand,  there  is  much  authority  for  the  conclusion  that  the  exist- 
ence of  a  corporation,  formed  under  a  general  statute  which  re- 
quires certain  acts  to  be  done  before  the  corporation  can  be 
considered  in  esse,  or  before  its  transactions  can  be  regarded  as 
valid,  —  must  be  proved  by  showing  at  least  a  substantial  com- 
pliance with  the  requirements  of  the  statute. ^ 

§  226.  Distinction  between  Conditions  Precedent  and  Con- 
ditions Directory.  —  A  distinction  exists  between  precedent  or 


the  court,  against  the  objection  that 
letters  of  administration  should  be 
produced,  allowed  the  minute  record 
of  the  county  court,  showing  the  ap- 
pointment of  the  administrator,  to  be 
read  for  the  purpose  of  proving  his 
appointment,  qualification,  and  au- 
thority; and  this  was  held  proper. 
Hoskins  v.  Miller,  2  Dev.  L.  (N.  C.) 
360.  Other  cases  are  to  the  effect 
th:it,  while  authenticated  copies  of 
records  are  evidence  because  made  so 
by  statute, yet  the  originals  themselves 
are  competent  and  even  better  evi- 
dence, when  pertinent.  State  ?;."Voight, 
90  N.  C.  741.  The  originals  are  evi- 
dence under  the  principles  of  the 
common  law.  St.  Louis  Gaslight  Co. 
V.  St.  Louis,  12  Mo.  App.  573;  s  c, 
aff'd,  86  Mo.  495.  See  also  State  v. 
Hunter,  94  N.  C.  829. 

1  Ex  parte  Spring  Valley  Water 
Co.,  17  Cal.  136;  Spring  Valley  Water 
Co.  V.  San  Fnncisco,  22  Cal.  440; 
People  V.  Stockton  &c.  R.  Co.,  45  Cal. 
306,  313;  Thompson  v.  People,  23 
Wend.  (N.  Y.),  537;  Hughes  v.  Antie- 
tam  Man.  Co.,  34  Md.  316,  324.    This 

136 


rule  was  enacted  in  Louisiana  by  a 
statute  passed  as  early  as  1852 :  «'  Nor 
shall  any  mere  informality  in  organiza- 
tion have  the  effect  of  rendering  a 
charter  null,  or  of  exposing  a  stock- 
holder to  any  liability  beyond  the 
amount  of  his  stock,  provided  the  pro- 
visions of  this  act  have  been  substan- 
tially complied  with."  Louisiana  Aet 
of  1852,  p.  131,  §8.  In  Colorado  it  has 
been  said:  «' We  have  no  doubt  but 
that  in  this  State  a  substantial  compli- 
ance with  the  provisions  of  the  general 
law  is  an  essential  prerequisite  to  the 
creation  of  a  private  corporation;  and 
that  a  failure  to  comply  therewith,  in 
any  material  particular,  is  ground  for 
the  impeachment  of  corporate  exist- 
ence, in  an  appropriate  proceeding 
prescribed  by  the  proper  authority." 
People  V.  Cheeseman,  7  Colo.  376,  379, 
opinion  by  Helm,  J. 

2  Mokelumne  Hill  &c.  Co.  v.  Wood- 
bury, 14  Cal.  4l>4;  Bigelow  v.  Gregory, 
73  111.  197;  Union  Insurance  Co.  v. 
Cram,  43  N.  H.  641;  Harris  v.  Mc- 
Gregor, 29  Cal.  124. 


CONDITIONS    PRECEDENT.       [1  TllOmp.  Coi'p.    §   227. 

necessary  conditions  named  in  the  statute,  and  conditions  which 
are  merely  directory.  If  the  former  are  not  strictly  complied 
with,  there  is  no  corporation,  and  this  may  be  shown  in  a  collat- 
eral proceeding. 1  But  if  the  latter  are  not  complied  with,  the 
question  is  merely  one  between  the  state  and  the  corporation ;  it 
can  not  be  raised  in  a  collateral  proceeding.  In  a  case  often 
quoted  to  this  point  it  was  said  by  the  court,  speaking  through 
Cope,  J:  "There  is  a  broad  and  obvious  distinction  between 
such  acts  as  are  declared  to  be  necessary  steps  in  the  process  of 
incorporation,  and  such  as  are  required  of  the  individuals  seek- 
ing to  become  incorporated,  but  which  are  not  made  prerequi- 
sites to  the  assumption  of  corporate  powers.  In  respect  to  the 
former,  any  material  omission  will  be  fatal  to  the  existence  of  the 
corporation,  and  may  be  taken  advantage  of,  collaterally,  in  any 
form  in  which  the  fact  of  incorporation  can  properly  be  called 
in  question.  In  respect  to  the  latter,  the  corporation  is  respon- 
sible only  to  the  government,  and  in  a  direct  proceeding  to  forfeit 
its  charter."  ^ 

§  227.  Illustrations.  —  A  statute  of  Michigan^  permits  the  organ- 
ization of  private  corporations  for  supplying  water  to  cities,  towns  and 
villages  and  the  inhabitants  thereof,  wherever  the  municipal  authority 
shall  resolve  that  it  is  expedient  to  have  water-works,  but  inexpedient 
for  the  town  to  build  them.  No  such  corporation  can  be  organized  until 
these  conditions  have  been  strictly  fulfilled ;  and  the  municipaUty  can 
not  waive  them.  Nor  can  a  subsequent  recognition  cure  the  de- 
fect.* -  -  -  -  The  following  acts,  under  the  terms  of  various  gov- 
erning statutes,  have  been  held  conditions  2yrecedent,  without  the  doing 
of  which  there  is  no  incorporation :  —  fiUng  articles  of  incorporation 
with  the  county  clerk ;  ^  recording  them  in  the  proper  county ;  ^ 
obtaining  the   authorization  or   certificate  of   the  district  attorney  or 

*  Attorney-General  u.  Hanchett,  42  95  Mo.  106,  111;  Kaiser  v.  Lawrence 

Mich.     436;    Heiuig    v.    Adams    &c.  Savings  Bank,  56  Iowa,  103,  109. 
Manf.    Co.,    81   Ky.    300;    Abbott  v.  3  Mich.  Comp.  Laws,  g  3355. 

Omaha  Smelting  Co.,  4  Neb.  416.  ■*  Attorney-General  v.  Hanchett,  42 

2  Mokelumue  Hill  &c.  Co.  v.  Wood-  Mich.  436. 
bury,  14   Cal.  424,  426.     The  doctrine  6  Abbott    v.    Omaha    Smelting  &c. 

of  this  case  and  of  the  text  is  sup-  Co.,  4  Neb.  416. 

ported  by  the  following  cases:  Abbott  6  Childs  v.   Hnrd,  32  W.  Va.  66;  9 

V.   Omaha  Smelting  &c.    Co.,  4  Neb.  South  East.  Rep.  362. 
416;  Granby  Mining  Co.  v.  Richards, 

137 


1  Thomp.  Corp.  §  228.]     steps  to  perfect  organization. 

judge,  and  having  the  act  of  incorporation  duly  recorded ;  ^  pub- 
lishing the  articles  of  association,  and  filing  a  certificate  of  the  pur- 
poses of  the  organization. 2  _  _  _  -  But  if  a  charter  is  conferred 
upon  a  body  of  persons  named,  in  words  which  purport  that  the 
grant  is  to  take  effect  immediately^  and  there  is  also  a  proviso  that 
the  corporation  shall  commence  business  within  a  given  time,  this 
proviso  is  not  a  condition  precedent,  and  does  not  prevent  the  corpora- 
tion from  coming  into  existence  prior  to  the  time  when  it  commences 
operations,  though  it  has  been  thought  that  it  would  limit  the  duration 
of  the  corporation,  if  it  should  not  commence  operations  within  the  time 
designated.^  But  it  is  submitted  that  even  this  would  not  happen  un- 
less the  State  should  move  for  a  judgment  of  ouster.  -  -  -  -  So,  when 
Section  2  of  the  Ohio  act  to  provide  for  the  creation  and  regula- 
tion of  incorporated  companies  ^  has  been  comphed  with,  the  cor- 
porators and  their  associates  become  a  body  corporate,  and  its  exist- 
ence does  not  depend  upon  the  election  of,  or  the  right  to  elect,  direct- 
ors.^ _  _  _  _  The  same  has  been  held  of  the  failure  to  sexYQa  notice 
of  the  first  meeting  upon  each  corporator,  in  accordance  with  the  law  of 
the  State,  when  it  appears  that  the  powers  conferred  by  the  charter  have 
been  assumed  by  the  persons  by  whom  it  was  intended  they  should  be 
enjoyed ;  ^  and  so  of  the  failure  to  take  a  bond  of  the  treasurer  of  a  man- 
ufacturing corporation.'^ 

§  228.  Defects  in  the  Articles  or  Certificate  w^hich  do  not 
Vitiate.  — The  following  irregularities  in  articles  of  association  or  cer- 
tificate of  incorporation  have  been  held  not  sufficient  to  prevent  the 
incorporation:  the  failure  of  the  notary  to  certify  that  those  signing  the 
articles  of  incorporation  were  personally  known  to  him ;  ^  the  failure  of 
the  affidavit  annexed  to  the  articles  of  association  to  state  that  the  pay- 
ment of  the  ten  per  cent,  of  the  capital  stock,  required  by  the  statute, 
had  been  made  "  to  the  directors,"  and  "  in  good  faith,"  as  both  will 
be  imphed ;  ^  omitting  to  state   the  residence   of    the  corporators ;  ^^ 

^  Spencer  v.  Cooks,  16  La.  Ann.  tree,  146  Mass.  482,  486;  Newcomb  v. 
153.  Reed,  12   Allen    (Mass.),    362;    Wal- 

2  Bigelow  ??.  Gregory,    73   111.197.      worth  v.  Brackett,  98  Mass.  98. 

But  see  post,  §  244.  '  Boston  &c.  Co.  v.  Moriug,  15  Gray 

3  Cheraw&c.  R.  Co.  v  White,  14  S.      Mass.),  211. 

C.  51;  Cheraw&c.  R.  Co.  v.  Garland,  14  ^  People  v.  Cheeseman,  7  Col.  376. 

S.  C.  63.  »  Buffalo  &c.  R.  Co.  v.  Hatch,  20  N. 

4  Swan  &  C,  Oh.  St.  271.  Y.  157. 

5  Ashtabula  &c.  R.  Co.  v.  Smith,  i°  State  v.  Foulkes,  94  Ind.  493 ; 
15  Oh.  St.  328.  Rogers  v.  DanbyUniversalist  Society, 

6  McClinch  v.  Sturgis,  72  Me.    288;  19  Vt.  187. 
Braintree  Water  Supply  Co.  v.  Brain-    . 

138 


CONDITIONS  PRECEDENT.      [1  Thomp.  Corp.  §  228. 

omitting  to  refer  to  the  statute  under  which  the  corporation  is  organ- 
ized ;  ^  failing  to  navie  the  directors  in  the  articles  of  association,  where 
they  are  drawn  up  (under  a  special  charter)  with  the  view  of  being 
adopted  at  the  first  meeting  at  which  the  directors  are  to  be  elected  ;  ^ 
antedating  the  articles  of  incorporation  by  the  Secretary  of  State  at  the 
time  of  their  fihng ;  ^  signing  by  the  initial  letter  of  the  Christian  name, 
instead  of  using  the  full  prsenomen ;  ^  the  use  of  a  double  comma  (  ,  ,  ) 
following  the  name  of  a  subscriber,  under  the  name  of  a  certain  speci- 
fied locality,  for  the  purpose  of  designating  the  subscriber's  resWe?ice;  ^ 
failing  to  state  that  the  subscribers  constitute  an  existing  society  with 
rides  and  regidatinns^  or  that  the  trustees  named  were  chosen  in  accord- 
ance with  such  rules  and  regulations  ;  ^  failing  to  set  forth,  in  so  many 
words,  that  more  than  one  thousand  dollars  per  mile  have  been  sub- 
scribed, as  required  by  a  statute  providing  for  the  incorporation  of 
railway  companies,  where  the  articles  stated  that  $84,100  had  been  in 
good  faith  subscribed  and  ten  per  cent,  thereof  paid  in,  and  it  other- 
wise appeared  that  the  length  of  the  proposed  road  was  about  seventy- 
five  miles.'''  -  -  -  -  Where  the  governing  statute  requires  the 
certificate  of  incorporation  to  state  "  the  amount  of  the  capital  stock," 
this  is  sufllciently  complied  with,  for  the  purposes  of  a  collateral  pro- 
ceeding, by  a  certificate  which  states  that  "  said  capital  stock  shall 
consist  of  600  shares  at  $100  per  share."  8  _  _  _  _  Where  the 
governing  statute  provided  that  the  certificate  of  incorporation  should 
state  "the  term  of  its  existence,  not  to  exceed  forty  years,"  and  the 
certificate  stated  such  term  to  be  "  at  least  forty  years,"  this  was  held 
Bufficiently  definite,  in  an  action  against  a  stoclcholder  on  an  assess- 
ment. ^  -  -  -  -  It  is  not  necessary,  under  the  general  corporation 
act  of  Maryland  in  force  in  the  year  1870,  that  the  particular  trade 
which  a  manufacturing  company  intends  to  carry  on  shall  be  stated  in 
the  name  of  the  company,   as  recited  in  the  certificate  of  incorpora- 

^  Rogers  v.  Danby  Uuiversalist  So-  ing   the  location    of  the  road,  spec- 

ciety,  supra.  ifying     the   name    of    the     company, 

2  Eakriaht   v.  Logansport  &c.    R.  fixiug  the  amount  of  its  capital  stock 
Co.,  13  Ind.  404.  and  the  number  of  shares,   and  con- 

3  State  V.  Foulkes,  94  Ind.  493.  taining  a  promise  on  the  part  of  each 

*  State  V.  Beck,  81  Ind.  500.  subscriber  to  pay  twenty-five  dollars 
5  Steinraetz  v.  Versailles  &c.  Turn-      for    each    share    subscribed    for,  — 

pike  Co.,  57  Ind.  457.  have  been  held  a  sufficient  compliance 

*  Roman  Cath.  Orphan  Asylum  v.      with  the  statute  of  Indiana  for  the 
Abrams,  49  Cal.  455.  formation   of  such  a  company.     Wert 

'  Buffalo  &c.   R.    Co.  v.  Hatch,  20  v.  Crawfordsville  &c.  Co.,  19  Ind.  242. 
N.  Y.    157.     Articles    of    association  ^  Hughes  v.  Antietam  Man.  Co.,  34 

providing  that  the  subscribers  should  Md.  316. 
construct  a  turnpike    road,  describ-  '  Ibid.,  p.  324. 

139 


1  Thomp.  Corp.  §  339.]     steps  to  perfect  organization. 

tiou.i  _  -  -  _  Where  the  statute  required  that  there  should  be  an- 
nexed to  the  articles  of  incorporation  an  affidavit  "  setting  forth  in 
substance  that  said  amount  of  stock  has  been  subscribed,  and  that 
ten  per  cent,  in  cash  thereon  has  been  actually  and  in  good  faith  paid 
in  as  aforesaid,"  and  the  affidavit  stated  that  ten  per  cent.  "  in  cash 
had  been  actually  paid  in,"  but  omitted  the  words  "  in  good  faith," 
and  it  appeared  that  the  body  of  the  certificate  recited  that  ten  per 
cent,  of  the  amount  subscribed  had  been  actually,  "in  good  faith, 
paid  thereon  in  cash,"  and  the  certificate  and  affidavit  were  in  all  other 
respects  regular,  it  was  held  that  it  was  not  invalid,  so  that  the  State 
could  sustain  an  information  against  the  corporation  to  vacate  its  fran- 
chise, by  reason  of  the  omission  from  the  affidavit  of  the  words  "  in  good 
faith.  "2 

§  229.  Claiming  More  than  the  Law  Allows.  —  The  mere  fact 
that  the  adventurers,  in  drawing  their  articles  of  association, 
claim  greater  powers  or  privileges  than  the  governing  statute  al- 
lows, will  not  necessarily  prevent  them  from  becoming  incorpo- 
rate, since  the  law  will  reject  the  excessive  claim  as  surplusage.^ 
In  such  a  case  all  the  acts  done  in  pursuance  of  tlie  illegal  matter 
will  be  invalid,  but  the  title  of  the  corporation,  as  to  all  matters 
authorized  by  the  statute,  cannot  be  impeached  collaterally  by 
reason  of  the  illegal  matter.*  Thus,  where  the  governing  statute 
provided  among  other  things  that  the  term  of  existence  of  cor- 
porations formed  under  it  shall  not  exceed  twenty  years ,^  and 
the  articles  of  association  provided  for  a  term  of  existence  for 
the  corporation  of  fifty  years,  it  was  held,  in  a  proceeding  by  quo 
warranto ^\h^\i  this  was  no  ground  of  ouster  before  the  expiration 
of  the  twenty  years.  It  did  not  prevent  the  corporation  from 
coming  into  existence.  It  could  not,  without  renewal,  live  for 
fifty  years,  but  it  might  exercise  the  rights  and  privileges  of  a 
corporation  for  twenty  years.®  So,  the  articles  of  association  of 
a  plank  road  company,  under  a  general  law  of  New  York,'  were 
not  void  because  they  contained  a  provision  authorizing  the  di- 
rectors of  the  company  to  increase  its  capital  stock  without  the 

1  Hughes  V.   Antietam    Man.    Co.,  *  Albright  v.  Lafayette  &c.  Asso., 
34  Md.  316.                                                       102  Pa.  St.  411. 

2  People  V.   Stockton  &c.  R.  Co.,  45  ^  Colo.  Gen.  Stat.,  §  238. 

Cal.  306,  312.  «  People    v.    Cheeseman,    7    Colo. 

3  Albright  v.  Lafayette   &c.  Asso.,      376. 

102  Pa.  St.  411.  '  N.  Y.  Laws  of  1847,  ch.  210,  §  40. 

140 


certificate:  articles.     [1  Thomp.  Corp.  §  231. 

consent  of  a  majority  in  amount  of  the  stockholders,  as  required 
by  the  statute.  It  was  said  that  all  the  acts  of  the  directors  pur- 
suant to  such  a  provision  would  be  void ;  but  yet  it  was  held 
that,  the  articles  being  in  other  respects  in  accordance  with  law, 
the  existence  of  such  a  clause  did  not  prevent  the  association 
from  becoming  incorporate.^ 

§  230.  Provision  as  to  Expulsion  of  Members.  —  From  the 
very  nature  of  the  case,  no  corporation  can  prevent  a  purchaser 
of  stock  from  becoming  a  member,  when  he  purchases  the  shares 
in  the  manner  prescribed  by  the  governing  statute. ^  Nor  can 
any  action  of  such  a  corporation  prevent  its  shareholders  from 
disposing  of  their  shares  in  the  manner  prescribed  by  law,  and 
thereupon  ceasing  to  be  members  of  the  corporation.'  With  this 
conception  of  the  nature  of  joint-stock  companies  in  view,  it  is 
an  easy  transition  to  the  conclusion  that  a  clause  in  a  general 
statute  relating  to  the  formation  of  corporations,  providing  that 
the  articles  of  association  shall  state.  "  the  methods  and  condi- 
tions upon  which  members  shall  be  accepted,  discharged,  or  ex- 
pelled, "  * — does  not  apply  to  a  stock  corporation,  and  that  the 
omission  of  such  statement  from  the  articles  does  not  affect  the 
validity  of  its  incorporation;  especially  where  the  same  section 
further  provides  that,  "  in  stock  corporations,  persons  holding 
stock  according  to  the  regulations  of  the  corporation,  and  they 
only,  shall  be  members."  ^ 

§  231.  Specifying   the   Objects  of   the   Association. — The 

articles  of  incorporation  must  specify  the  objects  of  the  associa- 
tion in  substantial  compliance  with  the  governing  statute.^ 
Where  the  law  requires  the  articles  of  association  to  state  dis- 
tinctly and  definitely  the  purpose  for  which  it  is  formed,  if  they 

1  Eastern  Plank  Road  Co.  v.  ^  In  some  cases  it  is  said  that  this 
Vaughn,  14  N.  Y.  5i6.  must  be  done  in  strict  compliance  with 

2  Re  Klaus,  67  Wis.  401;  Edger-  the  governing  statute.  West  u.  Bull- 
ton  Tobacco  Man.  Co.  v.  Croft,  69  skin  Prairie  Ditching  Co.,  32  Ind.  138; 
Wis.  256,  259;  post,  §  2300.  O'Reiley  v.  Kankakee  Valley  Draining 

3  zind.  Co.,  32  Ind.  169.  But,  as  elsewhere 
*  Rev.  Stat.  Wis.  1878,  §  1772.  seen,  this  is  not  the  general  view. 
5  Edgerton  Manuf.  Co.  v.  Croft,  69      Ante,  §  224,  et  seq. 

Wis.  256;   s.  c.  31  N.  W.  Rep.  143;  2 
Rail.  &  Corp.  L.  J.  452. 

141 


1  Thomp.  Corp.  §  233.]     steps  to  rEurECX  organization. 

do  not  so  state,  or  if  they  do  not  state  a  purpose  for  which  the 
statute  authorizes  a  corporation  to  be  formed,  it  will  not  be 
legally  incorporated,  and  its  articles  will  afford  no  warrant  for 
the  exercise  of  corporate  action.^  The  purpose  and  intent  of 
the  incorporation  must  be  ascertained  solely  from  the  articles, 
and  it  has  been  said  cannot  be  aided,  varied  or  contradicted  by 
evidence  outside  the  instrument  itself  .^ 

§  232.  Illustrations.  —  Where  the  statute  provided  that  the  cer- 
tificate of  incorporation  should  set  forth  "  the  objects  for  which  the 
company  shall  be  formed,"  it  was  held  that  a  certificate  which  stated 
that  "  the  objects  for  which  the  said  company  is  formed  are  as  follows, 
namely,  the  mining  of  gold,  silver  and  lead  in  the  Territory  of  Utah," 
was  sufficient.^  _  _  _  _  Under  a  statute  requiring  the  purpose  of 
the  incorporation  to  be  distinctly  and  definitely  stated,  a  statement  that 
the  purpose  was  "  to  put  up,  pack,  and  manufacture  for  market,  Detroit 
river  and  lake  ice,  and  to  distribute  and  sell  the  same,  was  held  suffi- 
cient, in  a  proceeding  by  the  State  to  oust  the  company  of  its  franchises.'* 

« 

§  233.  Stating  the  Place  where  the  Business  of  the  Corpora- 
tion is  to  be  Carried  on.  —  Where  the  statute  provided  that  if 
the  company  is  formed  "  for  the  purpose  of  carrying  on  any  part 
of  its  business  in  any  place  out  of  this  State,  the  said  certificate 
shall  so  state;  and  shall  also  state  the  name  of  the  town  and 
county  in  which  the  principal  part  of  the  business  of  said  com- 
pany within  this  State  is  to  be  transacted,"  — it  was  held  that  a 
certificate  which  stated  that  "  the  said  company  is  formed  for 
the  purpose  of  carrying  on  some  part  of  its  business  outside  the 
State  of  New  York,  —  namely,  in  Big  Cottonwood  District, 
Utah,  and  the  name  of  the  place  in  which  the  principal  part  of 
the  business  of  said  company  is  to  be  transacted  is  in  the  city 
and  county  of  New  York,"  —  was  a  sufficient  compliance  with  tiie 
statute.^     But  a  statute   requiring  a  certificate  of  incorporation 

1  Attorney-General  v.  Lorman,  59  ^  People  v.  Beach,  19  Hun  (N.  Y.)» 
Mich.  157.  259.     The  court  said:    "  If  the  mining 

2  Ibid.;  post,  §  236.  But  see  Buf-  was  to  be  carried  on  in  this  State,  the 
falo  &c.  Co.  V.  Hatch,  20  N.  Y.  157.  name  of  the  town  would  be  a  sufficient 

3  People  V.  Beach,  19  Hun  (N.  Y.),  designation  as  to  the  particular  local- 
259.  ity.     The  statute  manifestly   contem- 

*  Attorney-General  v.  Lorman,  59  plates  only  certainty  in  this  regard  to 
Mich.  157.  a  common  intent.     The  precise,  exact 

142 


certificate:   articles.      [1  Tbomp.  Corp.  §  236. 

to  state  the  name  of  the  city,  or  town  and  county,  in  which  the 
principal  phice  of  business  is  to  be  located,  is  not  complied  with 
by  a  certificate  which  states  that  the  operations  of  the  corpora- 
tion are  to  be  carried  on  in  the  county  of  Calaveras,  State  of 
California,  because  this  does  not  state  the  city  or  the  town.^ 

§   234.  Stating  the  Manner  of  Carrying  on  the  Business.  — 

A  certificate  of  incorporation,  which  sets  forth  that  "  the  manner 
of  carrying  on  the  business  shall  be  such  as  the  association  may 
from  time  to  time  prescribe,"  is  not  a  compliance  with  a  statute 
which  requires  the  certificate  to  show  '*  the  manner  of  carrying 
on  the  business  of  said  association."  "  Such  an  organization  is 
too  loose,  indefinite,  and  uncertain.  An  association  through 
which  large  sums  of  money  are  to  be  collected  and  disbursed, 
for  benevolent  or  any  other  purposes,  should  be  constructed  on 
a  more  substantial  foundation."  ^ 

§   235.   Provision  as  to  Manner  of  Payment  of  Stock. — A 

provision  in  a  statute  that  the  "  charter  "  shall  set  forth  "  the 
time  when  and  the  manner  in  which  the  stock  shall  be  paid  for," 
is  satisfied  by  a  charter  which  requires  that  the  stock  shall  be 
paid  for  in  cash,  and  that  no  certificate  of  stock  shall  issue  until 
this  payment  is  made.^  So,  where,  under  the  same  law,  the 
charter  declared  "  that  the  stock  shall  be  paid  in  cash  at  such 
times  and  such  amounts  and  with  such  notices  to  the  subscribers 
as  the  managers  and  directors  shall  deem  best  for  all  parties  in 
interest,"  —  this  was  held  a  substantial  compliance  with  the  law.* 

§   236.  Fatal  Defects  not  Supplied  by  Parol  Evidence.  — 

Where  the  certificate  of  incorporation  is  fatally  defective  in  omit- 
ting some  essential  recital  prescribed  by  the  governing  statute, 

point  of  location  was  not  required  or  by  equally  general  reference."     People 

expected  to  be  stated,     A  town  em-  v.  Beach,  19  Hun  (N.  Y.)»  259,  2G2. 

braces  considerable  territory,  often  in  i  Harris  v.  McGregor,  29  Cal.  124. 

our  own  State,  with  a  moderately  dense  ^  State  v.  Central  Ohio  &c.  Asso., 

population,  from  thirty  to  fifty  square  29  Ohio  St.  399,  407. 

miles.    Thus,  it  is  seen  that  it  was  not  ^  New  Orleans  &c.  R.  Co.  v,  Frank, 

necessary  to  be  very  particular  in  giv-  39  La.  Ann.  707;  s.  c,  30  Am.  &  Eng. 

ing  the  place  wliere  the  business  was  R.  Cas.  275;  2  South.  Rep.  310. 

to    be    conducted.     So,    such     place,  *  Baltimore   &c.    Tel.    Co.  v.  Mor- 

when  out  of  the  State,  might  be  given  gan's  &c.  Co.,  37  La.  Ann.  883. 

143 


1  Thonip.  Corp.  §  238.]     steps  to  perfect  okganization. 

the  defect  cannot,  it  has  been  held,  be  healed  by  parol  evidence.^ 
Thus,  where  the  articles  omitted  to  state  that  a  majority  of  the 
members  of  tlie  association  were  present  and  voted  at  the  elec- 
tion of  directors,  it  was  held  that  proof  could  not  be  admitted, 
in  a  proceeding  by  the  State  to  vacate  the  franchises  of  the  cor- 
poration, that  a  majority  were  in  fact  present  and  did  so  vote.^ 
The  alleged  corporation  can  neither  make  out  its  corporate  char- 
acter, nor  enlarge  the  effect  of  the  certificate,  by  this  species  of 
evidence.^ 

§  237.  Acknowledgment   of   Articles Under  the  general 

corporation  act  of  Maryland,  in  force  in  the  year  1870,  it  was 
held  that  the  acknowledgment  of  the  certificate  of  incorporation 
by  all  the  subscribers  was  not  required.  An  acknowledgment 
by  five  or  more  was  sufficient.^  It  was  also  held  that  an  ac- 
knowledgment by  the  president  and  directors  for  the  first  year 
was  not  required.^  Some  of  the  statutory  schemes  of  organiza- 
tion contemplate  that  an  election  of  officers  shall  precede  the 
filino-  of  the  instrument  of  incorporation,  and  that  the  instrument 
shall  be  authenticated  by  the  signatures  of  the  officers  thus 
elected.*' 

§  238.  Amendment  of  the  Articles  or  Certificate.  — Upon 
principles  stated  in  a  former  chapter  with  reference  to  special 
charters,^  if  the  certificate  of  incorporation  is  materially  altered 
after  one  has  signed  it  as  subscriber  for  a  given  number  of 
shares,  without  the  consent  of  such  subscriber,  it  will  release 
him  from  his  contract  of  subscription  at  his  election,  because  it 
makes  for  him  a  different  contract  from  the  one  to  which  he  as- 
sented.^    The  charter  of   a  corporation  organized   under  a  gen- 

1  People  V.  Selfridge,  52  Cal.  331;  ing  of  a  joint-stock  company,  estab" 
Hallett  V.  narrower,  33  Barb.  (N.  Y.)  lished  by  voluntary  association  under 
537;  Attorney-General  v.  Lorman,  59  Mass.  Stat.  1851,  ch.  133,  may  sign 
Mich.  157.  the  certificate  required  by  section  4: 

2  People  V.  Selfridge,  supra.  the  requirement   of   Rev.  Stat.   Mass. 

3  Hallett  V.  narrower,  supra.  ch.  38,  §§  3,  4,  is  not  applicable  there- 
<  Hughes  u.    Antietam  Man.  Co.,  34      to.     Boston    &c.    Co.    v.    Moring,   15 

Md.  310.  Gray  (Mass.).  211. 

5  Ibid.  '  Ante,  §  l\,et  srq. 

*  Ofiicers  chosen  at  the  first  meet-  *  Burrows  v.   Smith,  10  N.   Y.  550. 

144 


AMENDMENT    OF    ARTICLES.        [1  Thomp.   Corp.   §   238. 

eral  law  is  embodied  in  its  articles  of  association  and  in  the 
general  law;  ^  and  the  articles  of  association,  cannot,  it  has  been 
said,  be  changed  without  the  unaimnous  consent  of  the  sliare- 
holders,  —  at  least  of  such  shareholders  as  have  vested  riirhts^ 
in  the  corporation.  The  question  has  arisen  in  respect  of  build- 
ing associations,  and  it  has  been  held  that  where  the  articles  of 
such  an  association  do  not  authorize  the  corporation  to  wind  up 
and  close  its  existence  short  of  eight  years,  unless  all  the  stock  is 
redeemed  at  its  value,  such  an  association  cannot  dissolve  itself, 
by  a  resolution  passed  at  a  corporate  meeting,  without  the  con- 
sent of  all  the  shareholders.^  If  the  statute  points  out  the  steps 
to  be  taken  in  order  to  amend  the  articles,  its  provisions  must  of 
oourse  be  followed.  But  if  the  statute  is  silent,  it  is  a  sound 
conclusion  tliat,  in  order  for  such  an  amendment  to  be  ofood, 
the  amended  articles  must  be  drawn  up,  signed,  acknowledged 
and  filed  as  required  by  the  statute  in  the  case  of  original  ar- 
ticles.* If  the  governing  statute  does  not  provide  for  an  amend- 
ment of  the  certificate  of  incorporation,  articles  of  association, 
or  other  instrument  of  incorporation,  any  attempted  amendment 
must  have  the  substantial  effect  of  a  reincorporation ;  so  that 
the  existence  of  the  corporation  will  date  from  the  amendment, 
and  will  not  date  by  relation  from  the  filing  of  the  original  and 
abortive  instrument.^  The  reasoning  is  that,  if  the  defects  are 
radical,  the  original  instrument  is  wholly  inoperative  and  void, 
and  affords  no  basis  for  an  amendment  without  the  aid  of  an  en- 
abling statute.  This  reasoning  would  not,  it  is  assumed,  prevent 
the  amendment  of  the  articles  from  taking  effect  by  relation,  in 
respect  of  omissions  not  of  an  essential  or  radical  character. 
Where  the  governing  statute  ^  provides  that  the  original  articles 
shall  be  recorded  in  a  certain  way,  and  another  section  of  the 
same  statute  ^  authorizes  the  amendment  of  the  original  articles 
for  any  purpose  which  might  have  been  provided  therein,  and 
requires  that  a  certificate  of  such  amendment,  executed  as  speci- 

1  Ante,  §  216.  Iiis.  Co.,  75  Iowa,  694;    38  N.  W.  Rep. 

2  Bergman  v.  St.  Paul  &c.  Asso.,  29      113;  18  Ins.  L.  J.  750. 

Minn.  275.  «  Matter  of  N.  Y.  Cable  R.  Co.,  109 

*  Barton  v.  Enterprise  &c.  Asso.,      N.  Y.  32. 

114     Ind.  226;    s.  c.  5    Am.    St.    Rep.  «  Here,  Rev.  Stat.  Wis.,  §   1772. 

«08.     See  Endlich  Build.  Asso.  §  479.  '  Ibid.,  §  1774. 

*  Day  V.   Mill   Owners'    Mut.  Fire 

10  145 


1  Thomp.  Corp.  §  239.]     steps  to  perfect  organization. 

fied  in  that  section,  shall  be  recorded  in  the  office  where  the 
original  articles  are  recorded,  —  it  is  held  that  an  amendment 
increasing  the  capital  stock  is  inoperative  until  the  certificate  of 
amendment  is  left  for  record  with  the  register  of  deeds  of  the 
proper  county.^ 

§  239.  Filing,  Publishing  and  Recording  Articles.  —  Where 
a  general  law  provides  that  persons  may  become  a  body  politic 
and  corporate  ui)on  cora[)lying  with  the  provisions  of  the  law, 
one  of  which  is  that,  before  any  such  corporation  shall  commence 
business,  its  articles  of  association  shall  be  published  in  a  certain 
way,  and  the  certificate  of  the  purposes  of  the  organization  shall 
be  filed  in  certain  public  offices,  the  performance  of  these  acts 
is  a  necessary  prerequisite  to  the  existence  of  such  corporation, 
for  the  purpose  of  relieving  the  corporators  from  individual  lia- 
bility.^ It  has  been  said  that  the  mere  signing  of  articles  of  as- 
sociation by  parties  proposing  to  form  a  manufacturing  corpora- 
tion, does  not  create  such  a  corporation.  The  subscribers  must 
also  make,  sign  and  acknowledge  the  certificate  of  incorporation 
prescribed  by  the  governing  statute,  and  must  file  the  same  in 
the  recorder's  office  of  the  proper  county,  as  there  required,  and 
must  also  file  a  duplicate  thereof  in  the  office  of  the  Secretary  of 
State.  Until  these  steps  have  been  taken,  in  one  view,  the  cor- 
poration has  no  legal  existence.'  So,  in  Illinois  the  act  of  re- 
cording the  certificate  with  the  recorder  of  the  county  is  regarded 
as  a  necessary  and  final  act  which  gives  to  the  organization  its 
corporate  life,  and  endows  it  with  its  corporate  franchises  and  fac- 
ulties; and  until  this  is  done  there  is  no  corporation  capable  of 

1  Wood  V.  Union  Gospel  Church  Indianapolis  &c.  Mining  Co.  v.  Her- 
&c.  Asso.,  63  Wis.  9,  13.  And,  iuci-  kimer,  46  Ind.  H2;  Clegg  v.  Hamilton 
dentally,  it  is  held  that  a  complaint  &c.  Co.,  61  Iowa,  121;  Kaiser  v.  Sav- 
averring  that  such  certificate  has  not  ings  Bank,  56  Iowa,  104 ;  Cresswell  v. 
been  filed  is  equivalent  to  an  aver-  Oberly,  17  Bradw.  (Ill)  281;  Field  u. 
ment  that  it  has  not  been  left  for  Cooks,  16  La.  An.  153;  Garnett  v. 
record.     Ibid.  Richardson,    35    Ai-k.    144;     Hurt    v. 

2  Bigelow  V.  Gregory,  73  111.  197;  Salisbury,  65  Mo.  310;  Childs  «.  Hurd, 
overruling,  it  seems,  Cross  v.  Pinck-  32  W.  Va.  66;  s.  c.  9  South  East.  Rep. 
neyville  &c.  Co.,  17   111.  54;   Diversey  362. 

U.Smith,  103  111.  378;  Gentv.  Manu-  ^  Indianapolis   &c.    Mining   Co.   v. 

facturers   &c.  Ins.  Co.,    107    111.  652;      Herkimer,  46  Ind.  142. 
Ricker  w.  Larkin,  27  Bradw.  (Til.)  625; 

146 


TILING    WITH    SECRETARY    OF    STATE.        [1  Thomp.  Coip.    §   240. 

transacting  business  or  incurring  liabilities.^  So,  where  a  cor- 
poration, instead  of  publishing  the  7ioiice  required  by  the  govern- 
ing statute,^  published  its  articles  of  incorporation,  and  it  did  not 
appear  from  them  when  the  corporation  was  to  begin  and  end, 
nor  where  its  principal  phice  of  business  was  to  be,  —  it  was  held 
that  this  was  not  a  substantial  compliance  with  the  statute,  and 
that  the  stockholders  remained  liable  for  the  debts  of  the  concern 
as  partners.^  But  the  delivery  of  the  articles  to  the  officer  whose 
duty  it  is  to  put  them  on  file,  may  be  proved  by  evidence  other 
than  his  indorsement.*  The  date  of  filing  is  no  part  of  the  arti- 
cles, and  therefore  may  be  proved  by  parol,  regardless  of  the 
statute  provision  for  the  proof  of  the  articles.^  The  failure  of 
the  probate  judge,  upon  request,  to  make  the  statutory  certifi- 
cate, does  not,  in  Alabama,  prevent  the  corporation  from  coming 
into  existence,  if  the  proper  antecedent  steps  have  been  taken.® 

§  240.  Filing    Copy    with    Secretary    of    State,  etc.  —  But 

where  the  other  steps  required  by  the  statute  are  complied  with, 
the  failure  to  file  with  the  Secretary  of  State  a  duplicate  or  copy 
of  the  certificate  or  articles  of  incorporation,  will  not  vitiate  the 
organization.^  But  here,  as  in  other  cases,  the  language  of  the 
governing  statute  must  be  carefully  kept  in  view.^  Thus,  under 
a  statute  of  Missouri,  which  made  it  the  duty  of  the  officers  of 
the  intended  corporation  to  file  a  copy  of  the  articles  of  associa- 
tion with  the  Secretary  of  State,  and  which  provided  that  "the 
corporate  existence  of  such  corporation  shall  date  from  the  time 

»  Cresswell  v.   Oberly,   17  Bradw.  Man.  Co.,  37  Minn.  91;  s.  c.  33  N.  W. 

(Ill-)  281.  Rep.  219;  First  Nat.  Bank  u.Davies,  43 

2  Code  of  Iowa,  §  10C3.  Iowa,  424;  Balder  v.  Neff,  73  Ind.  08; 

3  Clegg  V.  Hamilton  &c.  Co.,  61  Williamson  v.  Koljomo  &c.  Asso.,89 
Iowa,  121.  Ind.  390.;  Portland  &c.  Turnpike  Co. 

*  Johnson  v.  Crawfordsville  &c.  R.  v.  Bobb,  88  Ky.  226;  s.c.  10  S.  W.  Rep. 
Co.,  11  Ind.  280.  Tliat  this  is  the  794;  Guadalupe  &c.  Asso.  t'.  West,  70 
proper  conception  of  a"flllng,"  see  Tex.  391;  Van  Pelt  v.  Association, 
Engleman  v.  State,  2  Ind.  91.  79   Ga.  439.     Compare   Spring  Valley 

*  Ibid.  Water  Works   v.    San  Francisco,   22 
«  Sparks  U.Woodstock  Iron  &  Steel      Cal.  434.     The  Illinois  cases  are  dis- 

Co.,  87  Ala.  294;  6  South.  Rep.  195.  tinguished   in  Bigelow  v.  Gregory,  73 

'  Mokelurinio  Hill&c.  Co.  v.  Wood-      111.  197,  201. 
bury,  14  Cal.  424;  Cross  v.  Pinckuey-  **  As   was   pointed   out   in   Grauby 

villc  Mill  Co.,  17  111.  54;  Hyde  v.  Doe,      Mining  Co.  v.  Richards,  95  Mo.  106. 
i   Sawy.    (U.  S.)   133;    Re    Shiikopee 

147 


1  Thomp.  Corp.  §  241.]     steps  to  perfect  organization. 

of  filing  said  copy  of  such  articles,"  — it  was  held  that,  until  the 
officers  took  this  final  step,  the  corporation  did  not  exist,  and 
had  no  power  to  execute  a  written  obligation,  and  that  such  pre- 
tended obligation  could  not  be  made  the  foundation  of  an  action 
against  the  supposed  corporation.^ 

§  241.  Illustrations.  —  Where  the  governing  statute  provides  that 
"  the  corporation  may  commeuce  business  as  soon  as  the  articles  are 
filed  for  record  in  the  office  of  the  county  court  clerk,"  its  organization 
is  not  invalidated  by  its  failure  to  comply  with  another  portion  of  the 
statute  which  requires  the  filing  of  a  copy  of  its  articles  in  the  office  of 
%\xQ.  Secretary  of  State  wiihm  three  mouths;  since  the  statute  evidently 
intends  that  it  shall  commence  business  as  a  corporation  as  soon  as  the 
articles  are  filed  in  the  clerk's  office.''^  _  _  _  _  go,  where  the  terms 
of  a  special  act  of  incorporation  are, —  "  when  such  special  company 
or  companies  are  created  and  organized,  a  certificate  shall,  in  writing, 
be  filed,"  etc.,  — here  the  literal  reading  of  the  statute  imports  that  the 
corporation  shall  be  organized  first,  and  that  the  filing  of  the  certificate 
is  a  subsequent  duty  to  be  performed  by  its  officers.  In  such  a  case 
the  failure  to  file  the  certificate  is  not  fatal  to  the  existence  of  the  cor- 
poration, and  cannot  be  raised  in  a  collateral  proceeding  questioning 
the  existence  of  the  corporation. ^  _  -  -  _  So,  a  statute  of  Minne- 
sota,* provides  that,  "  before  any  corporation,  formed  and  established 
by  virtue  of  the  provisions  of  this  act,  shall  commeuce  business,  the 
president  and  directors  thereof  shall  "  do  certain  things,  among  others 
deposit  with  the  Secretary  of  the  State  a  duplicate  copy  of  its  certificate 
of  incorporation.  But,  as  a  subsequent  section  of  the  same  statute,^ 
imposes  a  personal  hability  on  the  officers  of  ' '  such  corporation  ' '  for 
failing  to  perform  this  duty,  —  it  was  justly  concluded  that  the  legisla- 
ture did  not  intend  that  the  corporation  should  not  exist  until  this  had 
been  doue.^  _  _  _  -  So,  in  an  action  by  a  banking  association  in 
New  York,  the  original  certificate,  recorded  in  the  county  clerk's  office, 
with  proof  that  the  association  had  done  business  and  issued  bills  which 

1  Hurt  V.  Salisbury,  55  Mo.  311.  ^  Granby  Mining  &c.  Co.  v.  Ricli- 
See   also  Richardson  v.  Pitts,  71  Mo.      ards,  it5  Mo.  106. 

128.     As  to  the /ees  to  be  paid  on  such  *  Minn.  Gen.  Stat.  1881,  chap.  34, 

filing:    Gen.     Laws   Minn.    1889,   ch.  §28. 

197;    Laws  Colo.  1885,  p.  153;    con-  ^  n^ia.,  §  141. 

strued   in  Edwards  v.  Denver  &c.  K.  «  Re  Shakopee  Man.  Co.,  37  Minn. 

Co.,  13  Colo.  59;  s.c.  21  Pac.  Rep.  1011.  91;  s.  c.   33   N.  W.  Rep.  219.     To  the 

2  Walton  V.  Riley,  85  Ky.  413;  s.  c.  same  point  under  the  Wisconsin  stat- 
3S.  W.  Rep.  605  (overruling  Heinig  ute,  see  Harrod  v.  Hamer,  32  Wis.  162. 
V.  Adams  &c.  Co.,  81  Ky.  300). 

148 


RECORDING.     [1  Thomp.  Corp.  §  243. 

were  countersigned,  is  sufficient  evidence  of  its  due  organization, 
without  direct  proof  that  the  certificate  of  incorporation  was  filed  in  the 
office  of  the  Secretary  of  State.  ^ 

§   242.  Recording  in  the  Wrong  Book It  has  beei  held, 

and  on  grounds  which  seem  obviously  correct,  that  the  oro-ani- 
zation  of  a  corporation  is  not  invalidated  from  the  fact  that  the 
clerk  of  the  county  court,  in  whose  oflSce  the  articles  are  lodo-ed 
for  record,  commits  the  mistake  of  recording  them  in  the  wrong 
book,  —  as,  for  instance,  in  the  book  provided  by  law  for  the 
recording  of  deeds. ^ 

§  243.  Fraudulent  and  Surreptitious  Recording A  pri- 
vate corporation  can  only  be  created  through  the  vohmtajy  action 
of  its  projectors  in  accepting  a  grant  of  franchises  from  the 
State.  This  voluntary  action  is  in  the  nature  of  a  contract  among 
the  projectors.  This  necessarily  implies  that,  unless  the  pro- 
jectors asse7it  to  the  doing  of  the  acts  necessary  to  call  the 
corporation  into  existence,  it  does  not  exist.  As  fraud  vitiates 
all  engagements,  if  one  of  the  essential  steps  prescribed  by  law 
is  taken  by  one  of  the  projectors  fraudulently  and  without  the 
consent  of  the  others,  so  that  the  corporation  in  fact  appears  to 
exist,  but  is  in  appearance  called  into  existence  prior  to  the  time 
when  the  corporators  intended  that  its  existence  should  com- 
mence,—  and  if  these  things  are  shown  in  an  appropriate 
judicial  proceeding,  it  will  be  held  that  there  is  no  corporation. 
Thus,  under  a  statute  of  Illinois,  where  it  is  held  that  the  re- 
cording of  the  certificate  of  organization  in  the  office  of  the 
recorder  of  deeds  is  a  prerequisite  to  the  organization  of  the 
corporation,^  it  has  been  also  held  that,  where  such  paper  is 
fraudulently  and  surreptitiously  recorded  by  one  of  the  pro- 
jectors, contrary  to  the  agreement  had  among  themselves,  the 
record  is  of  no  effect,  and  the  corporation  is  not  brought  into 
existence.* 


1  Leonardsville  Bank  v.  Willard,  25  625.     Where  a  deed  has  been  obtained 
N-  Y.  674.  surreptitiously  and  phiced  upon  record 

2  Walton  V.  Riley,  85  Ky.  413;  s.  c.  by  the  grantee   nothing   short   of  an 
3S.  W.  Rep.  COo.  explicit  ratification  of  it,  or  of  such 

'  -Ante,  §  239.  acquiescence,   after  a    knowledge  of 

*  Ricker  ».  Larkin,  27  Bradw.  (111.)  the  facts,  as  would  raise  a  presump- 

149 


1  Thomp.  Corp.  §  246.]     stkps  to  perfect  okgaiNizaiion. 

§  244.  Nou-coinpliance  with  Provisions  Directing  Publica- 
tion of  Articles.  — Many  of  the  statutes,  with  the  view  of  giving 
publicity  to  the  fact  of  the  organization  of  the  corporation,  pre- 
scribe tliat  the  certiticate,  which  sets  forth  its  objects  and 
purposes,  shall  be  published  in  certain  newspapers,  or  in  some 
other  way.  Perhaps  the  statute  of  Minnesota,^  may  be  referred 
to  as  a  type  of  such  statutes.  It  provides  that  *'  before  any 
corporation,  formed  and  established  by  virtue  of  the  provisions 
of  this  act,  shall  commence  business,  the  president  and  directors 
thereof,  shall  cause  their  articles  of  association  to  be  published 
at  full  length,  in  two  newspapers  published  in  the  county  in  which 
such  corporation  is  located,  or  at  the  capital  of  the  State."  The 
act  of  which  this  is  a  part  relates  to  the  organization  of  manu- 
facturing corporations.  The  making  of  such  a  publication  is 
not  a  condition  precedent  to  the  coming  into  existence  of  the 
corporation. 2 

§  245.  Provision  as  to  Assent  and  Approbation  of  a 
Jvidgc. —  A  statute  ^  relating  to  the  organization  of  benevolent,  charita- 
ble and  other  like  societies,  authorized  five  or  more  persons  to  make, 
sign,  acknowledge  or  file  a  certain  certificate  and  added  that  the  certifi- 
cate should  not  be  filed  unless  by  the  written  consent  and  approbation 
of  a  justice.  It  was  held  that  the  Secretary  of  State  was  not,  under  a 
just  interpretation  of  the  statute,  concluded  from  questioning  the 
objects  of  the  society,  by  the  fact  that  it  had  secured  the  written  con- 
sent and  approbation  of  the  proper  justice  of  the  Supreme  Court,  as 
provided  by  the  statute.  It  was  accordingly  held  that  he  might  refuse 
to  file  in  his  office  a  certificate  of  the  incorporation  of  the  stated  num- 
ber of  persons,  expressing  the  objects  of  the  incorporation,  though  in 
due  form  under  the  statute,  and  having  such  consent  and  approbation 
indorsed.* 

§  246.  Subscription  of  the  Whole  Amount  of  the  Capital 
Stock.  — A  subscription  of  the  whole  amount  of  the  capital 
stock  is  not  a  condition  precedent  to  the  legal  existence  of  the 

tion  of  an  express  ratification,  can  give  ^  jjolmes    v,   Gilllland,    41     Barb, 

it    vitality.     Hadlocli  v.   Hadlock,  22  (N.  Y.)  5(i8. 

111.  384.     See  also  Illinois  &c.   R.  Co.  ^  n.  y.  Act  of  1848,  chap.  349. 

V.  McCullough,  .59  111.  166.  *  People  v.  Nelson,  3  Lans.  (N.  Y.) 

1  Rev.  Stat.  Minn.    1881,  chap.   34,  394;  «.  c.   10  Abb.  Pr.  (n.  s.)  (N.  Y.) 

§  128.  200;  s.  c.  affirmed,  4G  N.  Y.  477. 

150 


SUBSCRIPTION  OF  WHOLE  CAPITAL.     [1  Thomp.  Corp.  §  246. 

corporation,  unless  it  is  made  such  in  terms  by  the  governing 
statute.^  Under  a  statute  making  it  an  essential  prerequisite  to 
the  valid  organization  of  a  corporation  that  stock  to  a  certain 


1  Schenectady  &c.  Plank  Road  Co. 
V.  Thatcher,  UN.  Y.  102;  Hami  ton 
&c.  Plank  Road  Co.  v.  Rice,  7  Barb. 
(N.  Y.)  166;  Waterford  &c.  R.  Co.  v. 
Dalbiac,  20  L.  J.  Exch.  227;  s.  c.  4 
Eng.  L.  &  Eq.  455 ;  Johnson  v.  Kessler, 
76  Iowa,  411;  s,  c.  41  N.  W.  Rep.  57. 
See,  also,  Ernst  v.  Water-works  Co., 
39  La  Ann.  550;  State  v.  Railroad  Co., 
24  Neb.  143;  Appeal  of  Scranton  Elec- 
tric Light  &  Heat  Co.,  122  Pa.  St.  154; 
State  V.  Canal  Co  ,  40  Kan.  96.  It  is 
obvious  that  if  the  terras  of  the  statute 
render  the  filling  up  of  the  subscrip- 
tion list  necessary  to  enable  the  com- 
pany to  make  calls,  until  the  stock  is 
all  filled  up  they  can  not  maintain  an 
action  upon  a  subscription.  Nor- 
wich &c.  Nav.  Co.  V.  Theobald,  1 
Mood.&  Malk.  151;  Salem  Mill  Dam 
Corp.  V.  Ropes,  9  Pick.  (Mass.)  187; 
s.  c.  6  Pick.  (Mass.)  23;  post,  §  ; 
Central  Turnp.  Corp.  v.  Valentine,  10 
Pick.  (Mass.)  142.  Where  the  act  of 
incorporation  of  a  bank  provided, 
*'that  the  capital  stock  of  said 
corporation  may  consist  of  five  hun- 
dred thousand  dollars,  divided  into 
shares  of  ten  dollars  each,  and  shall 
be  paid  in  the  following  manner, 
that  is  to  say:  one  dollar  on  each 
share  at  the  time  of  subscribing,  one 
dollar  on  each  share  at  sixty  days, 
and  one  dollar  on  eacli  share  ninety 
days  after  the  time  of  subscrib- 
ing; the  remainder  to  l)e  called 
for  as  the  president  and  direct- 
ors may  deem  proper," —  it  was  held 
that  it  was  not  a  condition  precedent 
to  the  corporate  existence  of  the  bank 
that  the  whole  potential  stock  should 
be  subscribed  for.  Minor  v.  Mechan- 
ics Bank,  1  Pet.  (U.  S.)  46,  63.  A 
bank  incorporated  with  the  privilege 
of  creating  a  stock  of  not  less  tlian  one 


sum,  nor  greater  than  another,  may 
commence  business  with  the  smaller 
capital,  and  afterwards  increase  it  to 
the  larger.  Gray  v.  Portland  Bank,  3 
Mass.  364.  The  certificate  required 
by  Mass.  Stat.  1851,  ch.  133,  §  4,  may 
be  filed  in  the  office  of  the  Secretary  of 
the  Commonwealth,  before  any  part 
of  the  capital  stock  is  paid  in.  Boston 
&c.  Co.  V.  Moring,  15  Gray  (Mass.) 
211.  Under  the  statutes  of  Texas,  a 
legal  organization  of  a  corporation 
may  take  place  although  its  stock  may 
not  be  subscribed  pr  paid  for.  When 
a  corporation  files  itsarticlesof  asso- 
ciation with  the  Secretary  of  State,  it 
becomes  a  corporation  in  hiw,  aud  the 
owners  of  the  stock  and  the  managers 
of  its  business  can  not  be  held  liable 
as  partners  for  its  debts.  National 
Bank  v.  Texas  Investment  Co.,  74  Tex. 
421;  s.  c.  12  S.  W.  Rep.  101;  citing: 
Powder  Co.  v.  Siusheimer,  46  Md.  315; 
Society  Perun  v.  Cleveland,  43  Ohio 
St.  481,  3  N.  E.  Rep.  357;  Bank  v. 
Almy,  117  Mass.  476.  The  Nebraska 
general  incorporation  act  does  net 
authorize  corporations  formed  under 
it  to  commence  business  before  the 
whole  capital  stock  has  been  sub- 
scribed, and  until  this  is  done  they 
cannot  maintain  an  action  on  a  stock 
subscription.  Liveseyw.  Omaha  Hotel 
Co.,  5  Neb.  50.  Compare  New  Haven 
&c.  R.  Co.  V.  Chapman,  38  Conn. 
.W.  A  corporation  which  has  been 
duly  organized,  in  pursuance  of  the 
laws  of  Kansas,  has  the  power  to 
transact  such  business  as  its  charter 
contemplates,  although  the  entire 
amount  of  the  capital  stock,  as  fixed 
l)y  the  charter,  has  not  yet  been  sub- 
scribed for  or  taken.  Massey  v.  Citi- 
zens' Building  &c.  Assoc,  22  Kan. 
G2t.  Not  uecessary,  under  Alabama 
151 


1  Thomp.  Corp.  §  347.]     steps  to  perfect  organization. 

amount  shall  be  subscribed,  the  subscriptions  must  have  been 
made  in  good  faith  by  persons  having  a  reasonable  expectation 
of  being  able  to  pay,  in  order  to  show  a  corporate  organization 
in  a  proceeding  by  quo  warranto.^  But  where  the  question  of 
the  regularity  of  the  organization  is  raised  in  a  collateral  pro- 
ceeding, it  is  not  admissil)le  to  show  the  insolvency  of  sub- 
scribers to  the  stock,-  —  as  in  a  suit  by  the  corporation  upon  aa 
unconditional  subscription  to  its  stock. ^  But  there  are  cases 
which  hold  that  an  assessment  against  a  subscriber  to  stock  can- 
not be  collected  until  the  minimum  amount  required  by  the 
statute  has  been  subscribed,  by  persons  apparently  able  to  pay. 
In  such  cases  the  subscriptions  of  insolvents  and  of  persons  in- 
capable of  contracting  are  not  counted  in  arriving  at  the  amount.* 

§  247.  Payment  of  a  Certain  Amount  of  Capital  Stock.  — 

Many  of  the  statutes  provide  that  a  certain  percentage  of  the 
capital  stock  named  in  the  articles  of  association  must  be  paid  in 
before  the  articles  are  filed.  According  to  one  view  the  pay- 
ment of  this  amount  is  not  a  condition  precedent  to  incorporation, 
such  as  will  be  available  in  a  collateral  proceeding.^  Clearly  this 
is  so  where,  by  the  terms  of  the  governing  statute,  the  actual 
payment  of  the  capital  is  not  required  to  precede  the  making  and 
filing  of  the  certificate.  In  such  a  case  if  a  certificate,  regular  in 
form,  has  been  made  and  filed,  this  will  establish  the  existence 
of  the  corporation  as  to  third  persons.^  Again,  where  something 
is  required  to  be  done  by  the  governing  statute  within  a  stated 
period,  and  the  corporation  enters  upon  its  business  and  con- 
tinues in  business  as  a  corporation  for  a  long  time  thereafter, — 
it  will  be  presumed,  in  an  action  by  the  corporation  on  a  note 
given  for  shares  of  its  stock,  that  the  thing  required  by  the  stat- 
ute has  been  done.^     Where  the  thing  required  by  the  statute  to 

statute,  that  the  written   declaration  ^  Lewey's  Island  R.  Co.  v.  Bolton» 

should  provide   that  the  unpaid  por-  48  Maine,  451;  Phillips  v.   Covington 

tion   be   secured  to  be  paid  in   fixed  &c.  Brid^^e  Co.,  2Met.  (Ky.)  219. 
installments :  Boiling  u.  Le  Grand,  87  «  Eastern      Plank     Road      Co.     v. 

Ala.  482;  s.  c.  6  South.  Rep.  332.  Vaughan,  14  N.  Y.  546;  post,  §  1216. 

1  Holman  v.  State,  105  Ind.  5G9.  «  Palmer  ■;;.  Lawrence,  3  Sandf.  (N. 

2  Ibid.  Y.)  161. 

3  Miller  v.  Wild  Cat  Gravel  Road  '  Agricultural  Bank  v.  Burr,  24  Me. 
Co.,  52  Ind.  51.  256,  265. 

152 


PAYMENT    OF    CAPITAL.        [1  Thomp.   Covp.    §   247. 

be  done  was  the  payment  into  the  treasury  of  the  corporation  of 
fifty  per  cent,  of  its  capital  stock,  in  gold  or  silver,  within  six 
months  after  receiving  its  charter,  the  certificate  of  the  commis- 
sioners was  evidence  that  it  had  been  done.^  Since  a  substantial 
compliance  with  the  conditions  of  the  statute  is  all  that  the  law 
requires,  except  in  the  case  of  conditions  precedent,^  it  is  gener- 
ally held  that,  where  the  governing  statute  requires  a  certain 
percentage  of  the  stock  to  be  paid  in,  it  will  be  sufficient  that  the 
aggregate  sum  produced  by  such  percentage  is  paid  in,  and  it 
will  be  immaterial  by  whom  it  is  paid.^  Where  the  charter  of  a 
corporation  requires  the  payment  of  its  capital  stock  in  cashy 
and  a  subscriber,  with  the  connivance  of  the  directors  and  in 
fraud  of  the  statute,  executes  his  promissory  notes  to  the  corpora- 
tion in  settlement  of  his  subscription,  a  court  of  equity  will 
not  relieve  him  from  the  payment  of  the  notes,  on  the  ground 
that  the  corporation  had  no  power,  under  its  charter,  to  accept 
notes  in  payment  of  stock  subscriptions.  In  such  a  case  what- 
ever shift  or  device  is  resorted  to  for  the  purpose  of  evading  the 
provisions  of  the  act  of  incorporation,  *'  a  court  of  chancery  will 
never  permit  it  to  be  set  up  to  defeat  a  recovery  on  those  notes 
for  the  benefit  of  the  creditors  of  the  corporation,  who  are  en- 
titled to  be  first  paid  out  of  the  trust  property."  * 

1  Ihid.  the  said  company  may  organize   and 

2  Ante,  I  224.  proceed  to  work."     It  was   lield  that 

3  Thus,  under  the  general  statute  of  this  requirement  was  sufficiently  com- 
New  York  authorizing  the  formation  plied  with  when  $100,000  was  sub- 
of  railroad  corporations,  the  condition  scribed,  and  a  sum  in  gross  paid  in 
precedent  to  incorporation,  that,  for  equal  to  $1  upon  every  share  sub- 
every  mile  of  road,  there  must  be  not  scribed.  Spartanburg  &c.  R.  Co.  v. 
less  than   $1,000    of  the  stock   sub-  Ezell,  14  S.  C.  281. 

scribed,  and  10  per  cent,  paid  thereon  in  ■*  McLaren  v.  Pennington,  1   Paige 

good  faith,  is  satisfied  if  the  cash  pay-  (N.   Y.),    102,   112;   post,  §1220.   The 

ments,  by  whomsoever  made,  amount  provisions    of    the    Georgia  Code    (g 

in  the  aggregate  to  10  per  cent,  upon  1G76),  that  corporations  sliall  not  com- 

01,000  for  every  mile  proposed  to  be  mence  business  until  ten  per  cent,  of 

made.    Lake  Ontario   R.   Co.  v.  Ma-  the  capital  stock  has  been  paid  in,  and 

son,  16  N.  Y.  451.     So,  a  railroad  com-  that  charters  sliall  have  no  force  after 

pany  was,  by  the  legislature  of  South  two    years    unless  action  shall   have 

Carolina,  created  *'  a  body  politic  and  been  taken,  etc.,  apply  only  to  charters 

corporate."     A  subsequent  section  of  granted  by  the  courts,  not  to   those 

the  charter  enicted  "  that  when  $100,-  granted  by  the  legislature.     Atlanta  v. 

000 shall  have  been  subscribed,  and  $1  Gate  City  Gas-Light  Co.,  71  Ga.  lOG. 
on  each  share  shall  have  been  paid  in, 

153 


1  Thomp.  Corp.  §  349.]     steps  to  perfect  organization. 

§  248.  Certificate  of  Treasury  Board,  Comptroller  of  Cur- 
rency, etc.,  Conclusive.  —  Under  a  Canadian  statute  which  makes 
the  doing  of  certain  things  and  the  certificate  of  the  treasury  board 
that  those  things  have  been  done,  a  prerequisite  to  the  organiza- 
tion of  a  corporation,  it  is  not  competent,  in  winding  up  a  corpora- 
tion and  in  settling  a  list  of  the  contrihutories,  for  the  sharehold- 
ers to  impeach  the  certificate  of  the  treasury  board  under  which 
the  corporation  commenced  business.  Such  a  certificate  is  not 
only  prima  facie,  but  conclusive  evidence  that  all  previous  req- 
uisites have  been  complied  with.^  It  has  been  held  that,  even 
should  the  public  officer  appointed  by  law  to  grant  such  a  certifi- 
cate, miscount  the  shares,  where  there  was  not  the  statutory  num- 
ber, and  so  grant  the  certificate,  it  could  not  therefore  be  im- 
peached.^  In  like  manner,  under  the  United  States  Banking 
Act,  which  provides  that  banking  companies  shall  not  commence 
business  until  they  obtain  a  certificate  from  the  comptroller  of 
the  currency,  the  validity  of  this  certificate  cannot  be  questioned 
in  a  collateral  proceeding,  but  it  is  conclusive  evidence  of  the 
organization  of  the  bank,  as  against  everybody  except  the  gov- 
ernment.^  The  reason  is  that  where,  by  reason  of  such  a  certifi- 
cate, a  corporation  is  held  out  to  the  world  as  ready  to  undertake 
business,  most  disastrous  consequences  would  follow  to  com- 
mercial undertakings,  if  any  person  was  allowed  to  go  back  and 
enter  into  an  examination  of  the  circumstances  attending  the 
original  incorporation.* 

§  249.  Letters-Patent  of  Incorporation  Conclusive  Evidence 
of  Corporate  Existence.  —  lu  Canada,  a  similar  rule  applies  to  letters- 
patent  incorporatiug  a  company,  —  such  letters-patent  being  held  to  be 
conclusive  evidence  that  all  the  preliminary  statutory  requisites  to  in- 
corporation have  been  comphed  with.^ 

1  Re  Central  Bank  of  Canada,  25  <  Oakes  v.  Turquand,  L.  R.  2  H.  L. 
Can.  L.  J.  238.                                                 325;  Peel's  Case,  L.  R.  2  Ch.  684. 

2  Bird's  Case,  1  Sim.  (N.  S.),  47.  ^  Lake  Superior  Co.    v.  Morrison, 
»  Casey  v.  Calli,  94  U.  S.  673.                22  Can.  C.  P.  224. 

154 


RENEWAL  OF  CHARTER.     [1  Thomp,  Corp.  §  255. 


CHAPTER    YII. 


REORGANIZATION. 


Section 

255.  Effect  of  renewal  of  charter. 

256.  Distinction  between  ttie  revival 

of  an  old  corporation  and  the 
creation  of  a  new  one. 

257.  Franchise   to  be    a    corporation 

not  the  subject  of  judicial  sale. 

258.  Statutory  provisions  under  which 

the  reorganized  company  suc- 
ceed to  the  franchises  of  the  old. 

259.  Further  statutory  provisions. 

260.  These  schemes     of    reorganiza- 

tion favored. 

261.  Effect    of     reorganization  after 

mortgage  foreclosure. 

262.  Special  privileges    of  antecedent 

companies  pass  to  new. 

263.  New     corporations,    when     not 

liable  for  debts  of  old. 

264.  Illustrations. 

265.  Assets  of    old  corporation  liable 

for  its  debts  in  hands  of  new. 

266.  Illustrations. 

267.  When  new    corporations    liable 

for  debts  of  old. 

268.  Organization    of    new    company 

does   not   necessarily  destroy 
old. 


Section 

269.  Stockholders  bound  to  take  notice 

of  plan  of  reorganization  and  to 
signify  their  assent  within  the 
prescribed  time. 

270.  Members  of  stockholders'  com- 

mittee can  not  purchase  at 
sale. 

271.  But    creditors  may    combine  to 

purchase  and  reorganize. 

272.  When  minority  of  shareholders 

not  bound  by  reorganization 
by  majority. 

273.  When    minority  of    bondholders 

bound  by  reorganization  by 
majority. 

274.  Reorganization      under     British 

and       Canadian      arrangement 
acts. 

275.  Compromise   arrangement  must 

be  substantially  complied  with. 

276.  Bondholder  may  lose  his  rights 

by  laches. 

277.  Rights  of  holder  of  income  bonds. 

278.  Effect  of  transforming  a  partner- 

ship into  a  corporation. 

279.  Abortive    corporations    reincor- 

porated under  a  general  law. 


§  255.  Effect  of  Renewal  of  Charter.  —  Judicial  authority 
is  found  for  the  proposition  that  when  the  charter  of  a  corpora- 
tion is  renewed  in  the  manner  provided  by  hiw,  this  has  not  the 
effect  of  creating  a  new  corporation,  but  merely  continues  the 
existence  of  the  old  one.^  And  where  the  application  for  the 
renewal  was,  without  fault  of  the  corporation,  delayed  by  the 
official  to  whom  it  was  made,  it  was  held  that,  when  granted,  it 


1  St.  Philip's  Church  v.  Zion  Presb.  Church,  23  S.  C.  297. 


1  Thomp.  Corp.  §  256.]     reorganization. 

related  back  so  as  to  prevent  a  reverter  of  property.^  The  court 
proceeded  upon  the  analogy  of  the  rule  that  a  sheriffs  deed 
under  circumstances  may  relate  back  to  the  time  of  the  sale, 
although  executed  after  the  sale,  so  as  to  protect  a  defendant  in 
possession.^  U})on  the  principle  that  grants  of  corporate  priv- 
ileges and  franchises  are  to  be  construed  strictly,^  it  must  follow 
that,  where  it  is  claimed  that  an  act  of  the  legislature,  under 
which  a  corporation  has  been  reorganized,  absolves  the  new  cor- 
poration from  the  liabilities  of  the  old,  this  conclusion  cannot  be 
adopted  unless  it  unmistakably  ap[)ears  in  the  language  of  the 
statute.*  But  an  act  of  the  legislature  reviving  the  charter  of  a 
corporation  may  operate  as  a  waiver,  on  the  part  of  the  State,  of 
penalties  incurred  by  the  corporation  on  account  of  its  failure  to 
comply  with  conditions  imposed  upon  it  by  its  original  charter, 
and  estop  the  State  from  claiming  the  enforcement  of  those  pen- 
alties.^ It  was  so  held  where  a  suit  was  pending,  at  the  time  of 
the  passage  of  the  act  reviving  the  charter,  to  enforce  the  rights 
which  it  was  alleged  had  reverted  to  the  State  on  account  of  the 
forfeiture.®  Of  course,  the  new  corporation  can  have  no  powers 
except  such  as  are  derived  from  the  statute  authorizing  the  reor- 
ganization.' 

§  256.  Distinction  between  the  Revival  of  an  Old  Corpora- 
tion and  the  Creation  of  a  New  one.  —  It  is  often  a  question  of 
great  importance  whether  an  act  of  reincorporation  has  had  the 
effect  of  merely  reviving  and  continuing  the  old  corporation,  or 
of  creating  a  new  one;  since,  if  it  has  the  latter  effect,  the  new 
corporation  does  not  possess  the  rights,  and  is  not  subject  to  the 
liabilities  of  the  old  one.^  If  the  act  of  reincorporation  is  under 
a  special  charter  granted  by  the  legislature,  the  charter  must  be 

1  Ibid.  '  Mayor  v.  Steamboat  Co.,    R.  M. 

2  See  Kingman  v.  Glover,  3  Rich.      Charlt.  (Ga.)  342. 

L.  CS.  C.)  27;  Bank  v.  Manufacturing  «  Aug.  &  A.  Corp.  (11th  ed.),  §  780; 

Co.,  3  Strobh.  L.  (S.  C.)  192.  Colchester   v.    Seaber,    3  Burr.    18G(5; 

3  Post,  Chs.  115,  124.  Scarborough  v.  Butler,  3  Lev.  237;  Rex 
<  Trustees     v.     Moody,      G2     Ala.  u.  Pasmore,  3  T.  R.  241,  242,  246;  Lut- 

889.  trel'sCase,  4  Coke  Rep  87;  Bellows  u. 

*  Re    Mechanics'  Society,   31    La.      Hallowell  Bank,  2  Mason  (U.  S),  43; 

An.  627.  Union  Canal  v.  Young,  1  Whart.  (Pa.) 

«  Ibid.  410;  Smith  r.  Morse,  2  Cal.  524,  554. 
1.56 


revival:   reincorporation.     [1  Thomp.  Corp.  §  256. 

looked  to  for  the  purpose  of  solving  this  question.^  If  the  act  is 
accomplished  by  the  action  of  the  old  corporation,  through  its 
proper  officers  or  members,  in  filing  a  new  certificate  or  other  in- 
strument of  incorporation  under  a  general  law,  then  the  question 
must  be  solved  by  reference  to  what  they  have  done.  In  either 
case  it  becomes  a  question  of  intent?  Where  it  is  to  be  deter- 
mined upon  the  terms  of  a  written  instrument,  e.^.,  the  charter, 
it  is  of  course  a  question  of  law  for  the  court;  ^  but  where  it  is 
to  be  gathered  from  facts  and  circumstances,  it  is,'  on  principle, 
a  question  of  /ac^  for  a  jury.  "The  question  of  identity," 
said  Randolph,  J.,  "  that  is,  whether  the  new  act  creates  a  new 
body  politic  or  corporate,  or  merely  revives  an  old  one,  is  one 
of  intention."  *  ''To  ascertain,"  says  Story,  J.,  "whether  a 
charter  creates  a  new  corporation,  or  merely  continues  the  ex- 
istence of  the  old  one,  we  must  look  to  its  terms,  and  give  them 
Vk  construction  consistent  with  the  legislative  intent,  and  the 
intent  of  the  corporators."^  Accordingly,  where  a  religious 
society,  incorporated  under  a  general  law,  hold  a  new  election 
of  trustees  for  the  purpose  of  being  reincorporated,  if  the  object 
of  the  new  election  and  certificate  is  to  preserve,  and  not  to 
change  or  dissolve  the  old  corporation,  —  the  new  corporation 
will  be  held  to  be  merely  a  continuance  of  the  old.^  Where  a 
corporation  has  become  dormant  by  reason  of  lapse  of  time  a 
party  claiming  under  its  recent  deed  must,  of  course,  assume  the 
hurden  of  showing  that  it  has  been  reorganized  in  the  manner 

1  Bellows  V.  Hallowell  Bank,  2  Mason  and  a  new  charter  is  granted,  the 
(U.  S.)  43;  Wyman  V.  HollowellBank,  acceptance  of  the  new  charter  does 
14  Mass.  58.  not    create   a    new  corporation,    but 

2  Marshall  v.  Western  &c.  R.  Co.,  merely  revives  the  old  one.  So  in 
92  N.  C.  322,  3.30;  Young  v.  Rollins,  Haddock's  Case,  1  Ld.  Raym.  439,  it 
85  N.  C.  485.  was  said  that  a  new  charter  "  does 

3  1  Thorap.  Trials,  §  1065.  not  merge  or  extinguish  any   of   the 

*  Miller  v.  English,  21  N.  J.  L.  317,  ancient  privileges,  but  the  corporation 
-324.  may  use    them   as   before."     To   the 

*  Bellows  V.  Hallowell  &c.  Bank,  same  effect  is  Rex  v.  Pasmore,  3  T. 
2  Mason  (U.  S.),  43.  R.  199,  and  241.     See  also  People  v. 

6  Miller     V.     English,     supra.     In  Marshall,  6  111.  672,   for  the  desrrip- 

■Colchester  Corp.   v.   Seaber,  1    Burr,  tion  of  an  act  of  the  legislature  which 

1866,  it  was  held  that,  where  a  corpo-  was  held  not   to   create  a  new,    but 

ration,   by  the  death  of  some  of    its  merely  to  continue    an    old  charter . 

members,  becomes    disabled    to   act.  Compare  Union  Manufacturing  Co.  v. 

and  the    corporation  hence   dormant,  Young,  1  Whart.  (Pa.)  410. 

157 


1  Thorn |).  Coi'i).  §  257.]     reorganization. 

poiDted  out  by  law.^  It  is  held  that  where  a  State  bank  has, 
under  the  provisions  of  an  enabling  act  of  the  State  and  of  sec- 
tion 44  of  the  national  blanking  act,^  reorganized  as  a  national 
bank,  the  identity  of  the  corporation  is  not  changed,  and  its 
ol)ligations  are  not  impaired.  It  remains  substantially  the  same 
institution  under  another  name  and  under  a  new  jurisdiction. 
The  change  is  a  transition,  and  not  a  new  creation.^  And  where 
the  term  of  existence  of  a  national  banking  association,  which 
would  otherwise  have  expired  in  1883,  was  by  act  of  Congress 
prior  to  that  time  extended  twenty  years  longer,  the  identity  of 
the  old  corporation  is  in  no  wise  affected.  It  simply  has  a 
new  lease  of  life.* 

§  257.  Franchise  to  be  a  Corporation  not  the  Subject  of 
Judicial  Sale.  —  The  franchise  to  be  a  corporation  is  not  the 
subject  of  sale  and  transfer,  unless  made  so  by  a  statute, 
which  provides  a  mode  for  exercising  it.^  A  franchise  to  be  a 
corporation  is  distinct  from  a   franchise,  as   a  corporation,  to 


1  Goulding  v.  Clark,  34  N.  H.  U8. 
Acts  reincorporating  municipal  cor- 
porations do  not  have  the  effect  of 
creating  new  corporations,  but  merely 
that  of  continuing  the  old  ones.  They 
do  not,  therefore,  extinguish  the  duties 
or  obligations  of  the  precedent  corpo- 
ration. Smith  V.  Morse,  2  Cal.  524. 
See  Hopkins  v.  Swansea,  4  Mees.  & 
W.  621.  The  same  principle  applies 
in  respect  of  other  public  corpora- 
tions. Thus,  as  already  stated  (ante, 
§  25) ,  the  University  of  Alabama  was 
early  held  to  be  a  public  corporation 
and  subject  to  the  control  of  the 
legislature  of  the  State.  More  re- 
cently it  was  held  that  this  corporation 
had  not  been  dissolved,  or  a  new  cor- 
poration created  in  its  stead,  by  force 
of  subsequent  legislation  or  of  the 
constitution  of  1868,  but  that  its  cor- 
l)orate  rights  and  powers  continued 
unimpaired.  Trustees  v.  Moody,  62 
Ala.  389.  An  act  enabling  a  railroad 
company  to  take  a  new  name  and  ex- 
tend its  road,  is  not  an  act  renewing 
158 


or  extending  its  charter,  or  creating  a 
new  corporation.  Attorney-General 
V.  Joy,  55  Mich.  94. 

2  U.  S.  Stat,  at  Large,  ch.  106,  p. 
112,  §  44. 

3  Coffey  V.  National  Bank,  46  Mo. 
140;  Grocers  Nat.  Bank  v.  Clark  48 
Barb.  (N.  Y.)  26;  Thorp  v.  Wege- 
forth,  56  Pa.  St.  82. 

*  Nat.  Exch.  Bank  v.  Gay,  57  Conn. 
224;  s.  c.  17  Atl.  Rep.  555.  See  also 
Day  V.  Insurance  Co.,  75  Iowa,  694. 
Recent  Michigan  statutes  relating  to 
renewal  of  articles  of  association  con- 
strued: Attorney-General  v.  Perkins, 
73  Mich.  303;  s.  c.  41  N.  W.  Rep.  426. 

5  Post,  Ch.  IIG.  "  The  franchise  to 
be  a  corporation  clearly  cannot  be 
transferred  by  any  corporate  body  of 
its  own  will.  Such  a  franchise  is  not, 
in  its  own  nature,  transmissible." 
Hoar,  J.,  in  Com.  v.  Smith,  10  Allen 
(Mass.),  448,  455.  See  also  Hall  v. 
Sullivan  R.  Co.,  21  Law  Rep.  138;  s.  c. 
2  Redf.  Am.  Railw.  Cas.  621 ;  1  Brun. 
Coll.  Cas.  613. 


SUCCESSION    OF    FRANCHISES.        [1  Tllomi).  Coi'p.    §   258. 

carry  on  a  certain  business,  e.g.,  to  maintain  and  operate  a  rail- 
yf'A,y.  The  one  is  frequently  designated  as  ix 'primary,  and  the 
other  as  a  secondary  franchise.  The  latter  is  in  the  nature  of 
private  property,  is  vendible  on  execution,  is  the  subject  of  a 
mortgage,  and  may  pass  to  a  purchaser  at  a  foreclosure  sale. 
But  a  mortgage  of  the  franchises  of  a  corporation,  made  in  the 
exercise  of  a  power  given  by  statute,  confers  no  rights  upon  the 
purchasers  at  a  foreclosure  sale  to  exist  as  the  same  corporation. 
The  extent  of  the  right  which  it  confers  upon  them  is  to  reor- 
ganize as  a  corporation,  subject  to  the  constitution  and  laws  of 
the  State  existing  at  the  time  of  the  reorganization.^  A  cogent 
and  practical  reason  in  support  of  this  conclusion  is  that,  if  the 
foreclosure  sale  had  the  effect  of  transferring  the  vitality  of  the 
old  corporation  to  the  new  purchasers,  it  would  necessarily  dis- 
solve the  old  corporation,  which  might  have  an  injurious  effect 
upon  its  creditors  ;  or,  if  it  should  not  operate  to  create  such  a 
dissolution,  there  would  then  be  the  anomalous  instance  of  two 
corporations  existing  at  the  same  time  under  the  same  charter; 
for,  "  after  an  act  of  disposition  which  separates  the  franchise 
to  maintain  a  railroad  and  make  profit  from  its  use,  from  the 
franchise  of  being  a  corporation,  though  a  judgment  of  dissolu- 
tion may  be  authorized,  yet  until  there  be  such  judgment,  the 
rights  of  the  corporators  and  of  third  persons  may  require  that 
the  corporation  be  considered  as  still  existing."  ^ 

§  258.  Statutory  Provisions  under  which  the  Reorganized 
Company  Succeed  to  the  Franchises  of  tlie  Old. —  Statutes  exist 
in  many  of  the  States,  by  force  of  which,  where  the  property  and  fran- 
chises of  a  corporation  are  sold  to  foreclose  a  mortgage,  or  otherwise  for 
the  purpose  of  paying  the  debts  of  the  corporation,  the  purchaser  is 
authorized  or  required  to  organize  a  new  corporation  to  perform  the 
public  duties  required  oi  the  old,  which  new  corporation  succeeds  to 

•  Memphis  &c.  R.  Co.   v.  Railroad  and  tlie  mortgage  in   question  under- 

Commissioners,  112  U.  S.  609.    Com-  took  to  pass    both  its    charter    and 

pare   Acres  v.   Moyiie,   59  Tex.   623;  works.     Memphis  «&c.  R.  Co.  v.  Rail- 

Stc'phenson  v.  Texas  &c.  R.   Co.,   42  road  Commissioners,  supra. 
Tex.  1G3.     It  was  so  held,  where  the  ^  qqq  ^   Columbus  &c.  R.    Co.,  10 

governing     statute     empowered     the  Ohio  St.   372,    38G,  per   Gholson,    J.; 

company   to   borrow  money  "on   the  quoted  with  approval  iu  Memphis  &c. 

credit  of  the    company    and    on  the  R.   Co.   v.    Railroad    Commissioners, 

mortgage  of  its  charter  and  works,"  112  U.  S.  GO'J,  020. 

159 


1  Thomp.  Coi[).  §  258.]     reorganization. 

the  corporate  rights  and  franchises  of  the  old.i  An  example  of  such  a 
statute  is  given  in  a  recent  work  ^  from  the  statute  books  of  the  State 
of  Neiv  York^  as  follows :  "In  case  the  railroad  and  property  connected 
therewith,  and  the  rights,  privileges  and  franchises  of  any  corporation, 
except  a  street  railroad  company,  created  under  the  general  railroad 
law  of  this  State,  or  existing  under  any  special  or  general  act  or  acts  of 
the  legislature  thereof,  shall  be  sold  under  or  pursuant  to  the  judgment 
or  decree  of  any  court  of  competent  jurisdiction,  made  or  given  to 
execute  the  provisions  or  enforce  the  lien  of  any  deed  or  deeds  of  trust 
or  mortgage  theretofore  executed  by  any  such  company,  the  purchasers 
of  such  railroad  property,  or  franchises,  and  such  persons  as  they  may 
associate  with  themselves,  their  grantees  or  assignees,  or  a  majority  of 
them,  may  become  a  body  politic  or  corporate,  and  as  such  may  take, 
hold  and  possess  the  title  included  in  said  sale,  and  shall  have  all  the 
franchises,  rights,  powers,  privileges  and  immunities  which  were 
possessed  before  such  sale  by  the  corporation  whose  property  shall  have 
been  sold  as  aforesaid,  by  and  upon  filing  in  the  office  of  the  Secretary 
of  State  a  certificate  duly  executed  under  their  hands  and  seals,  and 
acknowledged  before  an  officer  anthorized  to  take  the  aknowledgment 
of  deeds  ;  in  which  certificate  the  said  persons  shall  describe,  by  name 
and  reference  to  the  act  or  acts  of  the  legislature  of  this  State  under 
which  it  was  organized,  the  corporation  whose  property  and  fran- 
chises they  shall  have  acquired  as  aforesaid,  and  also  the  court  by 
authority  of  which  such  sale  shall  have  been  made,  giving  the  date 
of  the  judgment  or  decree  thereof,  authorizing  or  directing  the  same, 
together  with  a  brief  description  of  the  property  sold  ;  and  shall  also  set 
forth,"  the  name  of  the  corporation,  the  capital  stock,  the  number  of 
directors,  and  the  plans  and  agreements  of  reorganization. ^  "Every 
stockholder  in  any  company,  the  franchises  and  property  whereof  shall 
have  been  sold  as  aforesaid,  shall  have  the  right  to  assent  to  the  plan  of 
readjustment  and  reoganization  of  interests,  pursuant  to  which  such 
franchises  and  property  shall  have  been  purchased  as  aforesaid,  at  any 
time  within  six  months  after  the  reorganization  of  said  new  company, 
and  by  compljdng  with  the  terms  and  conditions  of  such  plans,  become 
entitled  to  his  pro  rata  of  the  benefits  therein,  according  to  its  terms."  ^ 

^  For    cases    arising    under    such  §  5,  as  amended  by  New  York  Laws  of 

statutes,  see  Pittsburgli  &c.  R.  Co.  v.  1854,  ch.  282,  and  by  New  York  Laws 

Fierst,  90  Pa.  St.  144;  Cora.  v.  Central  of  1873,  ch.   710;  New  York  Laws  of 

Passenger  R.  Co.,  52  Pa.  St.  506.    Com-  1874,  ch.  430. 

pare  Wellsborough  &c.    Plank  Road  *  New  York  Laws  of  1874,  ch.  430, 

Co.  V.  Griffin,  57  Pa.  St,  417.  3.     See   Pratt  v.  Munson,    84   N.  Y. 

2  2  Beach  Railw.,  §  767.  582,  as  to  the  effect  of  the  act  of  1854 

8  New  York  Laws  of  1850,  ch.  140,  in  repealing  the  prior  statute  of  this 

160 


FORECLOSURE    SALES:    STATUTES.       [1  Thomp.  Coip.   §   258. 

Referring  to  this  statute,  the  Court  of  Appeals  of  New  York  say :  "  The 
first  section  provides  that  in  case  a  railroad  and  the  property,  rights, 
pri\dleges  and  franchises  connected  therewith  shall  be  sold  under  a 
mortgage  foreclosure,  the  purchasers,  and  such  persons  as  they  may 
associate  with  themselves,  their  grantees  or  assigns,  may  become  a  cor- 
lX)ration,  and  as  such  may  take,  hold  and  possess  the  property  and 
franchises  sold,  by  executing  and  filing  the  certificate  provided  in  the 
section.  Under  that  section  any  number  of  persons  may,  at  a  fore- 
closure sale  of  a  railroad  and  its  franchises,  purchase  the  property  for 
themselves,  and  organize  a  new  company,  which  Avill  possess  all  the 
powers,  rights,  privileges  and  franchises  of  the  prior  corporation,  and  be 
subject  to  the  provisions  of  the  general  railroad  laws  of  the  State.  In 
such  case  the  rights  of  all  the  stockholders  of  the  prior  coi*poration  will  be 
absolutely  barred  and  cut  off  by  the  foreclosure  and  sale.  But  purchas- 
ers at  such  a  foreclosui'e  sale,  instead  of  buying  absolutely  for  themselves, 
may  buy  the  property  in  pursuance  of  a  plan,  as  mentioned  in  the  second 
section  of  the  act,  for  the  readjustment  of  the  respective  interests  therein 
of  the  mortgage  creditors  and  stockholders  of  the  company.  Notwith- 
standing the  formation  of  the  plan,  however,  the  foreclosure  becomes 
absolute  against  the  corporation,  and  all  its  rights  and  all  the  proprietary 
interests  of  the  stockholders  are  absolutelj^  barred  and  cut  off.  The 
entire  property  of  the  corporation  passes  under  the  sale  as  absolutely  as 

nature.     The     statute     was     further  purchased,  he   stood  in  the  awkward 
amended  by  the  act  of  1876,  chapter  predicament    of    owning    a    property 
446,    and     the    construction    of    the  which   it  was   not  certain    he  could 
amended  statute  was   involved  in  the  either  use  or  sell.     It  was  to  cure  this 
case  of  Vatable  v.  New  York  &c.  R.  difficulty  that  the  act  of  1854  and  its 
€o.,  96  N.  Y.   49;  reversing  s.   c.  II  subsequent     amendments    were    de- 
Abb.  N.  C.   (N.  Y.)  133.      In  another  signed.     In  the  absence  of  an  existing 
case  it  was  said:  "  Before  these  acts  corporation,    capable    of  taking    and  • 
were  passed,  such  a  railroad    mort-  exercising    the    franchises    sold,  the 
gage,  while  it  certainly    covered   the  purchaser  was   authorized  to  create  a 
special    and    peculiar    franchises    of  new  corporation,  for  the  purposes  of 
the    company,    could    with   difficulty  the  transfer,  but  whose  corporate  life  , 
be  construed  to  cover  its   corporate  came  from  the  grant  aud  authority  of 
life,  or   right  to    be    a   corporation,  the  State.     It  is  quite  evident  that  this 
and     the    subject     created     doubts,  authority  was  intended  only  to  meet 
That    right,    it  was     argued,     could  a  nossible  emergency,  and  not  at  all  to 
scarcely   be    said  to  pass  to  a  pur-  pi  event  a  sale  or  transfer  to  a  corpom- 
chaser    by    virtue    of    his    purchase,  tionalreadijezistinfj,  and  capiihle,  under 
and  could  only  be  given  by  the  author-  the  law  of  its  creation,  of  holding  the 
ity  of  the    State.     Unless,  therefore,  property  and  exercising  the  franchises 
tlie  purchaser  could  And   some  corpo-  which  passed  to  the  purchaser  by  the 
rate  body  in  existence,  capable  of  hold-  mortgage  sale."    People  u.  Brooklyn 
ing    and    exercising    the    franchises  &c.  R.  Co.,  89  N.  Y.  75,  84. 

11  161 


1  Thomp.  Corp.  §  259.]     reorganization. 

it  did  under  the  prior  statutes,  and  the  plan  has  reference  only  to  the 
new  corporation  to  be  formed,  and  to  interests  therein.  If  the  property 
be  purchased  under  the  plan,  then  such  plan  must  be  embodied  in  the 
certilicate  to  be  filed  as  required  by  the  lii'st  section,  and  then,  as  pro- 
vided in  section  3,  every  stockholder  '  shall  have  the  right  to  assent  to 
the  plan  of  readjustment  and  reorganization  of  interest,  pursuant  to  which 
such  franchises  and  property  shall  have  been  purchased  as  aforesaid,  at 
any  time  within  six  months  after  the  organization  of  said  new  company, 
and  by  complying  with  the  terms  and  conditions  of  such  plan,  become 
entitled  to  his  pro  rata  benefits  therein,  according  to  its  terms.'  So, 
after  the  foreclosure  sale,  the  only  property  interest  which  a  stockholder 
of  the  old  company  has  left  is  in  the  surplus,  if  any,  after  satisfying  the 
mortgage  and  other  preferential  claims.  It  is  entirely  optional  with  him 
whether  he  will  come  in  under  the  plan  and  join  the  new  company.  All 
the  statute  secures  to  him  is  the  option  or  privilege  to  join  the  new  com- 
pany by  a  comphance  with  the  terms  of  the  plan.  If  he  elects  to  join 
the  new  company,  then  he  gets  the  proportional  interest  therein,  which 
may  be  of  great  value  to  him.  But  his  right  to  join  the  new  company, 
so  far  as  it  depends  upon  the  statute,  must  be  exercised  within  the  six 
months.  If  he  fails  within  that  time  to  exercise  his  right  by  assenting  to 
the  plans  and  thus  becoming  a  party  thereto,  he  cannot  take  or  claim  any 
rights  under  the  plans.  It  is  clearly  a  condition  precedent  that  he  must 
signify  his  assent  to  the  plan  within  six  months.  If  he  fails  to  do  so,  he 
forfeits  no  property,  as  that  was  swept  away  by  the  foreclosure  sale  ;  he 
loses  simply  the  right  or  privilege  to  join  and  become  interested  in  the 
new  company  and  thus  to  acquire  an  interest  in  property.  That  is  a 
forfeiture,  if  it  can  properly  be  so  called,  which  the  law  imposes,  and 
against  which  the  courts  can  give  no  relief.  In  such  a  case  equity  can- 
not relieve  him  from  the  performance  of  the  condition  precedent,  and 
thus  vest  him  with  rights  of  property  which  he  did  not  otherwise  have. 
It  would  lead  to  intolerable  inconvenience,  confusion  and  difficulty,  if 
the  stocldiolders  of  the  old  company  could,  in  such  a  case,  take  their  own 
time  to  assent  to  the  plan  of  reorganization,  and  to  assert  their  right  to 
become  members  of  the  new  company,  upon  such  facts  as  they  would  be 
able  to  establish  in  a  court  of  equity. ' '  ^ 

§  259.  Further  Statutory  Provisions. — This  statute  has  been 
considerably  further  amended.  As  given  in  the  latest  edition  of  the 
General  Statutes  of  New  Tork,"^  it  permits  purchasers  and  others  asso- 

1  Vatable  v.  New  York  &c.  R.  Co.,  ^  3  Rev.  Stat.  N.  Y.   1889    (Banks  & 

96  N.  Y.  49,  5G,  reversing  s.  c.  1 1  Abb.      Bros,  ed.),  P-  1735, 
N.  C.  (N,  Y.)  133;  opiuion  by  Earl,  J, 
102 


FORECLOSURE  SALES :  STATUTES.     [1  Thomp.  Corp.  §  259. 

dated  with  them,  upon  fihng  articles  of  association,  to  become  a  cor- 
poration, and  empowers  them  to  succeed  to  and  take  the  franchises, 
privileges,  etc.,  of  any  corporation  organized  by  special  act  or  under  a 
general  law  of  the  State,  whose  property  and  effects  have  been  sold 
under  a  mortgage.  ^  The  certificate  must  set  forth  the  particulars  re- 
quired by  the  statute  to  be  stated  in  the  original  certificate  of  incor- 
poration. ^  Where  the  original  corporation  was  organized  under  a 
special  act,  the  certificate  shall  state :  1.  The  name  of  the  corporation 
to  be  formed.  2.  The  amount  of  the  capital  stock,  which  shall  not  ex- 
ceed that  which  the  original  corporation  was  authorized  by  law  to  have 
at  the  time  of  the  sale.  It  shall  also  state  the  number  of  shares  of 
which  the  stock  shall  consist.  3.  It  shall  also  state  the  title  and  date 
of  passage  of  the  act  creating  the  former  corporation,  and  any  other 
acts  relating  to  it.  4.  It  shall  state  the  number  of  the  directors,  and 
shall  give  the  names  of  the  first  board  of  directors  of  the  new  corpora- 
tion.^  This  last  provision  impUes  that  the  new  corporation  is  not  or- 
ganized and  does  not  exist  as  a  corporation  until  it  has  proceeded  to 
the  election  of  a  board  of  directors,  —  a  circumstance  which  seems  to 
bring  it  within  a  rule  declared  in  Ohio  and  Michigan  in  respect  of  con- 
sohdation  under  a  statute  of  Ohio.*  This  certificate  is  to  be  executed 
in  duphcate,  acknowledged,  and  filed  in  the  office  of  the  Secretary  of 
State,  and  one  of  the  duplicates  is  to  be  filed  in  the  county  in  which 
the  first  corporation  had  its  principal  place  of  business.  The  statute 
also  contains  a  general  statement  to  the  effect  that  the  franchise  vested 
in  the  new  corporation  shall  be  as  broad  as  those  possessed  by  the  old, 
whether  from  the  terms  of  its  governing  statutes,  or  as  already  judi- 
cially construed.^  A  certified  copy  of  the  certificate  from  the  office 
of  the  Secretary  of  State,  or  of  the  county  clerk,  shall  be  received  in 
all  courts  as  legal  evidence  of  such  reincorporation.^  -  -  -  -  By 
the  statute  of  Pennsylvania^  whenever  the  rolling  stock,  property  and 
franchises  of  any  railway,  gas  company,  or  any  corporation  created  by 
or  under  any  law  of  the  State  shall  be  sold,  under  a  decree  of  a  court 
of  the  State  or  of  a  court  of  the  United  States,  the  purchasers  may  in- 
corporate with  all  the  franchises  of  the  preceding  corporation,  but  sub- 
ject to  all  the  restrictions  imposed  upon  it.  They  must  meet  within 
thirty  days  of  the  sale,  of  which  meeting  a  prescribed  notice  must  be 
given.  They  must  there  organize,  elect  a  president  and  six  directors, 
adopt  a  name  and  seal,  fix  the  amount  of  their  capital  stock,  not  ex- 
ceeding that  of  the  precedent  corporation,  in  shares  of  $50  each,  and 

>  Lbid.,  §  1.  *  Post,  I     327. 

2  Ibid.,  §  2.  ^  Rev.  Stat.  N.  Y.,  supra,  §  4. 

8  Ibid.,  §  3.  «  Ibid.,  §  5. 

103 


1  Thomp.  Corp.  §  259.]     reorganization. 

may  issue  stocks  and  bonds,  and  execute  mortgages  on  all  or  any  part 
of  their  property.  They  must,  within  a  month  of  the  purchase,  make  a 
certificate  specifying  the  date,  name,  corporate  stock,  name  of  presi- 
dent and  directors  of  the  new  corporation,  and  send  it  to  the  Secretary 
of  State  for  record ;  and  a  certified  copy  of  it  shall  be  evidence  of  the 
incorporation  of  the  new  company.  They  must  also  signify  their  ac- 
ceptance of  the  provisions  of  article  16  of  the  constitution  of  Pennsylvania 
relating  to  private  corporations.  -  -  -  -  By  the  statute  of  Ken- 
tucky, which  applies  only  to  railroads, ^  where  the  property  of  a  railway 
company  is  sold  under  a  decree  of  court,  the  purchasers  and  associates 
may  become  a  corporation,  with  the  right  to  exercise  all  the  franchises, 
privileges,  etc.,  and  subject  to  all  the  restrictions  of  the  charter 
of  the  original  company.  But  they  may  not  receive  subscriptions 
or  aid  from  counties,  towns,  etc.,  and  are  subject  to  certain  pro- 
visions of  the  general  laws  of  the  State  relating  to  corporations.^  The 
mode  of  incorporation  is  the  same  as  that  prescribed  by  the  general  law.^ 
The  new  corporation  may  issue  negotiable  bonds,  not  in  excess  of  the 
original  cost  or  proper  cost  of  completing  the  road ;  may  give  priorities 
and  exemptions  to  certain  stockholders  ;  and  may  secure  the  bonds  by 
mortgage.  A  lien  is  reserved  in  favor  of  the  wages  of  laborers,  for  work 
done  within  three  months  before  the  sale  or  seizure,  —  that  is  to 
say,  the  new  corporation  takes  the  property  subject  to  this  incum- 
brance. -  -  -  -  By  the  statute  of  i(/assac/i'/.5eifs  .•  "  Any  or  all  of  the 
creditors  of  any  corporation  existing  hy  authority  of  this  commonwealth 
and  organized  or  chartered  for  any  purpose  designated  in  this  chapter, 
which  has  been  adjudged  bankrupt  or  insolvent,  or  has  made  an  assign- 
ment of  its  property  for  the  benefit  of  its  creditors,  or  any  or  all  persons 
for  whose  benefit  such  corporation  has  assigned  the  whole  or  any  part  of 
its  property,  and  such  other  person  or  persons  in  either  case  as  they  may 
elect,  —  may  associate  themselves  for  the  purpose  of  forming  a  corpora- 
tion to  acquire  the  whole  or  any  part  of  the  property  of  such  bankrupt 
or  insolvent  corporation,  or  that  have  assigned  for  the  benefit  of  its 
creditors,  and  to  carry  on  the  business  previously  authorized  to  be  car- 
ried on  by  such  bankrupt  or  insolvent  corporation. "  "*  -  -  .  -  By 
the  statute  of  California,  the  franchises,  etc.,  of  corporations  maybe 
levied  upon  to  satisfy  judgments  and  sold  as  other  property.  The  pur- 
chaser must  receive  a  certificate  of  purchase  of  the  franchises,  and 
immediately  be  let  into  possession,  and  must  transact  the  business  of 

1  Bull.  &  F.  Ky.   Stat.  1887,  p.  767,  ^  Qen.  Stat.  Ky.,  chap.  56. 

§  1.  4  Gen.  Stat,  of   Mass.  1882,  ch.  106, 

2  Ky.  Acts  of  1855-6,  No.  148,  §§  1      §  15. 
and  2. 

164 


FORECLOSURE  SALES:  STATUTES.     [1  Thomp.  Corp.  §  259. 

such  corporation,    with  its   powers,    privileges  and  liabilities,  till  the 
franchise  is  redeemed.     He  may  recover   penalties  for  injuries  to  the 
franchise,  and  for  this  purpose  may  use  the  name  of  the  corporation,  and 
his  recovery  will   be  a  bar  to  another  recovery  by  the  corporation.     In 
all  other  respects  the  corporation  retains  the  same  powers  and  continues 
bound  to  discharge  the  same  duties,  and  subject  to  the  same  penalties  as 
before  the  sale.     The  corporation  may  redeem  within  one  year,  by  pay- 
ing or  tendering  the  money  expended  by  the  pui-chaser  with  ten  per 
cent,  interest,  but  without  any  profits,  he  retaining  the  tolls  and  profits. 
The  sale  must    be  made    in    the   county  where  the   corporation   has 
its    principle    place    of  business,    or  where    it    has    taxable    prop- 
erty.i    -    -    -    -    By  the  statute  of  J[fic/iig^a?z ;"  Whenever  any  cor- 
porations, now  existing  or  hereafter  formed,  may  have   conveyed  all 
their  corporate  property,  real  and  personal,  together  with  their  fran- 
chises, growing  out  of  or  pertaining  thereto,  or  together  with  all  their 
corporate  franchises,  by  way  of  mortgage  or  deed  of  trust,  in  case  of 
the  sale  of  the  same   thereunder,  the  purchasers  at  such  sale  and  their 
associates  shall   be  entitled  to  have  and  exercise  all  the  privileges  and 
franchises  held  by  such  corporation,  and  shall  be  deemed  and  taken  to 
be  the  true  owners  of  its  corporate  rights,  and  to  be  corporators  vested 
with  all  the  rights,  powers,  privileges,  and  benefits  conferred  by  law  or 
the  statutes  of  this  State  upon  such  corporations,  in  the  same  manner, 
and  to  the  same  extent,  as  if  they  were  the  original  corporators  at  the 
formation  of  such  corporations ;  and  they  shall,  within  thirty  days  after 
such  sale  shall  become  absolute,  file  articles  of  association,  together  with 
a  copy  of  the  order  confirming  the  sale,  in  the  ofllce  of  the  Secretary  of 
State,  and  in  such  other  office  or  offices  as  the  original  articles  of  asso- 
ciation or  corporation  were  required  to  be  filed  in,  and  they  shall  hold 
title  to  and  enjoy  all  property  acquired  by,  or  donated  to,  such  corpora- 
tion, which  may  have  been  purchased  by  them  at  such  sale ;  and  such 
(successor)  corporation  may  issue,  and   themselves  hold  new  stock  in 
said  corporation   to  such  an  amount  and  of  such  denomination  as  was 
prescribed  in  the  articles  of  association  or  charter  of  the  original  cor- 
poration.    After  filing  the  new  articles  of  association,  as  required  by 
this  act,  the  old  officers  of  said  corporation  shall  be  superseded,  and  the 
old  stock  in  said  corporation  shall  be  deemed  forfeited  and  extinguished, 
and  may  be  canceled  on  the  books  of  said  corporation ;  and  the  new 
stockholders,  and  the  officers  by  them  chosen,  or  elected,  shall,  in  the 
law,  be  deemed  and  taken  to  be  the   stockholders  and  officers  of  said 
corporation,  and  the  said  corporation  shall  not  be  liable  for  any  debts  or 
obligations,  except  those  by  it  thereafter  contracted.     But  no  prior  mort- 

Deer.  Ann.  Codes  Cal.  1885,  §  388. 

1()5 


1  Tliomp.  Corp.  §  200.]     reouganization. 

gage  or  lien  shall  be  in  any  way  affected  by  such  proceedings,  and  all 
property  whatsoever,  if  any,  that  shall  not  be  sold,  shall  remain  liable  for 
aU  debts  of  such  original  corporation,  and  no  liability  of  any  corpora- 
tors, director,  or  other  persons  whatsoever  shall  be  in  any  way  lessened 
or  affected  by  any  proceeding  or  act  authorized  by  this  act.  Provided, 
that  in  malcing  such  sale,  the  property  essential  to  the  exercise  of  cor- 
porate rights,  together  with  the  corporate  franchises,  shall  be  deemed 
an  entire  thing,  and  shall  be  sold  as  such,  separate  from  any  other 
property  mortgaged. "  ^  _  _  _  -  Such  a  statute  was  enacted  in -4Za- 
bama  as  follows:  "  In  each  and  every  case  in  which  any  railroad  may 
hereafter  be  sold  by  the  State  of  Alabama,  or  by  any  commission,  officer, 
or  agent  of  said  State,  or  by  any  proceeding,  judicial  or  otherwise,  author- 
ized by  law,  the  purchasers  at  any  such  sale  may  constitute  themselves  into 
a  body  politic  and  corporate,  and  shall  have  and  possess  all  the  powers 
and  franchises  which  belonged  to  the  company  or  corporation  origin- 
ally owning  the  railroad  so  purchased,  including  the  power  to  purchase 
and  hold  real  estate,  and  the  franchise  to  bie  and  exist  as  a  corporation 
under  such  name  as  the  purchasers  may  select  and  adopt.  And  the 
board  of  directors  of  such  new  corporation  shall  have  power  .  .  . 
to  lease,  sell,  or  mortgage  all  or  any  part  of  the  franchises  or  prop- 
erty of  such  corporation,  including  the  franchise  to  be  and  exist  as 
a  corporation."  An  amendment  enacted  in  1875  ^  defines  the  mean- 
ing of  the  word  purchasers  in  the  preceding  statute,  and  provides 
that  a  majority  in  interest  of  the  purchasers  may  organize  the  corpora- 
tion, for  the  benefit  of  themselves  and  all  others  interested,  and  con- 
tains further  modifications  not  important  to  be  stated.  The  effect  of 
this  statute  was  to  make  the  reorganized  corporation  a  neio  corpora- 
tion as  to  the  ownership  of  property,  and  in  the  sense  of  not  being  hable 
for  the  debts  and  engagements  of  the  former  company ;  but  in  re. 
spect  of  its  franchises  it  was  but  a  continuation  of  the  former  company. 
"These,"  said  the  court,  "  the  new  corporation  succeeds  to,  precisely 
as  they  were  surrendered  or  lost  by  the  defunct  corporation."  When, 
therefore,  the  defunct  corporation  held  its  franchises  subject  to  a  law  of 
the  State  imposing  a  certain  limitation  as  to  the  amount  of  tolls  which  it 
could  exact,  the  new  corporation  received  its  franchises  subject  to  the 
same  limitation.  ^ 

§   260.    These    Schemes    of    Reorganization     favored.  — 

Schemes  among   stockholders  and  bondholders,  formed  to  buy 

1  Mich.  Ann.  Stat.  1882,  §  4885.  '  Mobile  &c.   R.  Co.   v.  Steiner,  61 

2  Alabama   Act  of  March  20,  1875;        Ala.  659. 
Alabama  Laws  of  1875,  p.  132. 

166 


AFTER    3IORTGAGE    FORECLOSURES.       [1  Thomp.  Corp.    §   261. 

and  reorganize  corporate  properties,  such  as  railroads,  are 
favored  by  the  courts,  unless  they  assume  the  form  of  schemes 
and  combinations  prejudicial  to  the  rights  of  the  creditors. 
In  other  words,  they  are  favored  when  they  are  equitable.^ 
But  members  of  the  old  company  can  no  more  be  forced  into  a 
reorganization  against  their  will  than  they  could  be  forced  to 
join  a  new  company  in  the  first  instance.^  When  therefore  the 
charter  of  a  corporation  expires,  a  majority  of  the  stockholders, 
proposing  to  form  a  new  company,  have  no  right,  as  against  a 
minority,  to  make  an  arbitrary  estimate  of  the  property  of  the 
corporation  to  be  transferred  to  the  new  company,  and  require 
the  minority  to  go  into  the  new  company  or  receive  for  their 
interest  in  the  property  of  the  old  company  a  sum  fixed  by 
those  who  are  buying  them  out.' 

§  261.  Effect  of  Reorganization  after  Mortgage  Fore- 
closure.—  The  valid  foreclosure  of  a  mortgage  upon  all  the 
property  and  franchises  of  a  corporation,  cuts  q^  absolutely  the 
rights  of  the  stockholders.  Thereafter  they  can  have  no  rights  in 
the  reorganized  corporation,  except  such  as  are  secured  to  them, 
if  any,  by  the  decree  of  foreclosure,  or  by  voluntary  arrange- 
ments among  the  parties  in  interest.*  Where  the  foreclosure 
takes  place  under  an  arrangement  between  the  holders  of  bonds 
secured  by  mortgage  and  the  stockholders  in  the  corporation, 
whereby  the  latter  are  to  be  allowed  to  come  into  the  reorgan- 
ized company,  upon  certain  conditions,  such  a  stockholder  can- 
not come  into  the  company  without  tendering  compliance  with 
those  conditions.^  It  is  a  mere  matter  of  contract,  and  he  can- 
not have  the  benefit  of  it  without  performance  of  the  obligation 
assumed  on  his  own  part.  Where  the  purchasers  of  the  prop- 
erty of  a  railroad  corporation  under  the  statutes  of  New  York^  at 
a  foreclosure  sale  reorganize  the  corporation,  they  thereby  form 

1  Robinson  v.  Phila.  &c.  R.  Co.,  28  Sup.  Ct.  Rep.  224;  post,  §§  316,  343, 
Fed.  Rep.  340.     See  Riker  v.  Alsop,  27      et  seq. 

Fed.  Rep.  251,  construing  the  terms  of  <  Thornton   v.  Wabash   R.  Co.,  81 

such  an  arrangement.  N.  Y.   402;  Vatable   v.  New  York  &c. 

2  Ante,  §  52.  R.  Co.,  96  N.  Y.  49,  56. 

3  Mason  v.  Pewabic  Min.  Co.,  133  ^  Carpenter  v.  Catlin,  44  Barb.  (N. 
U.    S.    60;    8.    c.  33    L,    ed.    524;   10  Y.)  75. 

6  Ante,  §§  258,  259. 

1G7 


1  Thomp.  Corp.  §  262.]     reorganization. 

a  neiu  and  entirely  distinct  corporation  from  the  old  company. 
The  right  to  be  a  corporation  not  being  the  subject  of  mortgage, 
did  not  pass  by  the  sale,  but  is  obtained  by  a  direct  grant  from 
the  State  on  filing  the  new  certificate  of  incorporation.^  As  this 
proceeding  is  the  organization  of  a  new  corporation,  the  adven- 
turers must  pay  to  the  treasurer  of  the  State  of  New  York  the 
percentage  upon  their  capital  stock  provided  by  another  statute 
of  the  State  ;  and  the  statute  which  obliges  them  to  pay  this,  in 
this  operation  of  it,  is  in  no  wise  an  impairment  of  the  obligation 
of  their  contract  as  mortgagees  of  the  old  corporation. ^ 

§  262.  Special  Privileges  of  Antecedent  Companies  pass 
to  New. —  Where  the  statute  empowers  a  railroad  company  to 
mortgage  all  its  property  and  franchises  to  secure  an  indebted- 
ness, and  the  property  and  franchises  are  sold  under  the  mort- 
gage, and  a  new  company  is  organized  under  the  general  laws  of 
the  State,  there  is  doubtful  authority  for  the  conclusion  that  spe- 
cial privileges  accruing  to  the  old  company  under  its  charter  vest 
in  the  new,  so  that  the  new  company  will  not,  in  respect  of  its 
obligation  to  fence  its  track  and  its  liability  to  damages  for  fail- 
ure so  to  do,  be  subject  to  the  general  law,  but  will  be  subject 
to  the  special  charter  provisions  of  the  old  company.  ^  It  was 
said  that  "the  object  of  the  legislature  was  manifestly  to  keep 
alive  the  rights  and  duties  of  the  old  company  and  to  transfer 
them  to  the  new  company,  the  purchaser.  That  the  franchise 
was  not  intended  to  be  resumed  by  the  State,  is  clear.  The 
intent  of  the  legislature  must  have  been  .  .  .  '  that  such 
property  was  to  be  holden  in  the  same  manner,  and  sub- 
ject to  the  same  rights  as  before.  The  owners  of  the  property 
were  to  lose  no  rights  by  the  transfer,  nor  was  the  public  to  lose 
any  right  thereby.'  "  *  In  like  manner,  it  was  said  by  the  Su- 
preme Court  of  Ohio  :  "It  must  be  inferred  that  the  legislature 
intended  the  purchasing  company  to  succeed  to  the  powers  and 
privileges  of  the  vending  company,  and  to  none  other.     The  in- 

1  People  u.  Cook,  HON.  Y.  443.  linson  v.  Branch,    15  Wall.    (U.    S.) 

2  People  V.  Cook,  110  N.  Y.  443.  465,  which  was  not  a  case  of  reorgani- 

3  Daniels  v.  St,  Louis  &c.  R.  Co.,  zation,  but  of  consolidation.  Post, 
62  Mo.  43.  §365,  eiseg. 

*  Ibid.,  p.  47;  quoting  from  Tora- 

1  ()8 


AFTER   MORTGAGE   FORECLOSURES.       [1  Thomp.  Corp.   §   263. 

trinsic,  as  well  as  the  market  value,  of  such  property  as  a  rail- 
road largely  depends  upon  the  rates  which  may  be  charged  for 
transportation  thereon.  If  the  chartered  rates  follow  the  prop- 
erty, the  contracting  parties  stand  on  perfect  ecLuality  ;  but  if  the 
value,  or  in  other  words,  the  inducement  to  contract,  depend  on 
the  chartered  privileges  of  the  purchaser,  the  equality  is  not 
preserved,  and  especially  would  different  companies,  with  differ- 
ent charters,  occupy  unequal  grounds  as  bidders  for  the  purchase 
of  such  property."  1  In  every  such  case,  the  solution  of  the 
question  must  be  sought  in  the  intent  of  the  governing  statute 
and  applicatory  constitutional  provisions. ^ 

§  263.  New  Corporation    when    not   Liable  for    Debts    of 

Old — To  render  the  successor  of  a  corporation  liable  for  the  in- 
debtedness of  the  antecedent  one,  something  more  must  be 
shown  than  the  mere  fact  that  the  new  corporation  succeeded  to 
the  business  of  the  former.  The  party  seeking  to  recover  of 
the  new  corporation  for  a  debt  of  the  old  must  prove,  at  least, 
that  the  new  received  some  portion  of  its  funds  or  property 
which  was  chargeable  with  his  debt.^  Where  a  new  company  is 
established  in  the  place  of  an  old  one  whose  property  it  has 
purchased,  neither  this  property,  except  so  far  as  it  is  subject  to 
prior  liens,  nor  the  future  earnings  of  the  new  company,  can  be 
taken  to  pay  the  debts  of  the  old.*     Where  a  mortfjcige  of  the 

1  Campbell  v.  Marietta  &c.  R.  Co.,  in  one  corporation  shall  pass  to  an- 
23  Oh.  St.  188.  In  Sly  v.  Penn.  R.  Co.,  other  corporation  upon  a  sale  by  one 
65  Pa.  St.  209,  the  question  is  dis-  to  the  other,  'passes  a  right  of  exemp- 
cussed  in  relation  to  the  successor-  tion  from  taxation,  where  such  risht 
ship  of  corporate  rights  as  between  exists  in  the  vendor  company  at  the 
lessor  and  lessee;  and  the  court  con-  time  of  sale.  Atlantic  &c.  R.  Co.  v. 
eludes  that  "the  lessee  of  a  railroad  Allen,  15  Fla.  637.  In  Arkansas  a  lew- 
corporation  must  necessarily  be  bound  islative  privilecje  granted  to  a  railroad 
by  all  the  prohibitions  and  limitations  corporation,  that  the /ares  shall  not  be 
contained  in  the  charter  of  the  reduced  below  a  certain  limit,  does  7io« 
lessor ;  and,  on  the  other  hand,  must  pass  to  a  corporation  organized  after 
be  held  to  be  entitled  to  all  their  rights  a  foreclosure  sale  of  the  property  and 
and  franchises.  The  legislature,  by  franchises  of  tlie  original  company, 
authorizing  another  corporation  to  Dow  y.  Beidleman,  49  Ark.  325;  s.  c. 
take  such  lease,  have,    by  necessary  8.  W.  Rep.  297. 

implication,   conferred  them."  s  Hopper  v.   Moore,  42  Iowa,  563- 

2  A  statute    providing     that    "all     post,  1^15. 

rights  "  as  to  a  line  of  railway  which  *  Bruffett  v.  Great  Western  R.  Co. 

*' are  and   have  been    legally  vested  "      25  111.353. 

1()9 


1  Thomp.  Coip.  §  263.]     keorqanization. 

assets  of  a  corporation  —  generally  a  railway  company  —  is  fore- 
closed and  the  purchasers,  for  the  purpose  of  managing  the 
property  and  taking  to  themselves  the  necessary  corporate  fran- 
chises, organize  p.  new  corporation,  this,  not  being  a  continuation 
of  the  old  corporation,  is  not  liable  for  its  debts,^  or  bound  to 
perform  its  obligations  although  the  new  company  takes  the 
same  name  as  the  old  one,  unless  such  a  liability  has  been  as- 
sumed by  contract,  or  has  been  imposed  by  an  operative  statute. 
This  conclusion  is  obvious  on  the  slightest  reflection.  It  would 
entirely  defeat  and  destroy  the  value  of  a  mortgage  security  upon 
corporate  property,  if  the  mortgagees,  obliged  to  become  the 
purchasers  of  the  property  at  a  foreclosure  sale,  could  organize 
themselves  into  a  corporation  for  the  purpose  of  managing 
it  only  upon  the  condition  of  assuming  the  floating  debts  of 
the  old  company.  The  result  would  simply  be  to  oblige  the  se- 
cured creditors  to  pay  the  debts  due  to  the  unsecured  creditors. 
Or,  as  Mr.  Justice  Cooper  quaintly  remarked,  it  *'  would  be  a 
practical  illustration  of  the  query,  '  does  prohibition  prohibit,' 
in  the  form  of  'does  security  secure?' "^  Thus,  a  railway 
company,  organized  under  the  provisions  of  a  general  law,  with 
power  to  purchase  the  franchises  and  property  of  an  older  com- 
pany, previously  sold  under  a  mortgage,  as  well  as  to  construct 
and  operate  other  lines  of  road,  is  not,  by  virtue  of  such  pur- 
chase, an  assignee  of  the  older  company,  so  as  to  be  bound  by 
its  contracts,  except  such  as  are  a  lien  or  charge  upon  the 
property  and  franchises  thus  purchased.^  A  statute  of  Wiscon- 
sin *  authorizing  any  person  or  corporation  becoming  the  pur- 

1  Memphis  Water  Co.  v.  Magens,  R.  Co.,  94  U.  S.  806,  810;  Child  u.  New 
79  Tenn.  37.                                                  '    York  &c.  R.  Co.,  129  Mass.  170;  Stew- 

2  /&id.,  p.  44;  Menasha  w.  Milwau-  art's  Appeal,  72  Pa.  St.  291;  Hatcher 
kee  &c.  R.  Co.,  52  Wis.  415;  Thornton  v.  Toledo  &c.  R.  Co.,  62  111.  477;  Hoard 
V.  Wabash  R.  Co.,  81  N.  Y.  462;  Neff  v.  Chesapeake  &c.  R.  Co.,  123  U.  S. 
V.  Wolf  River  Boom  Co.,  50  Wis.  585;  222;  s.  c.  31  Law.  ed.  130;  8  Sup.  Ct. 
Sapplngton  v.  Little  Rock  &c.  R.  Co.,  Rep.  74;  Helton  v.  St.  Louis  &c.  R.  Co., 
37  Ark.  23;  Oilman  v.  Sheboygan  &c.  25  Mo.  App.  322;  Houston  &c.  R.  Co. 
R.  Co.,  37  Wis,  317;  Vilas  v.  Milwau-  v.  Shirley,  54  Tex.  125,  137.  See  also 
kee  &c.  R.  Co.,  17  Wis.  498;  Smith  v.  Morgan  County  v.  Thomas,  76  II.  147. 
Chicago  &c.  R.  Co.,  18  Wis.  17;  3  Menasha  u.  Milwaukee  &c.  R.  Co., 
Wright  V.  Milwaukee  &c.   R.  Co.,  25  52  Wis.  414. 

Wis.  40;  Cook  V.  Detroit  &c.  R.  Co.,  *  R.   S.  Wis.,  p.  521,  §§  1788,    1789. 

43  Mich.  349;  Sullivan?;.  Portland  &c. 

170 


AFTER    MORTGAGE    FORECLOSURES.       [1  Thomp.  Coi'p.   §   264. 

chaser  of  the  property  and  franchises  of  any  corporation  at 
mortgage,  bankrupt  or  other  judicial  sale,  to  *'  reorganize  under 
the  charter  or  act  of  incorporation  or  law  under  which  such  com- 
pany or  association  was  created  or  organized,"  and  to  "  have 
the  same  rights,  powers,  privileges  and  franchises  such  com- 
pany, association  or  corporation  had  or  were  entitled  to  at  the 
time  of  such  purchase  or  sale,"  — does  not  make  the  reorganized 
coi^oration  a  continuance  of  the  old  one  and  liable  for  its 
debts. ^  But  where  the  old  railway  company  had  appropriated 
land  of  the  plaintiff  without  paying  him  for  it,  and  the  new 
company  continued  the  operation,  it  was  held  that,  although  the 
land-owner  could  not  maintain  against  the  new  company  an 
action  of  debt  on  a  judgment  recovered  against  the  old  for  the 
taking,  yet  he  might  have  a  remedy  in  equity  against  the  new 
company  to  compel  it  either  to  pay  compensation  for  the  use 
of  his  land,  or  to  stop  rnnning  its  cars  over  it.  But  this  liabil- 
ity would  be  founded  upon  the  principle  that  the  new  company 
had  seen  fit  to  adopt  and  ratify  the  original  undertaking,  and  had 
therefore  made  itself  liable  to  make  compensation.  It  would 
be  an  application  of  the  maxim  qui  sentit  commodum  seiitire 
debet  et  onus.'^  The  same  principle  applies  in  respect  of  the 
rights  of  one  who  acquired  a  lien  upon  the  property  of  the  old 
company  subsequently  to  the  making  of  the  mortgage.  This 
lien  does  not,  of  course,  follow  the  property  into  the  hands  of 
the  company  which  is  reorganized  after  the  mortgage  fore- 
closure; since  the  contract  is  one  which  does  not  affect  the  prior 
mortgagees,  and  to  allow  it  to  operate  as  a  lien  upon  the  prop- 
erty in  their  hands  would  be  to  allow  the  mortgagor,  by  a 
subsequent  contract  with  a  stranger,  to  impair  the  security  of 
his  mortgagee.^ 

§  264.  Illustrations.  —  A  banking  company  existed  in  Texas, 
under  a  charter  of  such  a  nature  that  the  letrislature,  in  the  event  of  its 
expiration,  had  not,  under  the  constitution,  the  power  of  renewing  it. 
It  became  insolvent,  and   made  an  arrangement  with  all  its  creditors, 

1  NeS  V.  Wolf  Riv.  Boom  Co.,  50  3  child  v.  New  York&c.  R.  Co.,  129 
Wis.  585.                                                        Mass.  170. 

2  Gilinan  v,  Sheboygan  &c.  R.  Co., 
37  Wis.  317. 

171 


1  Tlioni}).  Corp.  §  264.]     reorganization. 

save  one,  by  which  they  agreed  to  accept  74  cents  in  the  dollar  of 
their  respective  claims.  Thereafter  certain  citizens  subscribed  about 
$20,000,  to  be  added  to  the  assets  of  the  insolvent  bank ;  a  new  bank- 
ing corporation  was  orj^anized  in  a  manner  not  shown  by  the  evidence  ; 
but  it  took  the  same  name  as  the  old  corporation,  and  the  old  corpora- 
tion transferred  all  of  its  assets  to  it,  and  undertook  to  include  in  the 
transfer  its  name  and  corporate  franchises.  It  also  obligated  itself 
to  pay  to  the  new  corporation  whatever  amounts  the  latter  might  be 
compelled  to  pay,  in  excess  of  the  74  cents  in  the  dollar  which  all  the 
creditors  save  one  had  agreed  to  receive  in  compromise  of  their  re- 
spective claims ;  and  the  new  corporation  agreed  to  pay  for  the  old  cor- 
poration this  74  per  cent.  A  dissenting  creditor  brought  an  action 
against  the  new  corporation  to  recover  the  balance  due  him  as  a  depos- 
itor, on  the  theory  that  it  was  the  same  corporation  as  was  the  old. 
The  court  held  that  this  theory  was  correct.  "  The  shareholders  at 
that  time  agreed  with  a  new  set  of  shareholders  that  the  latter  should 
become  substituted  to  the  rights  of  the  former  in  the  corporate  prop- 
erty and  franchises,  in  consideration  of  their  agreeing  to  pay  its  cred- 
itors to  the  extent  of  74  cents  on  the  dollar.  This  is  shown  by  the 
facts  that  the  business  was  resumed  in  the  original  name  of  the  cor- 
poration, and  that  the  original  seal  was  used  in  the  authentication  of 
its  transactions.  The  use  of  the  seal  conclusively  establishes  that  the 
operations  of  the  concern  were  carried  on  under  the  franchises  of  the 
original  charter  and  its  amendments ;  for,  since  the  adoption  of  the 
present  constitution,  no  new  charter  could  have  been  obtained  for  the 
purpose  of  doing  a  banking  business.  It  is  uniformly  held  that  a  cor- 
poration is  not  dissolved  by  the  mere  fact  that  it  becomes  insolvent." 
After  citing  cases  in  illusti-ation  of  this  principle,  the  court  proceed: 
"  There  being  a  mere  change  of  membership,  and  not  a  change  of  the 
corporation  itself,  it  follows  that  the  obligations  existing  against  it  be- 
fore the  original  organization,  continued  to  exist  against  it  when  reor- 
ganized." ^  -  -  -  -  An  agricultural  society,  whose  object,  accord- 
ing to  its  constitution,  was  "  to  improve  the  condition  of  agriculture, 
horticulture,  and  the  mechanic  and  household  arts,"  was  reorganized 
into  a  joint  stock  company,  "  to  improve  the  condition  of  agriculture, 
horticulture,  floriculture,  mechanic  and  household  arts,"  the  name 
being  changed  only  by  substituting  the  word  "  board  "  for  "  society." 
The  old  society  provided  for  holding  annual  fairs,  and  the  new  for 
annual  fairs  and  exhibitions.  It  was  held,  that  there  was  no  substan- 
tial change  in  the  objects  of  the  society;  and  the  new  one,  continuing 
still  a  public  institution,  was  liable  only  to  the  extent  of   its  corporate 

1  Savings  Bank   v.    Sachtleben,   67  Tex.  421,  424. 
172 


AFTER    MORTGAGE    FORECLOSURES.        [1  Thoilip.  Coip.    §   265. 

property,  i  -  -  -  -  Where  an  act  of  assembly  placed  the  coming 
into  existence  of  a  railroad  company  upon  the  contingency  of  the  sale 
of  a  certain  raih'oad  under  a  mortgage  and  purchase  thereby  and  al- 
lowed the  stockholders  in  the  original  company,  by  an  arrangement 
subsequent  to  the  purchase  and  before  the  organization  of  the  new 
company,  to  become  stockholders  of  the  new  company,  without  pay- 
ment of  any  money,  —  it  was  held  that  this  did  not  impose  on  the  new 
company  the  debt  of  the  old.- 

§  265.  But  Assets  of  Old  Corporation  Liable  for  its  Debts 
in  Hands  of  N'ew. —  As  elsewhere  shown, ^  the  assets  of  a  corpora- 
tion are  a  ^rMs^/wncZ  in  its  hands,  for  its  creditors.  From  this 
it  follows  that  any  arrangement  which  involves  an  unauthorized 
diversion  of  this  trust  fund,  from  an  insolvent  to  a  reorganized 
corporation,  will  not  affect  the  rights  of  dissenting  creditors,  so 
^s  to  disable  them  from  following  the  fund  into  the  hands  of 
the  new  corporation  and  subjecting  it  to  the  payment  of  their 
debts.*  Where  the  corporation  is  reorganized  in  such  a  sense  as 
to  create  a  new  corporation,  instead  of  merely  reviving  and 
continuing  the  old  one, — although  the  new  corporation  will 
not  be  liable  at  law  for  the  debts  of  the  old  one,  jet  the  assets 
of  the  old  corporation  may  be  pursued  in  equity,  as  a  trust  fund, 
into  the  hands  of  the  new  corporation,  and  there  subjected  to  the 
debts  of  the  old  corporation.^  So,  a  conveyance  of  its  assets  by 
one  corporation  to  another,  for  the  purpose  of  hindering,  delaying 
or  defrauding  its  creditors,  stands  on  the  same  footing  as  a  fraudu- 
lent conveyance  by  a  private  person,  and  is  voidable  at  the  suit 
of  a  judgment  creditor,  or  otherwise  according  to  the  rules  of 
procedure  of  the  particular  forum.  A  transfer  of  all  the  assets  of 
one  corporation  to  another,  wherebjs  through  a  mere  change  of 
name,  an  attempt  is  made  to  defraud  creditors,  or  which  would 

1  Livingston    County  Agricultural  *  Railroad  Oo.  v.  Howard,  7  Wall. 
Society  V.  Hunter,  110  111.  155.                    (U.   S.)  392;  recognized  in  Vose   v. 

2  Stewart's  Appeal,  72  Pa.  St.  291.      Cowdrey,  49  N.  Y.  343. 

That  an  assumption  by  the  new  com-  ^  Marshall  v.  Western  &c.  R.  Co., 

pany  of  the  debts  of  the  old,  does  not  92  N.  C.  322 ;  Von  Glahn  v.  De  Rosset, 

oblige  it  to   issue    its  shares    to   the  81  N,  C.  4G7;  Railroad  Co.  v.  Rollins, 

shareholders  of  the  old,  in  exchange  82  N.   C.  523;  Dobson  v.  Simontou,  86 

for  theirs,  see  Conant  r.  National  Ice  N.    C.   492;    Agricultural     Society  v. 

Co.,  40  N.  Y.  Super.  83.  Hunter,  110  111.  155. 

3  Post,  §2841. 

17.3 


1  Thonip.  Corp.  §  366]     reorganization. 

operate  as  a  fraud  upon  them,  will  not  be  upheld  as  against  them,, 
and  the  transferee,  taking  the  property  with  notice,  takes  it  cutn 
onere}  Thus,  it  has  been  held  that  if  the  shareholders  in  a  corpo- 
ration enter  into  a  scheme  by  which  they  purport  to  form  a  new 
corporation  and  elect  the  officers  of  the  old  as  officers  of  the  new, 
and  divide  the  stock  of  the  new  among  those  who  were  stockholders 
in  the  old,  in  proportion  to  their  respective  holdings  in  the  old  and 
in  exchange  for  the  same,  and  the  trustees  of  the  old  corporation 
then  cause  its  property  to  be  conveyed  to  the  new,  —  this  convey- 
ance will  be  held  fraudulent  as  to  creditors  of  the  old  corpora- 
tion.^ In  such  a  case,  on  principle,  the  right  of  a  creditor  of 
the  old  corporation  to  pursue  its  property  in  the  hands  of  the 
new  would  seem  to  rest  equally  on  either  of  the  three  following 
grounds:  1.  That  of  a  fraudulent  conveyance,  as  stated  in  the 
case  just  cited.  2.  That  the  property  is  a  trust  fund  for  the 
payment  of  his  debts,  and  that  he  can  follow  it  in  equity  into 
the  hands  of  any  new  taker  with  notice  and  charge  him  as  a 
trustee.  3.  That  the  new  corporation  is  in  fact  merely  a  con- 
tinuation of  the  old,  and  in  law  the  same  person  as  the  old.  In 
some  jurisdictions  the  equitable  interest  of  the  old  corporation  in 
its  assets,  which  have  passed  into  the  hands  of  the  new,  may  be 
levied  upon  under  an  attachment  or  execution  at  the  suit  of  a 
creditor  of  the  old.^ 

§  266.  Illustrations.  — A  good  illustration  of  the  doctrine  of  the 
preceding  paragraph  is  found  in  a  case  where  the  stockholders  of  an 
insolvent  corporation  contracted  to  sell  all  its  property  to  another  cor- 
poration, under  an  arrangement  with  the  mortgagees  of  the  former, 
whereby  such  mortgagees  consented  to  receive  84  per  cent,  of  the 
purchase  money,  in  satisfaction  of  their  claims,  to  a  much  larger  amount, 

1  Blair  v.  St.  Louis  &c.  R.  Co.,  22  corporation  cannot  transfer  its  prop- 
ped. Rep.  36.  erty,  even  for  a  valuable  consideration, 

2  San  Francisco  &c.  R.  Co.  v.  Bee,  to  a  new  corporation  into  which  it  is 
48  Cal.  398.  The  transfer  of  the  prop-  reorganized,  so  as  to  hinder  or  delay 
erty  of  a  corporation  to  a  new  com-  its  creditors  in  the  collection  of  their 
pany,  the  stockholders  of  which  con-  debts,  although  such  hindrance  or  de- 
sist of  the  old  stockholders  and  certain  lay  was  not  the  purpose  of  the  trans- 
creditors  of  the  old  company,  is  fraud-  fer.  McVicker  v.  American  Opera 
ulent  as  to  oi/ier  creditors.     Montgom-  Co.,  40  Fed.  Rep.  861. 

ery  Web.  Co.  v.  Dienelt,  133  Pa.  St.  ^  Such  is    the    law    of    Georgia, 

585;    s.  c.  19  Atl.  428.     An   insolvent      Georgia  Ice  Co.  v.  Porter,  70   Ga.  637. 
174 


FRAUDULENT  ARRANGEMENTS.   [1  ThoiUp.  Coi'p.  §  266. 

and  whereby  the  residue  (16  per  cent.)  was  to  be  paid  to  the  stock- 
holders, which  arrangement  left  certain  judgment  creditors  unpaid. 
It  was  held  that  this  residue  of  16  per  cent,  represented  the  equity  of 
redemption  in  the  mortgaged  property,  and  belonged  to  the  insolvent 
corporation,  and  not  to  its  stockholders ;  that  the  corporation  was 
entitled,  as  trustee  for  its  creditors,  to  the  benefit  of  the  rebate  made 
by  the  mortgagee ;  and  that  the  judgment  creditors  were  entitled  to 
have  it  applied  to  their  demands  in  preference  to  the  stockholders,  to 
whom,  by  the  terms  of  the  contract,  it  was  payable ;  and  further,  that  it 
made  no  difference  that  the  title  to  the  property  was  transferred  to  the 
purchaser  by  means  of  a  foreclosure  of  the  mortgage  thereon,  —  such 
foreclosure  having  been  made  in  pursuance  of  the  arrangement,  and 
merely  as  a  means  of  consummating  the  contract  of  sale  and  transferring 
a  clear  title.i  -  -  -  -  On  the  other  hand,  the  application  of  this 
principle  was  denied  in  a  case  presenting  the  following  state  of  facts : 
Certain  creditors  of  an  insolvent  railroad  company  entered  into  an 
agreement  to  purchase  the  property  of  the  company  upon  a  foreclosure 
sale  and  to  organize  a  new  company.  The  agreement  provided  for  the 
issuing  of  bonds  and  stock  by  the  new  company,  apportioning  the  same 
among  the  holders  of  the  mortgage  bonds,  actually  issued,  of  the  old 
company,  and  certain  other  specified  creditors.  The  property  was  pur- 
chased for  less  than  the  aggregate  amount  of  such  mortgage  bonds,  and 
was  afterwards  transferred  to  the  new  company,  its  bonds  and  stocks 
issued,  and  apportioned  as  provided  in  the  agreement.  The  old  com- 
pany being  indebted  to  H. ,  one  of  the  parties  to  the  creditors'  agree- 
ment, for  iron  rails  furnished  by  him,  and  A.,  being  equitably  entitled, 
under  the  contract  of  purchase,  to  its  mortgage  bonds,  for  the  unpaid 
balance  on  the  rails,  he  brouglit  suit  claiming  that,  his  claim  not  being 
included  in  the  first  mentioned  agreement,  the  bonds  to  which  he  was 
equitably  entitled  should  be  deemed  to  have  been  actually  issued  to  him, 
at  the  date  of  making  the  creditor's  agreement,  and  that  the  property 
in  the  hands  of  the  new  company  be  deemed  held  by  it  in  trust  to  pro- 
vide for  plaintiff's  mortgage  bonds,  as  for  those  which  had  actually 
been  issued  and  provided  for  in  such  agreement.  The  complaint  alleged 
no  fraud,  either  in  the  creditors'  agreement  or  the  foreclosure  sale,  or 
that  any  of  the  stockholders  in  the  old  company  derived  benefit  from 
the  creditor's  agreement.  The  defendants  demurred.  It  was  held: 
1.  That  the  parties  to  the  creditors'  agreement  wore  bona  fide  pur- 
chasers, and  acquired  the  property  unincumbered  by  any  trust,  ex- 
cept such  as  was  expressed  in  the  agreement  itself.  2.  That  although, 
as  between  the  old  company  and  its  creditors,  equity  would  deem  that 

1  Railroad  Co.  v.  Howard,  7  Wall.  (U.  S.)  392. 

175 


1  Thoinp.  Corp.  §  267.]     reorganization. 

to  have  been  done  which  ought  to  have  been  done,  this  rule  would  not 
apply  to  the  rights  of  third  parties  (as  between  each  other),  who  had 
contracted,  with  reference  to  acts  of  the  company  already  pex'formed, 
and  that  the  plaintiff,  having  himself  been  a  party  to  that  contract  and 
received  benefit  from  it,  could  not  bring  it  within  the  rule.  3.  That 
therefore  the  facts  stated  in  the  complaint  did  not  constitute  a  cause 
of  action.^  -  -  _  -  The  Supreme  Court  of  Georgia  has  said  that 
*'the  conversion  of  a  trading  company,  acting  as  a  corporation  de 
facto,  into  one  de  jure,  will  not  exempt  the  property  held  in  the  latter 
character  from  liability  for  the  obligations  of  the  former."  ^ 

§  267.  When  New  Corporation  Liable  for  Debts  of  Old.  — 

While,  as  a  general  rule,  the  corporation  which  succeeds,  by  a 
purchase  under  a  foreclosure  sale,  to  the  property  of  another  cor- 
poration, is  not  liable  for  its  general  debts,  it  may  become  so  by 
organizing  under  a  statute  which  imposes  this  liability  upon  it. 
Such  was  the  case  where  the  Terre  Haute,  Alton  &  St.  Louis 
Railroad  was  sold  under  a  judgment,  and  its  purchasers  were, 
by  an  act  of  the  legislature  of  Illinois,  incorporated  under  the 
name  of  the  St.  Louis,  Alton  and  Terre  Haute  Railroad  Com- 
pany, with  the  following  proviso  in  their  charter:  *'  All  bona 
fide  claims  or  judgments  for  stock  heretofore  killed  by  the 
Terre  Haute,  Alton  &  St.  Louis  Railroad,  and  all  claims  for 
right  of  way  on  that  part  of  the  road  from  Belleville  to 
lUinoistown,  and  all  just  dues  for  work  and  labor  done,  and  for 
wood  and  ties  furnished  or  taken  for  the  said  Terre  Haute, 
Alton  and  St.  Louis  Railroad  Company,  shall  be  assumed  and 
paid  by  the  St.  Louis,  Alton  and  Terre  Haute  Railroad  Com- 
pany, as  a  condition  precedent  to  the  operation  of  this  act."  ^ 
It  was  said  of  this  statute;  "  It  was  manifestly  the  intention 
of  the  legislature,  in  thus  clothing  appellants  with  the  property 
and  franchises  of  the  old  company,  to  place  them  as  a  corpora- 
tion in  their  shoes,  on  certain  conditions,  one  of  which  was 
that  they  should  pay  and  discharge  all  unsatisfied  judgments 
recovered  against  the  old  company  for  work  and  labor  per- 
formed for  it  on  their  railroad.  The  name  of  the  old  company 
may  remain,  but  that  is  all.     It  is  stripped  of  all  its  powers  and 

1  Vose  V.  Cowdrey,  49  N.  Y.  336.  '  111.  Priv.  Acts  of  1861,  p.  530. 

2  Georgia  Ice  Co.  v.  Porter,  70  Ga. 
637,  642. 

176 


DEBTS  OF  OLD  COMPANY.     [1  Tliomp.  Corp.  §  268. 

franchises  and  property,  to  all  of  which  appellants  have  suc- 
ceeded, and  they  have  assumed,  in  consideration  of  the  grant,  to 
become  the  debtors  of  such  creditors  of  the  old  company  as  had 
obtained  judgments  against  it  for  work  and  labor  done  upon  their 
road,  the  benefits  of  which  appellants  are  in  the  full  and  undis- 
turbed enjoyment."  It  was  not  a  good  argument,  in  an  action 
brought  against  the  new  company  on  a  liability  of  the  old,  that 
the  statute  had  given,  in  express  terms,  no  action,  for  the  com- 
mon law  would  supply  the  remedy;  nor  was  it  an  available  ar- 
gument that  the  new  corporation  was  not  di  party  io  the  judg- 
ment against  the  old;  nor  that  no  notice  had  been  given  to  the 
new  company  of  the  existence  of  the  judgment,  since  the  statute 
required  no  notice.^  So,  of  course  there  might  be  a  valid  agree- 
ment, between  the  corporation,  the  trustees  in  the  mortgage  and 
the  bondholders  that,  after  a  sale  under  the  mortgrase,  the  com- 
pany  should  be  so  reorganized  that  the  stockholders  and  unse- 
cured creditors  of  the  old  company  should  become  stockholders 
in  the  new.  Such  an  agreement  would  modify  to  that  extent 
the  ordinary  effect  of  a  mortgage  sale.^  It  seems  that  no  en- 
abling act  is  necessary  in  order  to  the  validity  of  such  an  agree- 
ment, since  it  is  nothing  more  than  a  concession  by  the  mort- 
gage creditors  to  the  unsecured  creditors  and  stockholders,  who 
are  merely  creditors  of  an  inferior  class. 

§  268.  Organization  of  New  Company  does  not  Necessarily 
Destroy  Old.  —  The  organization  of  a  new  corporation  upon  the 
ruins,  so  to  speak,  of  the  old,  does  not  necessarily  have  the  effect 
of  destroying  the  legal  existence  of  the  old,  so  as  to  prevent 
actions  being  prosecuted  against  it.^  An  illustration  of  this  is 
frequently  seen  in  the  case  where  a  mortgage  covering  all  the 
property  and  franchises  of  a  railway  company  has  been  fore- 
closed, and  a  new  corporation  has  been  organized  by  the  pur- 
chasers at  the  foreclosure  sale  to  own  and  operate  the  property. 
In  such  a  case  the  original  company  continues,  for  the  purposes 
of  legal  remedies,  until  regularly  dissolved.     A    case    in    New 

1  St.  Louis  &c.  R.  Co.  V.  Miller,  43  »  See  for  illustration  of  this,  Cary 
111.  199.  V.  Schoharie  Valley  &c.  Co.,  4  Thomp. 

2  See  Smith  v.  Chicago  &c.  R.  Co.,  &  C.  (N.  Y.)  285;  ante,  §  256, 
18  Wis.  17. 

177 


1  Thomp.  Corp.  §  269.]     reorganization. 

Jersey  presents  an  anomalous  state  of  facts,  where  there  was  a 
partial  consolidation  between  two  corporations,  and  then  a  subse- 
quent reorganization  of  one  of  them,  under  a  new  legislative  act 
authorizing  it  to  increase  its  stock.  On  the  state  of  facts  pre- 
sented, it  was  held  that  the  company  which,  under  the  arrange- 
ment, was  to  absorb  the  other  by  receiving  all  its  stock  and  pro- 
perty, real  and  personal,  would  be  protected  in  equity  in  the 
possession  of  what  it  had  received.  It  was  also  held  that  the 
reorganized  company  which,  under  the  statute  authorizing  its  re- 
organization, had  taken  a  new  name  was  a  new  company  in 
respect  of  the  property  owned  by  the  predecessor  company,  had  no 
title  either  legal  or  equitable  to  the  property  which  such  company 
had  agreed  to  convey  to  the  absorbing  company.  For  the  pur- 
poses of  the  case,  the  court  fell  back  upon  the  other  proposition, 
that  if  it  were  mistuken  in  this,  and  if  the  new  company  were  not 
a  new  corporation,  but  was  merely  the  old  company  under  a  new 
name,  then  the  increased  stock  authorized  by  the  legislature,  as  well 
as  the  old  stock,  belonged  in  equity  to  the  absorbing  company,^ 

§  269.  Stockholders  Bound  to  take  Notice  of  Plan  of  Re- 
organization, and  to  Signify  their  Assent  within  the  Prescribed 
Time.  —  Where  a  scheme  of  reorganization  is  drawn  up  under 
the  provisions  of  a  statute,  the  stockholders  are  not  entitled  to 
special  notice  of  it,  unless  the  statute  so  provides ;  since  it 
would  be  impracticable  to  convey  notice  to  the  many  scattered 
stockholders  of  a  railway  company,  living  in  different  countries 
and  continually  changing  by  the  transfer  of  shares.  On  the 
other  hand,  they  are  bound  to  take  notice  of  it,  and  may  fairly 
be  presumed  to  take  notice  of  a  judicial  proceeding  affecting 
their  interests,  of  so  public  a  character  as  the  foreclosure  of  a 
mortgage  upon  the  property  and  franchises  of  a  railway  cor- 
poration, whose  stockholders  they  are.  Where  a  reasonable 
time  has  been  allowed  then,  e.g.^  six  months,  to  come  in  and 
assent  to  the  scheme  and  comply  with  its  terms,  if  they  do  not 
come  in  within  that  time  they  will  be  barred  and  can  have  no 
relief  in  a  court  of  equity.^ 

1  New  Jersey  Zinc  Co.  v.  Boston  96  N.  Y.  49;  reversing s.  c.  11  Abb.  N. 
Franklinite  Co.,  15  N.  J.  Eq.  418.  C.  (N.  Y.)  133. 

2  Vatable  v.  New  York  &c.  R.  Co., 

178 


AFTER    FORECLOSURE    SALE.        [1  Thomp.  Coi'p.    §   271. 

§  270.  Members  of  Stockliolders'  Committee  cannot  Pur- 
chase at  Sale.  —  It  is  an  established  principle  in  equity  that  an 
agent  or  trustee  shall  not  be  both  the  seller  and  buyer  of  the 
same  property.^  Where,  in  the  event  of  the  insolvency  of  the 
corporation,  the  stockholders  meet  and  arrange  to  sell  the  prop- 
erty for  the  purpose  of  liquidation,  and  a  sale  takes  place,  and 
some  of  the  committee  of  stockholders,  appointed  to  attend  to 
the  matter,  turn  out  to  be  interested  in  the  purchase,  the  sale 
will  be  set  aside  on  application  to  a  court  and  the  showing  of 
these  facts,  at  the  pleasure  of  the  other  beneficiaries,  although 
the  price  may  have  been  adequate,  and  although  the  purchaser 
may  have  acquired  no  advantage.^  On  the  same  principle,  where 
a  corporation,  formed  for  manufacturing  purposes,  of  which  A. 
was  a  member,  voted  to  sell  its  property,  consisting  of  real  estate 
and  machinery,  and  such  property  was  purchased  by  A.,  not  for 
himself,  but  for  such  members  of  the  corporation  as  should, 
within  a  short  time,  pay  their  proportion  of  the  debts  of  the  cor- 
poration and  of  the  purchase  money;  and  a  large  majority  of 
such  members,  formed  a  new  association,  assumed  the  debts 
of  the  old  company  and  paid  the  purchase-money,  —  it  was 
held,  in  a  case  in  equity  that,  as  a  majority  of  the  members 
of  the  corporation,  acting  as  agents  for  all,  were  in  fact 
both  buyers  and  sellers,  the  sale  was  void.^  But  in  such  a 
case  a  stockholder,  who  has  the  right  to  maintain  a  suit  in 
equity  to  set  aside  such  a  sale,  will  lose  his  rights  by  failing  to 
disajjirm  the  transaction,  or  to  move  for  relief  for  an  unrea- 
sonable length  of  time,  especially  where,  by  his  delay,  he  has 
avoided  a  risk  which  otherwise  he  must  have  shared  with  the 
adverse  party. ^ 

§  271.  But  Creditors  may  Combine  to  Purchase  and  Reor- 
ganize.—  Where  a  default  has  occurred  in  the  interest  secured 
by  a  railway  mortgage,  the  creditors  of  the  corporation  may, 
without  any  imputation  of  fraud,  combine  for  the  purpose  of 
protecting  themselves,  by  purchasing  the  property  when  legally 
brought  to  sale  to  foreclose  the  mortgage,  — provided,  it  is  no 

>  Banks  v.  Judah,  8  Conn.  145.  ^  Banks  v.  Judah,  8  Conn.  145. 

2  Reilly  v.  Oglebay,  25  W.  Va.  36.  *  Ibid. 

179 


1  Thomp.  Corp.  §  27 3. J     reorganization. 

part  of  the  agreement  to  prevent  competition  at  the  sale,  or  to 
acquire  any  unfair  advantage  over  others.^ 

§  272.  When  Minority  of  Shareholders  not  Bound  by  Reor- 
ganization by  Majority — On  principles  which  have  already  been 
fully  discussed,'^  where  the  governing  statute  provides  that,  when 
the  corporation  expires  by  limitation,  it  shall  remain  a  corpora- 
tion simply  for  the  purpose  of  having  its  affairs  wound  up,  —  a 
majority  of  the  sliareliolders  cannot,  by  a  reorganization  bind  the 
minority,  so  as  to  continue  their  property  in  the  new  corporate 
venture.  The  minority  are  therefore  not  bound  by  a  scheme  of 
reorganization  concocted  by  the  majority,  whereby  the  corpo- 
rate property  is  to  be  transferred  to  the  new  corporation  at  a 
certain  valuation,  unless  at  an  attempted  cash  sale  at  auction, 
no  more  can  be  procured.^  In  such  a  case  the  minority  will 
be  entitled  to  an  injunction  to  prevent  the  intended  sale,  and 
to  a  decree  directing  the  sale  of  the  property  for  cash  to 
the  highest  bidder,  the  proceeds  of  the  sale  to  be  applied 
to  the  payment  of  the  corporate  debts  and  thereafter  to  the 
shareholders  upon  a  pro  rata  distribution,  —  with  the  proviso 
that,  if  no  bid  exceeds  the  valuation  fixed  by  the  directors,  the 
arrangement  sanctioned  by  the  majority  may  be  carried  out,  and 
the  property  conveyed  to  the  new  company.* 

§  273.  When  Minority  of  Bondholders  Bound  by  Reorgani- 
zation by  Majority. —  A  recent  case  in  Connecticut  runs  contrary 
to  this  view  so  far  as  concerns  the  rights  of  the  bondholders,  on 
grounds  which  have  been  exceedingly  well  summed  up  in  the  re- 
porter's syllabus,  as  follows:  "Where  a  railroad  company  is 
chartered  with  power  to  take  private  property  and  to  construct 

1  Kitchen  v.  St.  Louis  &c.  R.  Co.,  ^  Mason  u.Pewabic  Mining  Co.,  25 
69  Mo.  224;  Pennsylvania  Transp.  Fed.  Rep.  882.  Circumstances  under 
Co.'s  Appeal,  101  Pa.  St.  576  (inwbich  which  a  bill  in  equity,  by  a  dissenting 
case  it  was  held  that  there  was  noth-  stockholder  to  prevent  the  reorganiz- 
ing in  the  agreement  illegal  or  fraud-  ation  and  consolidation  of  the  com - 
ulent  as  to  the  complainant,  a  pany,  was  rejected:  Mills  v.  Hurd, 
judgment  creditor  of  the  old  com-  29  Fed.  Rep.  410. 
pany).  See  also  Sage  u.  Central  R.  *  Ibid.  The  annexing  of  this  pro- 
Co.,  99  U.  S.  334.  viso   seem  to  be   a  large  stretch  of 

2  Ante,  §  71,  et  seq.  equitable  discretion. 
180 


AFTER    FORECLOSURE    SALE,       [1  Thomp.   CoPp.    §   273. 

and  operate  its  road,  the  authority  given  is  in  the  first  instance 
permissive  merely,  and  no  obligation  rests  upon  the  company  to 
exercise  the  powers  granted.  But  wliere  the  company  has  taken 
private  property  and  constructed  its  road,  it  has  come  under  an 
obligation  to  carry  into  effect  the  objects  of  its  charter,  and  its 
capital  stock,  franchises  and  property  stand  charged  primarily 
with  this  public  trust.  Where  such  a  company  is  empowered  to 
issue  bonds  and  to  secure  them  by  a  mortgage  of  its  franchise 
and  all  its  property,  the  mortgagees  take  the  mortgage  subject 
to  this  trust.  Where  such  a  company  fails  and  the  mortgage 
has  to  be  foreclosed,  the  legislature  has  full  power  to  authorize 
the  bondholders,  by  a  vote  of  a  majority,  and  with  an  equal 
opportunity  to  all,  to  reorganize  as  a  new  corporation,  with  the 
rights  of  the  old  corporation,  such  authorized  action  being 
merely  a  mode  of  securing  the  performance  of  the  paramount 
public  trust;  and  a  dissenting  minority  have  no  private  rights 
that  can  be  successfully  asserted  against  such  action."  ^  This  is 
in  accordance  with  views  which  have  been  expressed  by  Mr. 
Chief  Justice  Waite,  of  the  Supreme  Court  of  the  United  States: 
"To  allow  a  small  minority  of  bondholders,  representing  a 
comparatively  insignificant  amount  of  the  mortgage  debt,  in  the 
absence  of  any  pretense  even  of  fraud  or  unfairness,  to  defeat 
the  wishes  of  such  an  overwhelming  majority  of  those  associated 
with  them  in  the  benefits  of  their  common  security,  would  be  to 
ignore  entirely  the  relation  which  the  bondholders  secured  by  a 
railroad  mortsrage,  bear  to  each  other.  Railroad  mort^aofes  are 
a  peculiar  class  of  securities.  The  trustee  represents  the  mort- 
gage, and  in  executing  his  trust  may  exercise  his  own  discretion 
within  the  scope  of  his  powers.  If  there  are  differences  of 
opinion  among  the  bondholders  as  to  what  their  interests  require, 
it  is  not  improper  that  he  should  be  governed  by  the  views  of 
the  majority,  acting  in  good  faith  and  without  collusion,  if  what 
they  ask  is  not  inconsistent  with  the  provisions  of  his  trust."  ^ 
A  stricter  view  is  that  the  scheme  of  reorganization  can  only  be 
made  effective  by  the  consent  of  all  the  original  bondholders, 
enforced  by  a  foreclosure  cutting  off  their  lien  ;  that  a  bond- 

'  Gates  V.    Boston    &,c.  11.  Co.,  53  2  shaw  v.  Railroad   Co.,  100  U.  S. 

Conn.  333.  .  605,  612. 

181 


1  Thonip.  Corp.  §  271.]     reorganization. 

holder  has  a  right  to  stand  upon  his  contract,  and  that  the  trust- 
ees have  no  power  to  compel  him  to  make  a  new  and  different 
one.  It  is  a  part  of  this  conclusion  that  the  trustees  and  a 
majority  of  the  bondholders  have  no  right  to  enter  into  a  scheme 
of  reorganization,  against  the  dissent  of  a  minority,  which  shall 
involve  a  waiver  of  default  in  the  payment  of  principal  and  in- 
terest on  the  bonds.  Each  bondholder  has  a  right  to  what  his 
contract  gives  him,  and  judicial  power  does  not  extend  to 
setting  it  aside  at  the  will  of  a  majority  of  those  standing  in  the 
same  relation  with  him,  however  great. ^  Under  this  view  the 
majority  of  the  bondholders  will  be  obliged  either  to  see  that 
the  mortgage  is  foreclosed  according  to  its  terms,  or  else  to  pur- 
chase the  interests  of  the  dissenting  minority. 

§  274.  Reorj^anization  under  British  and  Canadian  Arrange- 
ment Acts.  —  In  Great  Britain  and  in  the  Dominion  of  Canada, 

where  the  power  of  the  parliament  is  supreme,  — that  is  to  say, 
unhampered  by  any  constitutional  prohibition  against  the  passing 
of  laws  impairing  the  obligation  of  contracts,  or  against  depriving 
persons  of  life,  liberty  or  property  without  due  process  of  law,  — 
it  is  competent  for  the  parliament  to  enact  a  law  providing  for  a 
composition  or  arrangement  among  the  parties  interested  in  the 
assets  of  an  insolvent  corporation,  although  the  effect  of  such 
law  may  be  to  compel  a  minority  to  surrender  their  rights  at  the 
will  of  the  majority,  —  which,  as  already  seen,  it  is  not  com- 
petent for  the  legislatures  of  the  American  States  to  do.^ 
"  Hitherto,"  said  Lord  Cairns,  L.  J.,  in  discussing  such  an  act, 
"  such  companies,  if  they  desired  to  raise  further  capital  to  meet 
their  engagements,  have  been  forced  to  go  to  parliament  for  a 
special  act,  enabling  them  to  offer  such  advantages  by  way  of 
preference  or  priority  to  persons  furnishing  new  capital  as  would 
lead  to  its  being  obtained.  And  parliament,  in  dealing  with  such 
applications,  has  been  in  the  hal)it  of  considering  how  far  the 
arrangements  proposed  as  to  such  new  capital  were  assented  to 
or  dissented  from  by  those  who  might  be  considered  as  the  pro- 
prietors of  the  existing  capital  of  the  company,  either  as  share- 

'  Hollister  v.  Stewart,    ill   N.  Y.  nying  Ketchum  v.  Duncan,   96  U.  S. 

644;  distinguishing  Canada  Soutliern  659. 
R.  Co.  V.  Gebliard,  109  U.  S.  527;  de-  2  ^nte,  §  66  et  seq. 

182 


BRITISH    ARRANGEMENT    ACTS.        [1  ThODip.  Corp.    §   274. 

holders  or  bondholders.  The  object  of  the  present  act  .  . 
nppears  to  be  to  dispense  with  a  special  application  to  parliament 
of  the  kind  I  have  described,  and  to  give  a  parliamentary  sanction 
to  a  scheme  filed  in  a  court  of  chancery,  and  confirmed  by  the 
court,  and  assented  to  by  certain  majorities  of  shareholders  and 
holders  of  debentures  and  securities  ejusdem  generis. ^^  ^  It  is 
said  that  the  practice  still  prevails  in  England  of  passing  special 
"arrangement  acts,"  whenever  the  provisions  of  the  general  act 
above  referred  to  by  Lord  Cairns  are  not  such  as  are  needed  to 
meet  the  wants  of  a  particular  company. ^  In  Canada,  as  late  as 
1883,  there  was  no  general  statute  on  this  subject  like  that  in 
England,  but  the  practice  of  passing  special  acts  prevailed;  and 
it  was  said  in  one  case  in  Canada:  "  Our  statute  books  are  full  " 
of  legislation  of  this  kind.'  The  authority  of  parliament  to  pass 
such  laws  seems  never  to  have  been  doubted,  either  in  England 
■or  in  Canada.  "  Many  cases  are  reported  in  which  such  statutes 
were  under  consideration,  but  in  no  one  of  them  has  it  been  inti- 
mated that  the  power  was  even  questionable."  *  The  Supreme 
■Court  of  the  United  States,  after  an  investigation  of  this  matter, 
has  held  that  the  parliament  of  Canada  has  authority  to  grant  to 
an  embarrassed  railway  corporation,  within  that  Dominion,  the 
power  to  make  an  arrangement  with  its  mortgage  creditors  for 
the  substitution  of  a  new  security  in  the  place  of  the  one  which 
they  hold,  and  to  provide  that  the  arrangement  shall  be  binding 
on  all  the  holders  of  obligations  secured  by  the  same  mortgage, 
when  it  shall  hav(;  received  the  assent  of  the  majority,  —  pro- 
vision being  made  for  the  protection  of  the  minority  in  the  en- 
joyment of  rights  and  privileges  in  the  new  security  identical 
with  those  of  the  majority.^  It  was  further  held,^  that  such  an 
arrangement  is  binding  upon  citizens  of  the  United  States,  who 
are  bondholders  in  the  Canadian  corporation,  where  it  gives  them 
the   same  rights  to  participate    in  the  reorganization  which  are 

1  Re  Cambrian  Railways  Company's  '  Jones  v.  Canada  Central  R.  Co., 
Scheme,  L.  R.  3  Ch.  294.  46  Up.  Can.  Q.  B.  250. 

2  Waite,  C.  J.,  in  Canada  South-  ^  Waite,  C.  J.,  in  Canada  South.  R. 
€rn  R.  Co.  v.  Gebhard,  109  U.  S.  534;  Co.  v.  Gebhard,  sjtpm. 

citing    London     Financial     Asso.    v.  ^  Canada  South.  R.  Co.  v.  Gebhard, 

Wrexham    &c.   R.   Co.,   L.  R.   18   Eq.       109  U.  S.  527. 

566.  6  Mr.  Justice  Harlan  dissenting. 

183 


1  Thomp.  Corp.  §  375.]     reorganization. 

accorded  to  Caiiadiiin  citizens,  or  other  British  subjects.^  The 
case  is  an  apt  and  forcible  illustration  of  the  principle  that  rights 
in  a  corporation  are  governed  by  the  law  of  the  place  of  the 
domicile  of  the  corporation. 

§  275.  Compromise  Arrangement  must  be  Substantially 
Complied  with.  —  It  is  scarcely  necessary  to  say  that  where  a 
compromise  arrangement  is  entered  into  by  different  classes  of 
corporate  creditors,  whereby  they  surrender  up  their  various  se- 
curities and  accept  bonds  under  a  new  mortgage,  unless  the  ar- 
rangement is  substantially  complied  with,  it  will  relieve  any 
dissenting:  siorner  of  the  contract,  and  he  will  be  entitled  to  stand 
upon  his  original  rights.^  On  the  other  hand,  to  entitle  the 
stockholder  to  the  benefits  of  the  scheme,  he  must  comply  sub- 
stantially with  its  terras.  Thus,  where,  by  the  terms  of  the 
scheme  as  supplemented  by  an  act  of  the  legislature,  the  stock- 
holders were  to  have  its  benefits,  provided  they  should  pay  ten 
per  cent,  on  the  amount  of  their  stock  within  a  time  specifiedy 
otherwise  forfeit  all  rights  under  it,  —  a  stockholder  who  paid 
the  ten  per  cent,  after  the  specified  time,  could  not  maintain  an 
action  to  enforce  any  rights  under  the  scheme.^  So,  where  it 
was  a  part  of  the  scheme  that  the  subscribers  should  surrender 
their  bonds,  with  all  the  coupons  thereon,  whenever  they  should 
be  required  to  do  so,  and  should  receive  in  lieu  thereof  the  new 
bonds  provided  for  by  the  scheme,  —  a  bondholder,  signing  the 
ao-reement,  who  received  notice  to  surrender  his  bonds,  but  failed 
to  do  so  until  after  the  purchase  of  the  road  at  forclosure  sale 
and  the  formation  of  the  new  company,  could  not  claim  any  ben- 
efits under  the  scheme,  or  insist  on  the  delivery  of  the  new 
bonds,  not  having  complied  with  its  terms.* 

1  Ibid.  469.    Agreements  which  have  been  held 

2  Miller  v.  Rutland  &c.  R.  Co.,  49  void  as  against  public  policy.  Munson 
Vt.  399;  s.  c.  94  Am.  Dec.  414.  v.  Syracuse  &c.  R.  Co.,  29  Hun  (N.  Y.), 

3  Van  Alstyne  v.  Houston  &c.  R.  7G;  Bliss  v.  Matteson,  45  N.  Y.  22. 
Co.,  56  Tex.  373.  Compare  Harts  v.  Brown,  77  111.  226; 

*  Carpenter  v.  Catlin,  44  Barb.  (N.  Twin  Lick  Oil  Co.  v.  Marbury,  91  U. 

Y.)  75.     Equities  of  particular  bond-  S.   587;  Kitchen   ■;;.    St.  Louis  &c.  R. 

holders  or  stockholders  under  arrange-  Co.,  69  Mo.  224;  Carter  v.  Ford  Plate 

ments  for  the  reorganization  of  insolvent  Glass   Co.,   85  lud.    180;    Jackson  v.. 

corporations:    Ex  parte  White,  2  S.  C.  Ludeling,  21  Wall.  (U.  S.)  616. 
184 


COMPROMISE    ARRANGEMENTS.       [1  Thomp.  Corp.    §   277. 

§   276.  Bondholder  may  Lose  his  Rights  by  Laches.  —  As 

already  suggested,  the  holder  of»  a  corporate  security,  whether 
shares  of  stock  or  mortgage  bonds,  may  lose  his  rights  to  object 
to  a  scheme  of  foreclosure  and  arrangement,  by  standing  by 
until  the  rights  of  third  parties  have  intervened  in  such  a  manner 
that  the  arrangement  could  not  be  broken  up  so  as  to  place  the 
parties  in  statu  quo.  Thus,  a  bondholder  of  a  former  corpora- 
tion has  no  standing  in  chancery  to  dissolve  the  present  organiz- 
ation of  a  railway  company,  for  which  his  agent  had  voted  his 
bonds,  in  excess  of  his  authority,  and  to  enforce  a  different  plan, 
where  it  appears  that  he  knew  of  what  his  agent  was  doing,  did 
not  dissent  from  it,  but  accepted  his  share  of  the  bonds  of  the 
new  organization,  had  offered  to  buy  and  sell  them,  and  had 
brought  suit  for  them.  Such  conduct  was  justly  deemed  to  be  a 
ratification  of  the  act.  It  was  also  regarded  as  conduct  inducing 
others  to  believe  that  he  acquiesced  in  the  organization,  and 
hence  such  as  worked  an  equitable  estoppel  against  his  disputing 
it.*  After  a  railroad  has  been  sold,  the  sale  confirmed,  the  new 
corporation  organized,  its  stock  issued  and  passed  into  the  hands 
of  the  public,  original  bondholders,  secured  by  the  mortgage 
which  was  foreclosed,  will  not  be  allowed  to  come  into  the  case 
for  the  first  time,  be  made  parties  to  it,  reopen  it,  and  object  to 
and  impeach  the  decree  of  foreclosure  and  sale.  They  are  rep- 
resented in  the  litigation  by  the  trustees^  and  if  it  is  proper  for 
them  to  be  made  parties  at  all,  they  should  be  made  such  prior 
to  the  decree  of  foreclosure,  at  least  prior  to  the  decree  confirm- 
ing a  sale.  They  cannot  come  in  at  the  end  of  a  long  litigation 
and  be  made  parties  to  the  suit,  and  be  treated  in  the  double 
aspect  of  persons  who  are  parties  to  the  suit,  and  who  have  all 
the  rights  of  parties  from  the  beginning  and  also  of  persons  who 
were  not  parties  to  the  suit  and  whose  rights  have  not  been  fore- 
closed.^ 

§  277.  Rights  of  Holders  of  Income  Bonds.  —  The  holder 
of  bonds  of  a  railroad  and  telegraph  company,  wiiichare  secured 
upon  the  income  to  be  derived  from  sales  of  the  lands  of  the 
company  and  from  the   operation  of  its  road  and  line,  retains, 

1  Matthews  v,  Murchison,  15  Fed.  ^  Wetraore  v.  St.  Paul  &c  R.   Co.,  5 

Rep.  691.  Dill.  (U.  S.)  531,  per  Miller,  J. 

185 


1  Thomp.  Corp.  §  378.]     reorganization. 

after  the  consoliiUition  of  the  company  with  another,  a  specific 
lien  upon  the  income  derived  from  the  property  which  has  gone 
from  his  debtor  into  the  hands  of  the  new  company,  and  he  may 
maintain  a  bill  in  equity  to  enforce  it  after  default  in  payment 
of  the  principal  of  the  bonds,  or  of  the  interest  according  to 
their  tenor. ^  Nor  will  the  new  company  be  liable  for  expenses 
incurred  in  operating  the  property  between  the  date  of  the  fore- 
closure and  the  organization  of  the  new  company,  unless  its  pos- 
session of  the  property  is  affirmatively  shown.  The  presump- 
tion in  such  a  case  will  be  that  the  purchaser  at  the  foreclosure 
sale,  and  not  the  company  organized  to  acquire  and  operate  the 
property,  was  in  possession  during  this  interval  and  down  to  the 
time  of  filing  the  certificate  of  reorganization. ^  On  the  other 
hand,  the  old  company  is  not  liable  for  an  obligation  incurred  in 
operating  the  road  after  the  foreclosure  sale,  provided  the  pur- 
chaser has  in  point  of  fact  taken  possession.^ 

§  278.  Effect  of  Transforming  a  Partnership  into  a  Cor- 
poration. —  The  effect  of  transforming  a  partnership  into  a 
corporation  is  such  that,  as  soon  as  the  life  of  the  corporation 
commences,  the  property  ceases  to  be  partnership  property;  the 
partners  cease  to  be  partners  and  become  shareholders;  their 
lien  on  the  partnership  property  ceases  and  their  character  as 
shareholders  begins  ;  so  that  those  who  claim  through  a  share- 
holder cannot  set  up  such  a  lien.  A  corporation,  formed  by 
and  consisting  of  the  members  of  a  partnership  for  the  pur- 
pose of  conducting  the  partnership  business  by  means  of  the 
partnership  property,  takes  the  latter  freed  from  equities  sub- 
sisting among  the  partners,  all  of  which  are  settled  and  extin- 
guished by  the  transfer  of  the  assets  from  the  partnership  to 
the  corporation.*  Such  a  transfer  does  not,  however,  divest  any 
equities  which  creditors  may  have  in  respect  of  the  partnership 
assets.^ 


•  Rutten  V.  Union  Pacific  R.  Co.,  17  •*  Francklyn  v.  Sprague,  121  U.    S. 

Eed.  Rep.  480.  215.     See  Hoyt  u.  Sprague  and  Franck- 

2  Pittsburgh;&c.  R.  Co.  v.  Fierst,  96  lyn  v.  Sprague,  103  U.  S.  613. 

Pa.  St.  144.  ^  Francklyn  v.  Sprague,    121  U.    S. 

3  Wellsborough  &c.  Plank  Road  Co.  215,  229. 
-».  Griffin,  57  Pa.  St.  417. 

186 


UNDER    GENERAL    LAWS.       [1  Thomp.   Corp.    §   279. 

§  279.  Abortive  Corporations  Re-incorporated  under  a  Gen- 
eral Law. — A  company,  organized  under  a  charter  which  is  void 
because  passed  in  violation  of  a  constitutional  inhibition,  may 
save  its  rights,  so  far  as  such  rights  are  conferred  in  a  general 
statute  relating  to  companies  of  the  like  kind,  by  reorganizing 
under  such  general  law.^  In  like  manner,  where  a  company  has 
become  incorporated  under  one  statute,  but  has  never  entered 
upon  business  in  the  corporate  character  thus  assumed,  it  may, 
it  has  been  held,  without  taking  any  steps  to  dissolve  such  incor- 
poration, afterwards  proceed  to  incorporate  anew  under  a  differ- 
ent statute,  and  may  under  the  latter  statute  acquire  a  valid 
corporate  character.^  A  statute  of  Minnesota  declares  that 
"any  existing  corporation,  association  or  society,  transacting 
business  of  life,  endowment,  or  casualty  insurance  upon  the  co- 
operative or  assessment  plan  and  incorporated  under  the  laws  of 
this  State,  may  re-incorporate  under  the  provisions  of  this  act, 
by  filing,"  among  other  things,  a  prescribed  declaration,  exe- 
cuted by  "a  majority  of  its  board  of  directors,  trustees  or 
managers."  This  statute  has  been  held  to  be  applicable  to  asso- 
ciations whose  attempted  incorporation  under  prior  statutes  had 
been  unauthorized  and  ineffectual.^  In  line  with  the  principle 
already  explained  in  regard  to  the  acceptance  of  amendments  of 
special  charters  by  the  directors,  followed  by  user  by  the  cor- 
poration of  the  powers  therein  grunted,*  it  has  been  held  that, 
where  a  majority  of  the  directors  of  an  association  which  has 
attempted  to  incorporate  under  a  prior  statute,  but  failed  because 
its  objects  were  not  authorized  by  such  statute,  proceed  under  a 
new  statute  to  effect  a  re-incorporation,  so  to  speak,  or  rather  an 
originally  valid  incorporation,  and  the  association  thereafter  acts 
as  a  corporation,  —  it  will  be  presumed,  in  proceedings  of  quo 
warranto  on  the  part  of  the  State  to  test  the  question  of  its  right- 
ful corporate  existence,  that  such  action  of  the  directors  was 
authorized  by  the  other  members  of  the  association.^ 

1  Southern  Pacific  R.  Co.  v.  Orton,  »  State  v.  Steele,  37  Minn.  428. 
«  Sawy.  C.  C.  (U.  S.)  157.  *  Ante,  §  80. 

2  Hyde  v.  Doe,  4  Sawy.  (U.  S.)  133.  »  State  v.  Steele,  supra. 

187 


1  ThoQip.  Corp.  §  284.]     names  of  cokporations. 


CHAPTER     YIII. 


NAMES  OF  CORPORATIONS. 


Section 

284.  Importance     of    the     corporate 

name. 

285.  Distinction  between  the   names 

of  natural  persons  and  of  cor- 
porations. 

286.  Acquired  by  usage   and   reputa- 

tion. 

287.  Petition    to     change     corporate 

name. 

288.  Change  of  name  by  corporate  ac- 

tion. 

289.  Effect     of     changing    corporate 

name. 

290.  The  corporate  name  in  suits. 

291.  Misnomer      of      corporation     in 

pleading. 

292.  Effect  of  variances   in   corporate 

name. 

293.  What  misnomers  amendable. 


Section 

294.  Effect  of  misnomer  of  corpora- 
tions in  written  obligations. 

Misnomer  in  devises  and  be- 
quests. 

Corporation  protected  in  use  of 
corporate  name. 

Illustrations. 

Discretion  of  secretary  of  state 
as  to  issuing  certificates  of  in- 
corporation for  a  corporation 
having  a  similar  name  to  one 
already  existing. 

Illustration:  "Kansas  City  real 
estate  exchange  "  —  "  Kansas 
City  real  estate  and  stock  ex- 
change." 

Prohibition  in  Missouri  statute 
against  use  of  name  of  person 
or  firm. 


295. 


296. 


297 
298 


299. 


300. 


§  284.  Importance  of  the  Corporate  Ifame.  —  Names  are 
necessary  to  the  very  existence  of  corporations.  The  corporate 
name  has  been  said  to  be  "  the  very  being  of  the  constitution  ; 
the  knot  of  their  combination,  without  which  they  could  not  do 
their  corporate  acts;  for  it  is  unable  to  plead  and  be  impleaded, 
to  take  and  give,  until  it  hath  gotten  a  name."  ^  A  case  is  cited 
below  ^  where  it  is  held  that  a  corporate  name,  although  acquired 
by  the  organization  of  a  corporation  under  a  general  law,  ending 
with  a  certificate  of  incorporation  issued  by  the  Secretary  of 
State,  is  in  the  nature  of  n  francJiise  and  inviolable^  aXihoMgh. 
wrongfully  obtained,  in  the  sense  that  it  is  an  imitation  of  the 
name  of  a  previously  existing  corporation.     But  an  examination 


1  2  Bac.  Abr.  Corp.  (C.)  ;  quoted  in 
Smith  V.  Plank  Road  Co., 30  Ala.  650,664, 
188 


«  Post,  §  296. 


ACQUIRED    BY    REPUTATION.       [1  Thomp.  Coi'p.   §   286. 

of  old  precedents  makes  it  doubtful  whether  the  name  of  a  cor- 
poration can  in  a  strict  sense  be  regarded  as  a  franchise,  espe- 
cially in  view  of  Ihe  fact  that  it  may  be  acquired  by  usage  or 
reputation.^  Where  individuals  are  allowed  to  incorporate  them- 
selves under  general  laws,  by  complying  with  certain  forms  and 
conditions,  they  not  unfrequently  take  to  themselves  a  corporate 
name  at  pleasure.^ 

§  285.  Distinction  between  the  Names  of  Natural  Persons 
and  of  Corporations.  —  It  has  been  said  :  "  The  name  of  a  cor- 
poration .  .  .  designates  the  corporation,  in  the  same  man- 
ner that  the  name  of  an  individual  designates  the  person.  There 
is  this  difference,  however,  that  the  alteration  of  a  letter,  or 
transposition  of  a  word,  usually  makes  an  entirely  different  name 
of  the  person,  while  the  name  of  a  corporation  frequently  con- 
sists of  several  descriptive  words,  and  the  transposition  of  them, 
or  any  interpolation,  or  omission,  or  alteration  of  some  of  them, 
may  make  no  essential  difference  in  their  sense."  ^ 

§  286.  Acquired  by  Usage  and  Keputation. —  Besides  their 
true  names,  corporations  may  have  and  take  by  names  of  repu- 
tation.* Thus,  evidence  was  held  to  be  admissible  to  show  that 
a  body  incorporated  as  "  The  Society  for  the  Propagation  of 
the  Gospel  in  Foreign  Parts,"  was  known  as  "  The  Church  of 
England  Society  ;  "  that  its  real  estate  was  sometimes  designated 

■    1  Post,  §  286.     In    an    old    case  in  2  gge  Falconer  v.  Campbell,  2  Mc- 

Salkeld,    the    following    language  is  Lean  (U.  S.),  195,  198;  Minot  v.  Curtis, 

found:  "My  Lord  Coke  says,  that  a  7  Mass.  441. 

corporation  must  have  a  name;  but  '  Newport  Mechanics'  Man.  Co.  v. 
that  must  be  understood  to  be  either  Starbird,  10  N.  H.  123,  124,  per  Up- 
expressed  in  the  patent,  or  implied  in  ham,  J. 

the  nature  of    the  thing;    as   if  the  *  Medway     Cotton    Man.     Co.    v. 

King  should  incorporate  the  inhabit-  Adams,  10  Mass.  SUO;  School  District 

ants   of  DaZfi  with  power  to   choose  a  v.  Blakeslee,    13  Conn.   227;    Reg.  v. 

mayor  annually,  though  no  name  be  Registrar,  10  Ad.  &  El.  (n.  s.)  839; 

given,  yet  it  is  a  good  corporation  by  Episcopal  Charitable  Society  v.  Epis- 

the  name  of  mayor  and  commonalty,  copal  Church,    I  Pick.  (Mass.)    372; 

So  the  City  of  Norioich  is  incorporated  Rex  v.  Morris,  1  Ld.  Raym.  337 ;  Reg. 

to    be   a  mayor  and    sheriffs,   by  the  v.   Bailiffs,  2    Ld.  Raym.     1232;    Dr. 

charter  ot  Henry  IV.,  and  are  called  Ayray's  Case,  11  Co.  Rep.  19;  Dutch 

mayor,    sheriffs,    and    commonalty."  West    India    Co.    v.    Van    Moses,    1 

Anon.,  1  Salk.  191.  Strange,  612,  614. 

189 


1  Thomp.  Corp.  §  287.]     names  of  corporations. 

as  "  Church  of  England  Lots  ;  "  and,  therefore,  that  it  was  en- 
titled to  certain  lots  of  land  thus  designated  in  partition  pro- 
ceedings.^ So,  the  Queen's  College,  Oxford,  had  no  name  given 
to  it  at  its  foundation,  but  having  received  its  foundation  and 
several  other  benefactions  from  the  Queen,  it  collected  by  repu- 
tation the  name  of  Queen's  College,  by  which  name  it  could  sue 
and  be  sued.^  So,  a  corporation  may  acquire  a  name  by  usage  ;  ^ 
and  although  the  name  of  a  corporation  has  been  changed  by  an 
act  of  the  legislature,  if  the  corporation  continues  to  conduct  its 
business  in  its  original  name,  and  otherwise  exclusively  uses  that 
name  after  the  passage  of  the  act,  it  may,  by  usage,  regain  such 
original  name,  and  can  be  lawfully  sued  and  proceeded  against 
in  bankruptcy  by  that  name.* 

§  287.  Petition  to  Change  Corporate  Name.  —  Statutes  ex- 
ist in  some  of  the  States  authorizing  the  judicial  courts,  upon  a 
petition  by  the  corporation,  for  good  reason  shown,  to  change 
the  corporate  name  to  some  other  name.  Similarity  of  the  pro- 
posed name  to  that  of  an  existing  corporation  is  ground  for 
denying  a  petition  for  change  of  the  name  of  a  corporation.^ 
Under  the  New  York  statute  ^  authorizing  the  court  to  permit  a 
corporation  to  change  its  name  where  it  appears  "  that  there  is 
no  reasonable  objection,"  the  matter  is  discretionary  with  the 
court.  Though  the  Court  of  Appeals  may  think  the  court 
below  has  been  too  cautious  in  refusing  leave,  for  fear  of 
a  possibility  of  confusion,  this  affords  no  ground  for  reversal.^ 
In  Pennsylvania,  the  court  will  not  change  the  name  of  a  corpo- 
ration unless  good  reason  is  shown ;  and  it  is  not  a  sufficient 
reason  that  the  new  name  proposed  for  a  bank  will  be  of  assist- 

1  Society  «.  Young,  2N.  H.  310.  new  charter  retains  its  old  name:  Reg. 

2  Pits  V.  James,  Hobart,  122,  124;      v.  Bailiffs  of  Ipswich,  2   Ld.    Raym. 
Dr.  Ayray's  Case,  11  Coke,  19,  20,  21.      1232,  1239. 

The  same  point  seems   to  have  been  *  Matter  of  Manhattan  Dispensary, 

included  in  the  judgment  of  the  court  7  N.  Y.  St.  Rep.  871 ;  post;  §  296. 
in  the  case  of  the  Dutch  West  India  ^  N.  Y.  Laws  of  1870,  chap.  322. 

Co.  V.  Van  Moses,  1  Strange,  G12,  614.  '  Re  United  States  Mercantile  Re- 

5  Smith  V.  Plank  Road  Co.,  30  Ala.  porting  &c.  Agency,  115  N.  Y.    176;  s. 

650.  c.  21  Northeast.    Rep.    1034;    24  N.  Y. 

*  Alexander  v.  Berney,  28  N.  J.  Eq.  St.  Rep.    548;  affirming   s.  c.  22  N.  Y. 

90.     When  a  corporation  receiving  a  St.  Rep.  494. 
190 


HOW  CHANGED.     [1  Tliomp.  Corp.  §  289. 

ance  among  a  certain  nationality  of  the  population.^  Under  a 
recent  statute  of  that  State  ^  authorizing  the  improvement, 
amendment,  or  alteration  of  the  cJuirters  of  corporations,  the 
name  of  a  corporation  is  apart  of  such  charter,  and  may  be  al- 
tered on  proper  application  to  the  court. ^ 

§  288.  Change  of  Name  by  Corporate  Action.  —  Where  a 
name  has  been  given  to  the  corporation  by  charter  or  statute, 
this  can  not  be  changed  by  corporate  action,  either  directly  or  by 
user,  without  statutory  permission.*  But  many  of  the  general 
laws  of  the  States  providing  for  the  creation  of  corporations 
contain  provisions  by  which  the  name  of  the  corporation  may  be 
changed  by  corporate  action.  In  Iowa,  unless  the  rule  has  been 
changed  since  the  case  below  cited,  a  change  in  the  name  of  a 
corporation  can  only  be  effected  by  changing  the  articles  of  in- 
corporation, and  the  best  evidence  of  this  change  is  the  articles 
themselves.^  In  Illinois,  the  requisites  of  the  certificate  of  the 
president  of  a  corporation  showing  a  change  of  its  name  were 
considered ;  and  it  was  held  that,  if  the  certificate  showed  that  at 
a  special  meeting  of  the  stockholders  of  the  company,  held  at  its 
office  on  a  day  named,  and  called  in  pursuance  of  the  statute  and 
in  strict  conformity  therewith,  at  which  meeting  over  two-thirds 
of  the  stock  of  the  company  was  duly  represented,  a  resolution 
was  unanimously  adopted  changing  the  name  of  the  company  to 
another  name  stated, — is  sufficient  under  the  statute  of  that 
State. « 

§  289.  Effect  of  Changing  Corporate  Name.  —  In  general, 
it  may  be  said  that  a  changing  of  the  name  of  a  corporation  has 

1  Bank  of  North  America,  2  Pa.  terian  Church  of  Bloomfleld,  111  Pa. 
County  Court,  97.  St.  156. 

2  Peun.  Corp.  Act  of  1874,  as  M  Dill.  Mun.  Corp.  (4th  ed.)  §  178; 
amended  by  Act  of  June  13th,  1883.  Reg.   v.   Registrar,  10  Ad.    &  El.    ("n. 

8  Per    Kirkpatrick,    Att.-Gen.     Re  s.)  830;  Sykes  v.  People,  132  111.  32; 

Excelsior  Oil  Co.,   3  Pa.   County  Ct.  s.  c.  23  N.  E.  Rep.  391.     See  Episcopal 

184.  The  Pennsylvania  act  of  April  20,  &c.    Society   v.    Episcopal   Church,    1 

1869,  conferring  on  counties  power  to  Pick.  (Mass.)  371. 

change    the    names    of  corporations,  *  Chicago  &c.   R.   Co.  v.  Keisel,  43 

applies   to  relifjious  corporations^  and  Iowa,  39. 

is  not  repealed  by  Pennsylvania  act  ^  Anthony    v.   International    Bank, 

of  April  29,  1874.     Re  First  Presby-  93  111.   225. 

191 


[1  Thomp.  Corp.  §  290.     names  of  corporations.    * 

no  effect  whatever  upon  the  existence  or  identity  of  the  corpo- 
ration, or  upon  rights  flowing  to  or  from  it ;  ^  though  it  may  have 
the  effect  of  introducing  some  additional  averments  in  pleading 
in  particular  cases.^  The  corporation  continues,  as  before,  re- 
sponsible for  all  the  debts  it  had  previously  contracted.^  Sub- 
scriptions to  its  capital  stock  are  not  invalidated,*  but  it  msiy 
sue  and  recover  upon  such  contracts  by  its  new  name.^  If  the 
change  of  name  takes  place  pending  a  suit,  it  has  no  effect  upon 
the  rights  of  the  plaintiff;  ^  and  if  the  suit  is  by  a  corporation, 
and,  pending  the  suit,  there  is  a  change  of  name,  it  will  be  too 
late,  after  judgment,  for  the  defendant  to  set  up  that  there  was  no 
such  corporation,  especially  if  he  fails  to  make  it  appear  that  the 
corporators  accepted  the  new  name.'  When,  by  the  terms  of  its 
charter,  a  corporation  is  to  be  the  successor  of  an  insolvent  cor- 
poration, having  the  same  functions,  franchises,  powers  and 
privileges,  and  is  to  become  bound  for  the  payment  of  certain 
claims  against  the  first  corporation,  an  action  of  debt  or  as- 
sumpsit  may  be  maintained  against  the  new  corporation.^ 

§  290.  The  Corporate  Name  in  Suits.  —  It  has  been  said 
that  the  corporation  can  sue  only  in  the  name  and  style  given  to 
it  by  law;  ^  and  it  has  been  said  that  a  company  may  sue  and  be 
sued  by  its  descriptive  name.^''     But  it  seems  that  a  corporation 

1  Welfley  v.   Shenandoah   &c.  Co.,  Stage  Co.,  23  Me.  39,  where   the  cor- 

83Va.  768;  Mayor  of  Scarborough  v.  porators   "  concluded  to   rub  out  and 

Butler,   3  Lev.  237;  Girard  v.  Phila-  begin  anew." 

delphia,  7  Wall.  (U.  S.)   1;  Corpora-  ^  Keading  v.   Wedder,   66   111.  80; 

tion  of  Ludlow  v.  Tyler,  7  Car.  &  P.  Com.  v.  Pittsburgh   41  Pa.  St.  278. 

537;  Attorney-General   v.    Wilson,   9  *  Bucksport  &c.  R.  Co.  v.  Buck,  68 

Sim.  30,  48;  Attorney-General  u.  Kerr,  Me.  81;  Greenville  &c.  R.  Co.  v.  John- 

2  Beav.  420,  429;  Attorney-General  v.  son,  64  Tenn.  (8  Baxt.)  332. 

Corporation  of  Leicester,  9  Beav.  546;  ^  Welfley  v.  Shenandoah  Iron  Co., 

Doe  V.    Norton,  11    Mees.    &  W.    913,  83  Va.  768;  s.  c.  3  S.  E.  Rep.  376. 
928. 

^  An    action    may    be    maintained  '  Water  Lot  Co.  v.  Bank  of  Bruns- 

against  it  in  its  new  name  by  showing  wick,  53  Ga.  30. 

the    fact    that     its    name    has    been  ^  St.  Louis  &c.  R.  Co.  v.  Miller,  43 

changed   without   any    change   of  its  111.  199;  ante,  §267. 

corporate    composition.     Welfley    v.  '  Porter  u.  Nekervis,  4  Rand.  (Va.j 

Shenandoah  &c.  Co.,  83  Va.  768.  359. 

3  Deanv.  La  MotteL'-ad  Co.,  59  Mo.  i"  Drew  w.     Nat.    Exchange  Co.,    1 

523.     Compare    Longley    v.    Longley  Pat.  Sc.  App,  953. 
192 


IN   JUDICIAL    PROCEEDINGS.        [1  Tbomp.  Coip.    §   291. 

may  sue  in  the  name  which  it  has  acquired  by  reputation  or 
usage,  though  it  may  not  be  the  name  designated  in  its  charter.^ 
It  nevertheless  remains  that  it  is  unsafe  for  the  pleader  to  de- 
part from  the  legal  name  and  to  draw  his  pleading  in  the 
popular  name;  for,  as  has  been  said  by  a  Avriter  of  distinction, 
"  a  name  in  a  grant  or  obligation,  to  or  by  a  corporation,  may 
be  sufficient  to  enable  the  corporation  to  enjoy  or  to  make  it 
liable,  which  would  not  be  sufficient  in  an  action  by  or  ao-ainst 
it."  2  It  is  pointed  out  by  the  same  writer  that,  if  the  name  of  a 
corporation  is  lawfully  changed,  and  not  the  identity  of  the  cor- 
poration itself,  the  action  should,  in  general,  unless  provision  be 
otherwise  made,  be  brought  in  the  new  name.^  Thus,  where  a 
town  is  merged  into  a  city,  and  all  the  records  and  property  of 
the  former  are  vested  in  the  latter,  an  action  on  a  written  obli- 
gation made  to  the  town  before  the  consolidation,  should  be 
brought  in  the  name  of  the  city,  and  can  not  be  brought  in  the 
name  of  the  town.*  And  if  a  written  promise  be  made  to  a 
corporation,  by  a  name  different  from  its  corporate  name,  it  may 
sue  in  its  true  name,  and  allege  that  it  is  the  party  to  whom  the 
promise  or  obligation  was  made,^  and  an  allegation  that  the  de- 
fendants acknowledged  themselves  to  be  bound  unto  the  plaint- 
iffs, by  the  description,  etc.,  is  equivalent  to  such  an  averment.^ 

§  291.  Misnomer  of  Corporation  in  Pleading. —  The  misno- 
mer of  a  corporation  in  pleading  is  usually  available  only  by  plea 
in  abatement,  and  not  by  plea  in  bar;  ^  nor  is  it  a  ground  of  non- 

1  Ante,  §  28G.  s  i  Dill,  Mun.  Corp.  (4thecl.),§  181; 

2  Dill.  iMun.  Corp.  (4th  ed.),  §  181;  citing  Colchester  v.  Seabar,  3  Burr. 
citing  Cambridge  University  v.  Arch-  ISUtt;  Keg.  v.  Ipswich,  2  Ld.  Raym. 
bishop  of  Yorli,  10  Mod.  208;  Brittain  1232,  1238. 

V.  Newland,  2  Dev.  &  Bat.  (N.  C.)363;  ^  pt.  Wayne  w.  Jacljson,  7  Blackf. 

lu.sane   Hospital    v.  Higgins,    15    111.  (Ind.)  36. 

185;  Berks  County    &c.    v.   Myers,  6  '-  1  Dill.  Mun.  Corp.  (4th  ed.),  §  181 ; 

Serg.  &  R.  (Pa.)    12;  Clark  v.  Potter  citing  African  Society  v.  Varick,    13 

County,  1  Pa.  St.  159,    163;  Porter   v.  Johns.  (N.Y.)38;  Trustees  «.  Reueau, 

Blakely,    1    Root  (Conn.),   440;  Ken-  2   Swan    (Tenn.),   94;   Ft.    Wayne   v. 

tucky    Seminary    y.    Wallace,    15    B.  Jackson,  7  Blackf.   (Ind.)  36. 

Monr.  (Ivy.)  35;  Romeo  v.  Cliapman,  2  ^  African  Society  v.  Varick,  mpra. 

Mich    179;  County  Court  v.  Griswold,  '  Burnham  u.  Savings   Bank,  5  N. 

58  Mo.  175;  Carder  v.  Commissioners,  H.  446 
16  Oh.  St.  353;  Trustees  v.  Campbell, 
16  Oh.  St.  11. 

13  193 


1  Thomp.  Corp.  §  392.]     names  of  corporations. 

suit.  It  was  so  held  where  the  true  name  of  the  cor[)oratioii 
was  "  the  mayor  and  burgesses  of  the  borough  of  Stafford  in  the 
County  of  Stafford,"  and  the  declaration  laid  the  name  as  "  tiie 
mayor  and  burgesses  of  the  borough  of  Statlbrd."  ^  This  ease 
draws  a  distinction  between  the  mere  misnomer  of  a  corporatiou 
and  the  bringing  of  an  action  by  a  person  altogether  different, 
or  not  in  renim  nahira.  "  When  a  corporation  is  sued,  if  the 
name  of  the  corporation  is  mistaken,  materially  and  substan- 
tially, the  corporation  cannot  be  affected  by  the  proceedings. 
There  is,  in  these  cases,  a  distinction  made  between  a  variance  in 
words  and  syllables  only,  and  a  variance  in  substance.  If  a  cor- 
poration be  sued  by  a  name  varying  only  in  words  and  syllables, 
and  not  in  substance,  from  the  true  name,  — the  misnomer  must 
be  pleaded  in  abatement,  otherwise  it  will  not  be  regarded.  But 
if  the  name  be  mistaken  in  substance,  the  suit  can  not  be  regard- 
ed as  against  the  corporation."  ^ 

§  292.  Effect  of  Variances  in  Corporate  I^ame.  —  In  a  suit 
upon  a  contract  relative  to  the  purchase  of  certain  shares  of  stock,  the 
contract  offered  by  the  plaintiff  in  evidence  disagreed  with  the  plaint- 
iff's declaration  as  to  the  name  of  the  corporation  ;  but  since  the  iden- 
tity of  the  corporation  was  apparent  from  the  recital  in  the  contract 
and  from  the  records  of  the  corporation,  to  which  the  contract  referred, 
this  variance  constituted  no  defense.^  -  -  -  -  In  an  action  of 
covenant,  the  plaintiff,  a  corporation  by  prescription,  alleged  a  grant  to 
it  by  the  defendant's  ancestor  under  a  name  differing  in  some  respects 
from  that  by  which  it  had  been  known  during  the  past  one  hundred  years. 
Upon  this  point  the  court  was  clear  that  the  deed  of  an  ancestor  describ- 
ing a  corporation  by  a  certain  name  must  be  evidence  against  those  who 
claim  from  him  that  the  corporation  was  then  known  by  that 
name.*  -  -  -  -  Where  a  promissory  note  was  given  to  "  the  presi- 
dent, directors  and  company  of  the  Newport  Mechanics'  Manufacturing 
Company,"  instead  of  "  the  Newport  Mechanics'  Manufacturing  Com- 
pany," which  was  the  true  name  of  the  corporation  in  whose  favor  the 
note  was  intended  to  be  drawn, —  it  was  held  that  there  was  no  such 
variance  as  would  preclude  a  recovery  by  the  corporation  suing  by  its 

1  Mayor  and  Burgesses  v.    Bolton,  ^  podge  v.  Barnes,  31  Me.  290. 

1  Bos.  &  P.  39.  *  Mayor  of  Carlisle  v.   Blamire,   8 

2  Burnhara  v.   Savings   Bank,    5  N.       East,  487. 
H.  44G,  449,  opinion   by   Ricliardson, 

C.J. 

194 


IN   JUDICIAL    PROCEEDINGS.       [1  ThoUip.  Coip.   §   293. 

correct  name.^  _  _  _  .  The  plaintiff,  claiming  to  be  a  corporation 
by  the  laws  of  New  York,  in  Missouri  sued  by  the  name  of  ' '  The  Bank 
of  Commerce."  The  articles  of  association,  produced  to  prove  the 
plaintiff's  right  to  sue  as  a  corporation,  declared  that  the  name  to  be 
used  should  be  "  Bank  of  Commerce,  in  New  York."  It  was  held  that 
the  articles  offered  were  not  competent  evidence  to  prove  the  existence 
of  a  corporation  bearing  the  name  of  the  plaintiff. ^  -  -  -  -  In  an 
action  against  an  incorporated  bank,  the  writ  described  the  defendants 
by  their  corporate  name  of  ' '  the  president  and  directors  of  the  Marine 
Bank  of  Baltimore."  The  declaration  ran  against  "the  said  Marine 
Bank."  The  plea  was  that  "  the  Marine  Bank  "  did  not  assume,  etc.  ; 
and  the  verdict  and  judgment  used  the  corporate  name.  It  was  held,  on 
objections  made  to  the  declaration,  that  it  was  sufficient. ^  _  _  _  - 
An  ejectment  was  brought  upon  the  demise  of  "  the  mayor,  aldermen, 
capital  burgesses  and  commonalty  of  the  borough  town  of  Maiden." 
The  name  of  the  corporation  was  "  the  mayor,  aldermen,  capital  bur- 
gesses and  commonalty  of  Maiden."  It  was  held  that  there  was  no 
variance.*  -  -  -  -  A  judgment  recovered  against  "  the  president, 
directors  and  company  of  the  Lafayette  Insurance  Company  ' '  may  be 
sued  upon  as  a  judgment  against  the  "  Lafayette  Insurance  Company," 
the  declaration  averring  that  the  judgment  was  recovered  against  the 
defendants  by  the  former  name.^ 

§  293.  What  Misnomers  Amendable.  — If  the  distinction 
of  an  English  case  is  attended  to,  that  between  the  mere  misno- 
mer of  a  corporation  and  the  bringing  of  an  action  by  a  person 
altogether  different  from  that  named  in  the  declaration,  or  by  a 
person  not  in  existence,^  there  will  be  no  difficulty  in  solving  the 
question  under  what  circumstances  amendments  ought  to  be  al- 
lowed so  as  to  cure  misnomers  of  corporations  in  pleadings.  In 
a  well  considered  case  in  Alabama  the  court,  after  examining  sev- 
eral authorities,  concluded  "  that  the  authorities  adduced  estab- 
lish the  conclusion,  that  there  is  a  well  marked  distinction 
between  a  misnomer,  which  incorrectly  ?iame.s  a  corporation,  but 
correctly  describes  it,  and  the  statement  in  the  pleading  of  an 

1  Newport  Mechanics'  Man.  Co.  v.  *  Doe  v.  Miller,  1  Barn.  &  Aid.  699. 
Starbird,  10  N.  H.  123.  ^  Lafayette  lus.    Co.  v.  French,  18 

2  Bank  of  Commerce  v.  Mudd,  32      How.  (U.  S.)  404. 

Mo.  218.  c  Mayor  &  Burgesses  v.  Bolton,  1 

3  Marine  Bank   v.  Biays,  4  Harr.  &      Bos.  &  P.  39. 
J.  (Md.)  338. 

195 


1  Thomp.  Corp.  §  294.]     names  of  corporations. 

entirely  different  party.  This  conclusion  being  attained,  the 
question  in  this  case  is  stripped  of  embarrassment."  ^  The 
distinction  is  that  an  amendment  is  always  allowable,  curing  a  mere 
misnomer  of  the  real  i)arty  which  sues,  but  that  an  amendment 
is  not  allowable  introducing  an  entirely  different  party  as  plaint- 
iff, unless  such  party  may  properly  be  introduced  as  the  suc- 
cessor in  interest  of  the  party  originally  bringing  the  action. 
And  the  same  rule  would,  it  is  supposed,  apply,  mutatis  mu- 
tandis, where  a  corporation  is  defendant. 

§  294.  Effect  of  Misnomer  of  Corporations  in  Written 
Obligations. —  It  is  laid  down  in  an  old  case^  that  in  all  grants 
by  or  to  corporations,  if  there  is  enough  expressed  to  show  that 
there  is  such  an  artificial  being,  and  to  distinguish  it  from  others, 
the  body  politic  is  well  named,  although  there  is  a  variance  of 
words  and  syllables.  It  is  laid  down  by  Chancellor  Kent  that 
"a  misnomer  in  a  grant  by  statute,  or  by  devise,  to  a  corpora- 
tion, docs  not  avoid  the  grant,  though  the  right  name  of  the 
corporation  be  not  used,  provided  the  corporation  really  in- 
tended it  to  be  made  apparent."  ^  In  the  earliest  American 
treatise  on  the  law  of  corporations  it  is  said  :  "  In  a  devise  to  a 
corporation,  if  the  words  (though  the  name  be  entirely  mis- 
taken )  show  that  the  testator  could  only  mean  a  particular  cor- 
poration, it  is  sufficient.*  And  there  is  a  general  concurrence  of 
modern  authority  to  the  effect  that  "a  misnomer  or  variation 
from  the  precise  name  of  the  corporation  in  a  grant  or  obligation 
by  or  to  it,  is  not  material,  if  the  identity  of  the  corporation  is 
unmistakable,  either  from  the  face  of  the  instrument  or  from 
the  averments  and  proof." '^     It  was  said  by  Gibson,  J.,  that 

1  Smitli  V.  Plank  Road  Co.,  30  Ala.  323;  Kentucky  Seminary  v.  "Wallace, 
650,  603.  15  B.  Monr.  (Ky.)  35;  New  York  Cou- 

2  10  Co.  Rep.  135.  ference  v.  Clarkson,   8  N.  J.  Eq.  541; 

3  2  Kent.  Com.  292.  Pendleton  v.  Bank  of  Kentucky,  1  T. 

4  Ang.&  A.  Corp.  (1st  ed.~),  p.  379.  B.  Monr.  (Ky.)  177;  Medway  Cotton 
These  propositions  were  quoted  with  Man.  Co.  v.  Adams,  10  Mass.  360; 
approval  iu  Vansant  V.  Roberts.  3  Md.  People  v.  Love,  19  Cal.  676;  African 
119,  127,  128.  Society  v.  Varick,  13  Johns.  (N.  Y.)  38 

s  1  Dill  Mun.  Corp.  (3rd  ed.),  §  179;  Woolwich  v.   Forrest,  2   N.   J.  L.  84 

cited  with  approval  in  Neely  v.  York-  Bower    v.    State    Bank,    6  Ark.  234 

ville,  10  S.  C.  141.     To  the  same  effect  Pierce  v.  Somersworth,  10  N.  H.  369 

see  Inhabitants  v.  String,  10  N.  J.  L.  Douglas  v.  Branch  Bank,  19  Ala.  659 

196 


IN    CONTRACTS    AND   WILLS.       [1  Thomp.  Coi'p.    §   295. 

*'  a  departure  from  the  strict  style  of  the  corporation  will  not 
avoid  its  contract,  if  it  substantially  appear  that  the  particular 
corporation  was  intended  ;  and  that  a  latent  ambiguity  may, 
under  proper  averments,  be  explained  by  parol  evidence  in  this, 
as  in  other  cases,  to  show  the  intention."^  In  determining 
whether  or  not  the  instrument,  although  misnaming  the  corpora- 
tion, makes  its  identity  apparent,  the  court  will  look,  not  only  to 
the  languasre  of  the  instrument,  but  will  also  consider  surround- 
ing  circumstances?  A  good  illustration  of  this  prmciple  is  found 
in  a  case  where  an  individual  had  become  the  purchaser  of  a  rail- 
way, and  thereafter  took  a  lease  of  certain  premises  to  be  used  in 
connection  with  the  railway,  the  lease  being  made  to  the  railway 
by  its  prior  corporate  name  and  not  to  the  individual  owner  of 
it.  It  was  held  that  the  lease  was  o-ood  enouo-h  as  a  lease  to  the 
individual.  "If  he  took  the  lease  under  that  name,  it  would 
bind  him  by  the  name  he  assumed,  and  it  is  immaterial  that  there 
was  no  corporation  of  the  name  of  the  lessee."  ^ 

§  295.  Misnomer  in  Devises  and  Bequests.  —  A  misnomer 
in  a  devise  or  bequest  intended  to  be  made  to  a  corporation  will  not 
make  it  void,  hnt  parol  evidence  may  be  resorted  to  to  show  what 
corporation  was  intended.*     The  principle  that  parol  evidence 

Pittsburgh  v.  Craft,  1  Pitts.  (Pa.)  77;  Trustees  v.   Peaslee,    15    N.  H.  317; 

St.  Louis  Hospital  v.  Williams,  19  Mo.  Bodmau  v.  American  Tract  Society,  9 

609;  People  v.   Runkel,  6  Johns.  (N.  Allen  (Mass  ),  447. 
Y.)   334:  Brock  District  v.  Bowen,  7  2  Vansant  ■;;.  Roberts,  3  Md.  119. 

Up.    Can.    Q.    B.    471;    Trenton   &c.  3  Ecker  v.   Chicago  &c.  R.   Co.,  8 

Road  Co.  V.  Marshall,  10  Up.  Can.  C.  Mo.  App.  223,  226. 
P.  337;  Whitby  v.  Harrison,  18   Up.  *  Hornbeck     v.     American    Bible 

Can.  Q.    B.  COS;  Bruce  v.  Cronar,  22  Society,   2   Sandf.    Ch.   (N.   Y.)     133; 

Up.  Can.  Q.  B.     321 ;    The    Case    of  General  Lying-in  Hospital  v.  Knight, 

Mayor  &c.  of  Lynne   Regis,    10    Co.  21  L.  J.  (Ch.)  537;  s.    c.  11  Eng.  L.  & 

Rep.  120,    122;   Mayor  of   Carlisle   v.  Eq.    191;   Winslow    v.    Curaraings,    3 

Blamire,   8  East,  487;  Rex  v.   Croke,  Cush.    (Mass.)  358;  Telfair  y.  Howe, 

Cowp.  29;  Beverley  u.  Barlow,  10  Up.  3   Rich.    Eq.    (S.  C.)  235;  Carter    ■;;. 

Can  C.  P.  178;  Re  Goodwin  u.  Ottawa  Balfour,    19    Ala.    814;    Brewster    v. 

&c.  R.  Co.,  13  Up.  Can.  C.  P.  254.  McCall,  15  Conn.  274;  Ayres  v.  Weed, 

1  President   &c.  v.  Myers,  G  Serg.  16  Conn.  291.     The  rule  is  analogous 

&  R.    (Pa.)   12.     See  also  Milford  &c.  to  the  rule  that,  in  applying  the  clause 

Co.  V.   Brush,    10  Oh.    Ill;  Newport  of  &  deed  to  the  land,  parol  evidence 

Mechanics'  Man.   Co.  v.  Starbird,   10  is   admissible,  and   the   question   be- 

N.  II.    123;  Society  for    Propagating  comes  a  question   of  fact  for   a  jury, 

the   Gospel  v.    Young,    2  N.   H.    310;  1  Thomp.  Tr.,  §  1461,  ei  seq. 

197 


1  Thomii.  Corp.  §  296.]     names  of  corporations. 

may  be  resorted  to  is  peculiarly  applicable,  where  there  are  two 
associations  of  the  same  name  which  is  used  by  the  testator.* 
Indeed,  a  devisee  may  be  designated  by  description,  as  well  as 
by  name ;  and  such  a  description  is  as  available  in  the  case  of  a 
corporation  as  in  the  case  of  a  natural  person.^  Illustrations  of 
this  principle  will  be  given  hereafter.' 

§   296.  Corporation  Protected  in  Use  of  Corporate  Name.  — 

The  name  of  a  corporation  is  a  necessary  element  of  its  exist- 
ence, and,  aside  from  any  statute,  the  right  to  its  exclusive  use 
will  be  protected,  upon  the  same  principle  which  protects  persons 
in  the  use  of  trade-marks.'^  An  injunction  may  be  granted,  by 
analogy  to  the  law  of  trade-marks,  to  a  corporation,  to  restrain 
persons  from  adopting  and  using  the  same  corporate  name  with 
that  previously  adopted,  regularly  and  in  good  faith,  by  complain- 
ant; ^  or  an  injunctive  order  may  require  a  sufficient  modification 
of  the  name  to  prevent  confusion  and  obviate  just  objection. « 
The  same  principle  has  been  acted  upon  in  respect  of  the  organiz- 
ation of  companies  in  England,  under  the  companies  act  of  1862. 
A  company,  not  registered  under  that  act,  can  restrain  the 
registration  of  a  projected  new  company,  which  is  intended  to 
carry  on  the  same  business  as  the  unregistered  company,  and  to 
bear  a  name  so  similar  to  that  of  the  unregistered  company  as 
to  be  calculated  to  deceive  the  public.^  Such  a  restraining  order 
can,  however,  be  avoided,  by  the  defendant  giving  an  undertak- 
ino-  not  to  carry  on  business  in  the  threatened  name,  but  to 
assume  another  name  which  will  not  lead  to  confusion.^  The 
English  courts  proceed  upon  the  view  that  the  principles 
applicable  to  individuals  trading  under  identical  or  similar  names 
apply  equally  to  companies.  They  have  never  taken  up  with 
the  untenable  view  that  the  name  of  a  company,  organized  under 

1  Bodraan      v.      American      Tract      1  Deady     (U.     S.),  G09;     Holmes    v. 
Society,  9  Allen  (Mass.),  447.  Holmes    &c.   Manuf.   Co.,     37  Conn. 

2  Brewster  v.  McCall,  15  Conn.  274.      278. 

3  Post,  Ch.  127,  Art.  I.  "  Ex  parte  Walker,  1  Tenn.  Ch.  97. 
<  Boone  on  Corp.,  §   82;  Newby  u.  '  Hendricks    v.    Montagu,    17    Ch. 

Oregon  &c.  R.  Co.,  1   Deady    (U.  S.),  Div.  638. 

609 ;  Ex  parte  Walker,  1  Tenn.  Ch.  97 ;  »  Guardian    Fire    &c.   Ass.    Co.  ». 

s.c.  9  Am.  Rep.  324.  Guardian  and  General  Insurance  Co., 

5  Newby  v.    Oregon     &c.    R.   Co.,  50  L.  J.  Ch.  253. 
198 


PROTECTED  IN  EQUITY.     [1  Tiiomp.  Corp.   §  296. 

the  companies  act  of  1862,  is  afranchise^  so  that  it  can  do  busi- 
ness under  the  name,  although  it  is  a  name  identical  with  that  of 
a  previously  existing  company,  or  so  nearly  identical  with  it  as 
to  produce  confusion  between  the  two  companies  in  the  minds 
of  the  public,  and  so  work  a  fraud  on  the  prior  company.  If, 
therefore,  a  company  has  been  registered  under  the  same  name  as 
a  prior  company,  it  may  be  restrained  from  carrying  on  business 
under  the  same  or  a  similar  name.^  But  a  Federal  court  can  not 
interfere  to  prevent  the  organization  of  a  corporation  bearing  the 
Slime  name  as  that  of  a  foreign  corporation  doing  business  in  the 
State. ^  The  theory  of  this  decision  is  that  it  is  not  competent  for 
the  Federal  courts  to  interfere  with  the  officers  of  the  States  in  the 
exercise  of  their  powers  in  creating  corporations.  Neither  will 
a  State  court,  according  to  an  untenable  view,  entertain  a  pro- 
ceeding to  oust  a  youngercorporation  of  its  right  to  use  a  certain 
name  on  the  ground  of  interference  with  the  name  adopted  by 
an  older  corporation,  — for  the  reason  that  a  corporate  name, 
although  acquired  under  a  general  law  in  the  mode  there  pointed 
out,  is  in  the  nature  of  a  franchise ,  which  can  no  more  be  im- 
peached by  private  persons  than  can  the  franchise  to  be  a  cor- 
poration.^ The  theory  of  this  decision  is  that  the  certificate 
granted  to  a  corporation  by  the  Secretary  of  State,  as  provided 
by  statute,  is  conclusive,  not  only  of  its  right  to  be  a  corpora- 
tion,* but  also  of  its  right  to  be  a  corporation  under  the  name 
designated  therein.  Under  this  theory  there  would  seem  to  be 
no  remedy  whatever  for  such  an  infringement,  — not  even  in  a 
suit  by  the  State  at  the  relation  of  the  attorney -general.  A  tech- 
nical course  of  reasoning,  which  leaves  a  wrong  of  this  kind  with- 
out any  remedy,  is  not  creditable  to  any  system  of  jurisprudence. 
The  better  view  is  that  the  right  of  an  existing  corporation  to 

1  Merchant  Banking  Co.  v.  Mer-  2  Lehigh  Valley  Coal  Co.  v.  Ham- 
chant's  Joint  Stock  Bank,  9  Ch.  Div.  blen,  23  Fed.  Rep.  225.  Quaere, 
5G0.  The  companies  act  of  1802  pro-  whether,  after  organization,  it  could 
vides  (§  20)  that  •'  no  company  shall  interfere  to  prevent  the  use  of  the 
be  registered  under  a  name  identical  name  in  fraud  of  the  rights  of  a  for- 
with  that  by  which  a  subsisting  com-  eign  corporation.  Ibid. 
pany  is  already  registered,  or  so  '  Boston  Rubber  Shoe  Co.  v.  Bos- 
nearly  resembling  the  same  as  to  be  ton  Rubber  Co.,  149  Mass.  4;{(). 
calculated  to  deceive,"  except  in  cer-  *  Rice  v.  National  Bank,  12G  Mass. 
tain  cases.  300. 

199 


1  Thonip.  Corp.  §  297.]     names  of  corporations. 

the  use  of  its  corporate  name,  which  is  in  the  nature  of  a  trade 
name,  cannot  be  infringed  by  a  subsequent  act  of  incorporation 
by  the  legisbiture,  either  by  the  direct  grant  of  a  charter  to  a 
coiporation  to  be  organized  under  a  similar  name,  or  through  a 
ministerial  officer  of  the  State  in  g-rantino;  a  certificate  of  incor- 
poration  to  a  body  of  adventurers  having  a  similar  name.  The 
right  of  doinof  wrous;  and  of  committino;  fraud  cannot,  althou2;h 
thus  conferred  by  or  under  a  statute,  be  of  such  a  sacred  charac- 
ter as  to  be  beyond  the  corrective  power  of  the  judicial  courts. 
While  the  Massachusetts  case  may  have  been  well  decided  on  its 
facts,  the  better  view  of  the  ruling  principle  is  that,  while  the  use 
of  a  corporate  name  similar  to  that  of  a  previously  created  corpo- 
ration cannot  be  enjoined,  if  its  adoption  and  use  have  proceeded 
in  good  faith  and  without  a.ny  fraudulent  intent,  yet  that,  if  its 
adoption  and  use  have  proceeded  with  the  fraudulent  intent  of 
appropriating  the  trade  of  the  prior  corporation,  by  deceiving 
the  public  and  producing  a  public  confusion  between  the  two 
corporations,  the  use  of  such  name  will  be  enjoined;^  though  to 
warrant  such  relief  the  fraudulent  intent  ought  to  be  established 
by  very  satisfactory  proof  .^  It  is  also  a  view  worthy  of  consid- 
eration that,  where  the  State  has  granted  to  one  cor[)oratiou  the 
right  to  use  a  particular  name,  that  grant  is  a  contract,  and  that 
the  obligation  of  the  contract  is  impaired  by  a  subsequent  grant 
by  the  State  to  another  corporation  to  use  a  similar  name;  so 
that  the  subsequent  grant,  whether  emanating  from  a  special 
charter  or  accruing  under  a  general  law,  is  beyond  the  power  of 
the  State,  under  the  Federal  constitution,  and  hence  necessarily 
subject  to  the  corrective  jurisdiction  of  the  courts. 

§  297.  Illustrations.  —  A  manufacturing  corporation  existed  under 
the  laws  of  Counecticut,  which  took  its  name  from  its  principal  stock- 
holders, and  whose  names  were  Holmes,  Booth  and  Haydens.  Several 
of  the  corporators  and  directors  of  this  corporation  organized  another 
corporation  under  the  name  of  "  The  Hohnes,  Booth  &,  Atwood  Manu- 
facturing Compan}^,"  for  the  purpose  of  carrying  on  the  same  business 
as  that  done  by  the  former  corporation.  On  petition  of  the  old  corpora- 
tion, the  new  corporation  was  enjoined  from  carrying  on  business  under 

1  Plant  Seed  Co.  v.  Michel  Plant  &  ^  ma,^  37  Mo,  App.  313. 

Seed  Co.,  23  Mo.  App,  579;  s.  c,  on 
second  appeal,  37  Mo.  App.  313. 

200 


PROTECTED  IN  EQUITY.     [1  Thomp.  Corp.  §  297. 

the  name  which  it  had  assumed.  The  court,  speaking  through  Carpen- 
ter, J.,  said :  "  The  law  ha\iag  authorized  the  selection  of  a  name,  and 
having  declared  the  name  so  selected  to  be  the  name  of  the  corporation, 
we  see  no  reason  why  the  law  should  not  protect  the  corporation  in  the 
use  of  that  name,  upon  the  same  principle,  and  to  the  same  extent,  that 
individuals  are  protected  in  the  use  of  trade-marks.  Hence,  it  neces- 
sarily follows  that  corporations,  in  the  exercise  of  discretionary  powers 
conferred  by  the  statute,  must  so  exercise  them  as  not  to  infringe  upon 
the  established  legal  rights  of  others."  ^  .  _  _  -  In  a  Federal  case, 
a  corporation  was  enjoined  from  using  as  their  corporate  name  the  words 
"The  Oregon  Central  Railway  Company,"  there  being  a  prior  corpora- 
tion having  that  name.  ^  -  -  -  -  The  coi-porate  ?ia?>ie,  the  "  United 
States  Mercantile  Reporting  Company,"  is  infringed  by  the  use  of  the 
name  "  United  States  Commercial  Agency  &  Collecting  Company,"  by 
a  corporation  engaged  in  the  same  business  as  the  former ;  and  a  company 
will  hence  not  be  allowed,  on  a  petition  for  change  of  name,  to  take  the 
latter  name.^  -  -  -  -  A  bill  filed  by  a  stockholder  in  a  long-estab- 
lished corporation,  alleging  that  a  corporation  several  years  old,  of  which 
plaintiff  was  also  a  stockholder,  and  having  for  a  corporate  name  the 
same  name  as  had  been  for  many  years  used  by  the  first  corporation  as 
a  trade  name,  had,  contrary  to  representations  made  by  its  manager  and 
treasurer  to  plaintiff  when  he  induced  him  to  purchase  stock,  deter- 
mined to  engage  in  the  same  business  as  the  older  corporation ;  that  the 
latter' s  trade  name  would  be  infringed  thereb}' ;  that  the  younger  com- 
pau}'^  would  be  at  great  expense  in  defending  infringement  suits  by  the 
other  company;  and  that  plaintiff's  stock  in  both  corporations  would 
therefore  decrease  in  value,  —  cannot  be  maintained,  either  against  the 
younger  company,  to  enjoin  its  embarkation  in  the  new  business,  or 
against  its  treasurer  and  manager,  to  prevent  his  voting  therefor,  or  for 
general  relief.'*  -  -  -  -  A  company  claiming  to  have  been  in- 
corporated under  the  laws  of  Michigan,  commenced  doing  business  in 
Illinois,  under  its  assumed  corporate  name.  Subsequently,  another 
company  became  incorporated  by  the  same  name,  under  the  laws  of 
Illinois,  and  commenced  business  in  the  same  city  in  that  State  where 
the  former  company  was  established.  The  gecond  company  then  brought 
a  bill  in  equity  to  enjoin  the  prior  company  from  the  use  of  its  assumed 
corporate  name,  alleging  that  its  corporate  character  no  longer  existed, 

1  Holmes,  Booth  &  Haydens  v.  »  Re  U.  S.  Mercantile  Reporting  &c. 
The  Holmes,  Booth  &  Atwood  Mfg.  Assoc,  22  N.  Y.  St.  Rep.  494;  s.  c.  4 
Co.,  37  Conn.  278;  s.  c.   9   Am.  Rep.      N.  Y.  Supp.  916. 

324.  ^  Converse  v.  Hood,  149  Mass.  471 ; 

2  Newby  v.  Oregon  &c.  R.  Co.,  1  21  North  East.  Rep.  878;  17  Mass.  L. 
Deady  (U.  S.),  609.  Rep.  18;    26  Am.  &  Eng.  Corp.  Cas.  118. 

201 


1  Thomp.  Corp.  §  298.]     names  of  corporations. 

but  that  it  had  been  ousted  of  its  corporate  franchises  by  a  proceeding 
in  the  State  of  Michigan,  and  that  it  had  made  an  assignment  and  no 
longer  acted  as  a  corporation.  It  was  held  that  this  disclosed  no  ground 
for  the  relief  sought.  Whether  the  defendants  were  a  corporation  was 
immaterial,  nor  was  it  material  whether  or  not  their  original  incorpora- 
tion was  legal ;  since  the}^  still  had  a  right  to  prosecute  their  business  as 
partners  under  the  name  which  they  had  originally  adopted,  and  the 
subsequent  organization  of  the  plaintiffs  into  a  corporation  by  the  same 
name  could  give  them  no  equity  to  have  the  defendants  enjoined  from  so 
doing.  1  -  _  .  -  Where  an  English  company  existed  under  the 
name  of  "The  Merchant  Banking  Company  of  London,  Limited," 
and  thereafter  another  company  was  registered  under  the  statute  with 
name  of  "  The  Merchants'  Joint  Stock  Bank,  Limited,"  and  estabhshed 
itself  in  business  in  another  place  in  London,  and  there  was  no  fraud,  an 
injunction  was  refused. ^  -  -  -  -  A  loan  and  trust  company,  which 
has  taken  the  name  of  the  State  in  which  it  does  business  as  a  part  of  its 
corporate  name,  has  been  refused  an  injunction  restraining  a  similar 
use  of  the  name  of  the  State  by  another  loan  and  trust  company  doing 
business  at  a  point  100  miles  distant,  the  proof  not  showing  a  conflict  of 
interest,  or  that  the  business  transacted  by  defendants  would  materially 
interfere  with  plaintiff's  business.^ 

§  298.  Discretion  of  Secretary  of  State  as  to  Issuing  Cer- 
tificate of  Incorporation  for  a  Corporation  having  a  Similar 
Name  to  one  already  Existing.  —  By  the  statute  of  Missouri 
relating  to  the  organization  of  corporations  it  is  provided  :  "  No 
certificate  of  its  incorporation,  or  certificate  of  its  change  of  cor- 
porate name,  shall  be  issued  by  the  Secretary  of  the  State,  to 
any  company  or  association:  First,  under  the  same  corporate 
name  and  style  as  that  already  assumed  by  another  corpora- 
tion," etc.*  Another  section  of  the  same  statute  provides  in 
detail  of  what  the  articles  of  association  shall  consist.  It  is  then 
made  the  duty  of  the  Secretary  of  State  to  give  a  certificate  that 
the  corporation  has  been,  duly  organized,  and  that  certificate  is 
made  evidence  of  the  corporate  existence  of  such  corporation, 
in  the  courts.     That  section,  among  other  things,  declares  that 

1  Ottomau  Cahvey  Co.  u.  Dane,  95  Div.  560;  s.  c.  47  L.  J.  Ch.  828;  26 
111.  203.  Week.  Rep.  847. 

2  Merchant  Nat  Banking  Co.  v.  ^  Nebraska  Loan  &  Trust  Co.  v. 
Merchants'   Joint  Stock  Bank,  9  Ch.  Nine,  27  Neb.  507. 

4  R.  S.  Mo.  1879,  §  762. 
202 


INTERFERENCE    PREVENTED.       [1  TllOmp.   Coi'p.    §   299. 

the  articles  of  agreement  shall  set  out  "  the  corporate  name  of 
the  proposed  corporation,  which  shall  not  be  the  name  of  any 
corporation  heretofore  incorporated  in  this  State  for  similar  pm*- 
poses,  or  an  imitation  of  such  name."  ^  Under  this  statute  it  is 
held  that,  while  the  duty  thus  imposed  upon  the  Secretary  of 
State  is  a  ministerial  one,  yet  it  is  not  a  sound  view  that  he  can- 
not refuse  to  give  the  certificate  of  incorporation  on  the  ground 
of  a  similarity  of  the  proposed  corporate  name  to  the  name  of 
some  existing  corporation,  unless  the  names  are  exactly  the 
same  ;  but  that  he  has  a  discretion  so  far  that  he  will  not  be 
compelled  by  mandmnus  to  issue  a  certificate  where  the  pro- 
posed name  so  nearly  resembles  the  name  of  an  existing  corpora- 
tion that  confusion  on  the  part  of  the  public  would  be  likely  to 
arise  between  the  two  corporations.^ 

§  299.  Illustration:  "  Kansas  City  Real  Estate  Exchange  "— 
*' Kansas  City  Real  Estate  and  Stock  Exchange."  —  The  court 
therefore  refused  a  mandamus  to  the  Secretary  of  State  to  compel  him 
to  issue  a  certificate  of  incorporation  to  ' '  The  Kansas  City  Real  Estate 
Exchange,"  when  there  was  another  corporation  duly  organized  and 
located  at  the  same  place,  and  for  the  same  purpose,  by  the  name  of 
"The  Kansas  City  Real  Estate  and  Stock  Exchange,"  to  which  the 
Secretary  of  State  had  previously  issued  a  certificate  of  incorporation. 
The  court  said:  "  It  is  the  evident  purpose  of  our  statute  to  protect,  to 
some  extent,  these  common-law  rights,  and,  to  do  this,  both  as  to  the 
corporation  first  adopting  the  name,  and  as  to  the  public,  which  maybe 
misled  by  the  similarity  of  the  two  names.  It  is  difllcult  to  state  a  pre- 
cise rule  by  which  one  name  may  be  said  to  be  an  imitation  of  another, 
in  the  sense  of  the  statute.  Where,  however,  the  names  so  far  resemble 
each  other,  that  a  person  using  that  care,  caution,  and  observation  which 
the  public  uses,  and  may  be  expected  to  use,  would  mistake  one  for  the 
other,  tlien  the  new  name  is  to  be  regarded  as  an  imitation  of  the  former. 
The  character  of  the  business,  and  the  location  of  the  two  corporations, 
must  be  considered.  Now,  in  the  present  case,  both  corporations  are 
located  in  the  same  city.  Both  are  created  for  precisely  the  same  pur- 
poses, i.e.,  to  establish  and  maintain  a  place,  with  a  suitable  building, 
for  the  public  and  private  sale  of  real  estate,  stocks,  and  other  property. 
The  only  difference  between  the   two  names  consists  in  the  use  of  the 

1  Ihid.,^  762.  Rep.  391;  36  Alb.  L.   J.  165;    2  Rail. 

2  State  ex  rel.  v.  McGrath,  92   Mo.      &  Corp.  L.  J.  252. 
366;  s.c.b   S.  W.  Rep.    29;   10  West. 

203 


1  Thomp.  Corp.  §  300.]     names  of  corporations. 

words  '  aud  stock.'  These  words  appear  in  the  name  of  the  former 
corporation,  but  are  omitted  in  the  name  adopted  by  the  relators.  The 
omission  of  them  from  the  combination  with  the  other  words,  it  is  be- 
lieved, does  not  furni:;h  a  fair  distinguishing  feature.  A  reasonably 
prudent  person  would  be  constantly  liable  to  mistake  the  one  for  the 
other.  It  is  doubtless  the  purpose  of  both  corporations  to  encourage 
the  public  sale  of  property,  real  and  personal,  at  their  place  of  business, 
under  mortgages,  deeds  of  trust,  and  the  like,  and  the  names  ought 
not  to  be  so  similar  as  to  lead  to  confusion  and  litigation."  ^ 

§  300.  Prohibition  in  Missouri  Statute  against  Use  of  Name 
of  Person  or  Firm. —  The  Missouri  statute  touching  the  organization 
of  corporations  provides:  "No  certificate  of  its  incorporation,  or  cer- 
tificate of  its  change  of  corporate  name,  shall  be  issued  by  the  Secretary 
of  State  to  any  company  or  association:  .  .  .  Second,  when 
the  corporate  name  and  style  assumed  is  the  name  of  a  person  or 
trade  firm,  unless  there  be  joined  thereto  some  word  designating  the 
business  to  be  carried  on,  followed  by  the  word  '  company'  or  '  cor- 
poration." The  Missouri  Secretary  of  State  refused  a  certificate  of  in- 
corporation to  an  association  of  persons  who  had  assumed  the  name  of 
"  Mallinckrodt  Chemical  Works."  The  Supreme  Court  awarded  a 
peremptory  writ  of  mandamus  to  compel  him  to  issue  the  certificate, 
taking  the  view  that  the  corporate  name  above  assumed  contained  neither 
the  name  of  a  person  nor  the  name  of  a  firm.  The  court  say:  "  The 
law  supposes  every  person  to  be  designated  by  two  names,  one  a  family 
name,  and  the  other  the  name  given  to  him  at  his  baptism,  and  denom- 
inated his  Christian  name.^  The  family  name  is  that  portion  of  the  name 
of  an  individual  which  is  employed  by  him  in  common  with  other  mem- 
bers of  his  family,  aud,  therefore,  fails  to  designate  any  particular 
individual.  'Mallinckrodt'  is  a  family  name,  and  not  the  name  of  a 
'  person'  or  individual,  and  need  not,  therefore,  be  followed  by  the  word 
'company'  or  'corporation.'  The  object  of  the  statute  in  question, 
undoubtedly  was  to  prevent  corporations  from  conducting  business  in 
firm  names  and  in  the  names  of  individuals,  thereby  misleading  the 
public  into  the  behef  that  they  are  deahng  with  individuals,  and  are 
entitled  to  the  protection  afforded  by  their  personal  Uabihty.  The 
name  assumed  in  the  case  before  us,  contravenes  neither  the  letter  nor 
the  spirit  of  the  statute."  ^ 

1  State  ex  rel.  &c.  v.  McGrath,  92  ^  state  ex  rel.  v.  McGrath,  75  Mo. 
Mo.  355,  358.                                                       424,  426. 

2  Citing  Frank  v.  Levie,  5  Robt.  (N. 
Y.;  599;  Bac.  Abr.  vol.  7,  p.  7. 

204 


IN  GENERAL.     [1  Thomp.  Corp.  §  305. 


CHAPTER    IX. 

CONSOLIDATION. 

Art.     I.  In  General,  §§  305-337. 

II.  Effect  UPON  Shareholders,  §§  343-360. 
III.  Transmission    of    Rights   and  Liabilities  of   Constituent 

Companies,  §§  365-390. 
rV.  Effect  on  Remedies  and  Procedure,  §§  395-410. 


Article  I.    In  General. 


Section 

305.  Statutes  providing  for  consolida- 

tions. 

306.  California:  Railroad  companies. 

307.  Colorado. 

308.  Illinois. 

309.  Michigan:  Railroad  companies. 

310.  Missouri:    Railroad  companies. 

311.  New  York:    Railroad  companies. 

312.  Ohio. 

313.  Pennsylvania. 

314.  Texas:  Prohibitions. 

315.  Necessity  of  legislative  action. 

316.  Legislature  cannot  compel  eonsol- 

idation  of  private  corporations. 

317.  Validation  by  curative  statutes. 

318.  Validation  by  legislative  recog- 

nition. 

319.  Consolidation  with  foreign  cor- 

poration. 

320.  Remains  a  domestic  corporation 

in    each    of      the    concurring 
States. 

321.  Foreign    law    not    transferred: 

local  law  not  displaced. 

322.  With  what  powers  and  liabilities. 
523.  Jurisdiction  not  parted  with  or 

transferred. 


Section 

324.  Selling  out  to  a  foreign  corpora- 

tion and  taking  its  shares  in 
payment. 

325.  Illustration. 

326.  Power  to   consolidate  a  contract 

right  and  inviolable, 

327.  What  steps  necessary  to  effect  a 

consolidation. 

328.  Distinction    between    consolida- 

tion and  agreement  to  consoli- 
date. 

Agreements  which  do  not  amount 
to  a  consolidation. 

By  one  company  purchasing  the 
capital  stock  of  the  other  com- 
pany. 

Railroad  companies  combining  to 
purchase  another  road. 

When  deemed  fraudulent  in  law. 

Illustration. 

334.  Contract  of  amalgamation  an  en- 

tirety. 

335.  Caunot  be  rescinded  without  re- 

storing consideration. 

336.  Obligation  of   tiic  committee   to 

account  for  profits. 

337.  Decisions  under  special  statutes. 


329. 


330. 


331. 


332 
3^3 


§  305.  Statutes  providing  for  Consolidations.  —  Statutes 
no  doubt  exist  in  most  of  the  States  providing  for  the  consoli- 
dation of  railroad  companies,  and  some  of  them  extend  the  priv- 

205 


1  Tliomp.  Corp.  §  307.]     consolidation. 

ilege  to  other  corporations.  The  leading  provisions  of  a  few  of 
these  statutes  have  been  collected,  and  are  given  merely  as  ex- 
amples of  the  Amercian  statute  law  on  the  subject.  Owing  to 
the  necessity  of  economizing  space,  it  has  not  been  found  prac- 
ticable to  reproduce  the  exact  language.* 

§  30G.  California:      Railroad    Companies. — Two    or    more 

raih-oad  corporations  may  consolidate  their  capital  stock,  debts,  prop- 
erty, assets  and  franchises,  in  such  manner  as  may  be  agreed  upon  by 
their  respective  boards  of  directors.  No  such  amalgamation  or  consol- 
idation must  take  place  without  the  wi'itten  consent  of  the  holders  of 
three-fourths  in  value  of  all  the  stock  of  each  corporation  ;  and  no  such 
amalgamation  or  consolidation  must  in  any  way  reUeve  such  corporation 
or  the  stockholders  thereof  from  any  aud  all  just  Uabilities.  In  case  of 
such  amalgamation  or  consolidation,  due  notice  of  the  same  must  be 
given  by  advertisement  for  one  month  in  at  least  one  newspaper  in  each 
county,  if  there  be  one  published  therein,  into  or  through  which  such 
road  runs,  and  also  for  the  same  length  of  time  in  one  paper  pub- 
lished at  Sacramento,  and  in  two  papers  pubhshed  in  San  Francisco. 
And  when  the  consolidation  and  amalgamation  is  completed,  a  copy  of 
the  new  articles  of  incorporation  must  be  filed  in  the  office  of  the  Sec- 
retary of  State. 2  -  -  -  -  Mining  companies  are  also  permitted  to 
consolidate  in  this  State. "^ 

§  307.  Colorado. — In  this  State  ditch  companies,  mining  companies, 
telegraph  companies  and  railroad  companies  may  consohdate.     The  pro- 

1  Recent  statutes  :  Arkansas.  —  visions  for  the  consolidation  of  rail- 
Unjust  discrimination  aud  exorbitant  roads  (Mill.  &  V.  Stats.,  §  1272), 
charges  of  railroads;  consolidation  amended,  by  including  street  railroad 
with,  leasing,  or  purchasing  any  par-  corporations  iu  its  provisions.  Tenn. 
allel  or  competing  line;  officers  act-  Act,  March  20,  1887;  Acts  1887,  c.  189, 
ing  at  the  same  time  as  officers  of  two  p.  321.  Certain  specified  ccrporations 
such  lines;  or  their  being  interested  prohibited  from  consolidating,  or  ac- 
in  furnishing  supplies  to  the  same;  quiring  from  each  other,  by  contract 
and  discrimination  between  transport-  or  otherwise,  the  franchises  or  prop- 
ation  companies  and  individuals  pro-  erty  of  the  other,  except  with  the  con- 
hibited.  Ark.  Act  March  24,  1887;  sent  of  the  municipal  governments  of 
Acts  1887,  No.  81,  p.  113.  Florida.—  the  cities  or  towns  iu  which  they  are 
The  consolidation  of  parallel  or  com-  located  or  carry  on  their  business, 
peting  Jines  of  railway,  except  when  Tenn.  Act,  March  19,  1889;  Acts  1889, 
special  authority  is  given  by  tlie  State  c.  70,  p.  97. 

Railroad  Commission,  prohiliited.    Fla.  ^  Deering  Ann.    Codes    Cal.    1885, 

Act,  June  7,   1887;   Acts  1887,  c.  3745,  Civ.  Code,  §  473. 
No.  65,  p.  117.     Tennessee.  —The  pro-  ^  ji^ia.  §  3G1. 

206 


STATUTES.         [1  Thomp.  Corp.  §  308. 

cedure  in  the  case  of  the  different  companies  is  substantially  the  same,  the 
statute  relating  to  railroad  consolidation  being  the  most  typical  and  most 
technical.  The  steps  to  bring  about  a  consolidation  of  railroad  com- 
panies are:  (1.)  That  the  directors  of  each  company  call  a  separate 
meeting  of  the  stockholders  to  vote  on  the  proposition,  and  if  it  is 
adopted  by  a  vote  of  three-fourths  of  the  stock  of  each  company,  the 
consolidation  is  approved.  The  directors  now  elect  their  quota  of  new 
directors,  less  one,  who  is  supplied  at  a  general  meeting.  (2.)  A 
certificate  is  prepared,  setting  forth  the  fact  of  consolidation,  and  all 
matters  necessary  in  an  original  certificate  of  incorporation.  It  is 
signed  by  three  stockholders  of  each  company,  is  filed  with  the  Secre- 
tary of  State  and  lodged  for  record  in  each  county  through  which  the 
roads  run.  (3.)  Tb.c  directors  of  each  of  the  old  companies  must 
formally  convey  its  property  to  the  new  company,  and  must  call  in  its 
stock  and  cancel  it,  and  issue  in  lieu  thereof  stock  of  the  new  company  ; 
but  the  certificates  of  original  stock  must  be  produced  by  their  holders, 
or  satisfactory  e\'idence  given  of  destruction,  before  the  new  certificates 
are  issued.  The  consolidated  company  assumes  all  the  liabilities  and 
duties  of  the  several  companies ;  but  no  pending  suits  or  causes  of 
action  shall  be  affected,  nor  shall  any  action  or  right  of  action  abate. 
Special  notice  to  the  public  is  required  in  case  of  the  consolidation  of 
railroad  and  telegraph  companies,  and  competing  parallel  lines  of  rail- 
road or  telegraph  shall  not  consolidate.  Domestic  companies  may 
consolidate  with  foreign  companies,  (1)  if  permitted  by  the  laws  of  the 
State  or  territory  of  such  foreign  corporation;  (2)  if  the  line  of  the 
home  company  reaches  the  State  boundary,  and  forms  a  continuous  or 
connected  line  with  the  line  of  the  foreign  company;  (3)  if  the  two 
lines  be  not  parallel  or  competing  lines;  (4)  provided,  that  the  consol- 
idated company  shall  not  form  a  foreign  corporation.^  This  last  pro- 
vision is  contained  in  the  constitution  of  Colorado.  ^ 

§  308.  Illinois.  —  By  the  statutes  of  Illinois  it  is  provided:  (1.)  If 
the  board  of  directors,  managers  or  trustees  of  a  corporation  shall  desire 
to  consolidate  with  another,  they  may  call  a  meeting  of  the  stockholders 
for  the  purpose  of  submitting  the  question  of  such  consolidation  to  their 
vote ;  but  not  more  than  two  companies  can  consolidate  and  they  must 
be  corporations  of  the  same  kind,  engaged  in  the  same  general  business, 
and  in  the  same  vicinity.  (2.)  Due  notice  of  the  meeting  to  consider 
the  question  of  consolidation  must  be  given  for  thirty  days,  sucli  as  is 
generally  prescribed  in  case  of  special  meetings,  the  call  for  which  must 
be  signed  by  a  majority  of  the  board  of  directoi's,  managers  or  trustees. 

i  Gen.  Stat.  Colo.  1883.  2  p^st,  §  320. 

207 


1  Thomp.  Corp.  §  309.]     consolidation. 

(  3. )  The  proposition  for  consolidation  may  be  adopted  by  a  vote,  personal 
orb^'  pi'ox}',  of  two-thirds  of  all  the  shares.  (4.)  A  certificate  of  such 
fact,  verified  bj'  the  president  by  aflida\it,  and  under  the  seal  of  the 
corporation,  is  to  be  filed  in  the  office  of  the  Secretary  of  State, 
and  also  in  the  office  of  the  Recorder  of  Deeds  of  the  county  of 
the  principal  business  office  of  the  corporation.  The  consolidated  com- 
pany subjects  itself  to  the  general  laws  of  the  State  relating  to  corpora- 
tions. Public  notice  of  the  consoUdation  in  some  newspaper  must  be 
given  for  three  weeks.  (5.)  Corporations  not  having  a  joint-stock  may 
effect  such  consolidation  by  a  majority  vote.  (6.)  Such  consolidation 
is  not  to  affect  suits  pending  in  which  either  of  the  corporations  are  par- 
ties, nor  to  affect  causes  of  action,  nor  the  rights  of  persons,  in  any  par- 
ticular ;  nor  shall  suits  abate  against  either  corporation.  ^  -  -  -  - 
When  corporations  chartered  and  organized  under  the  laws  of  Illinois 
consolidate,  their  property,  stock  or  franchises  with  another  company  or 
companies,  the  cousohdated  company  becomes  hable  for  all  debts  or 
liabilities  of  each  of  the  constituent  companies,  existing  or  accrued  prior 
to  the  consolidation,  and  actions  may  be  brought,  maintained  and  re- 
covered therefor  against  such  consolidated  company. ^  -  -  -  -  If 
a  railroad  company  desires  to  consolidate  with  any  other  railroad  com- 
pany, a  notice  of  sixty  days  must  be  given  before  the  meeting  called  to 
consider  the  question  and  a  general  notice  pubhshed  for  nine  consecu- 
tive weeks.  No  railroad  company  shall  consolidate  with  another  operat- 
ing a  parallel  or  competing  hue. 3 

§  309.  Michigan:  Railroad  Companies. —  (1.)  By  the  statute  of 
Michigan  it  is  provided  that  any  railroad  company  in  that  State,  forming 
a  continuous  or  connected  line  with  any  other  railroad  company,  may 
consolidate  with  it,  either  in,  or  out  or  partly  in  and  partly  out  of  the 
State, — pro\ided  that  companies  owning  parallel  or  competing  lines 
shall  not  consolidate.  (2.)  The  steps  required  to  effect  the  cousohda- 
tion  are,  that  the  directors  of  two  or  more  companies  shall  enter  into  an 
agreement  with  each  other  under  their  corporate  seals  for  a  consolida- 
tion, prescribing  the  terms,  mode  of  effecting  the  union,  name  of  the 
new  company,  number  of  its  directors,  which  shall  be  not  less  than  six 
nor  more  than  fifteen ;  names  of  the  first  directors,  time  and  place  of 
the  election  of  the  new  board,  which  shall  not  exceed  six  months  after 
the  scheme  of  consolidation  has  received  the  sanction  of  the  stockhold- 
ers ;  the  number  of  shares  of  the  new  company,  the  capital  stock,  the 
amount  of  each  share,  the  manner  of  converting  the  shares  of  stock  into 

Mil.  Aiiu.  Stat.  (Starr  &  Curt.)  p.  2  jj^-j.^  p.  (J27,  §  65. 

624,  §  50.  "  Ibid.,  §  67. 

208 


STATUTES.  [1  Thomp.  Corp.  §  310. 

stock  of  the  new  company,  together  with  other  necessary  details.  (3.) 
The  agreement  must  be  submitted  to  a  vote  of  the  stockholders,  notified 
by  publication  in  some  newspaper  published  in  Detroit,  and  also  in  a 
paper  published  in  each  county  through  which  the  raih'oad  passes,  for  four 
successive  weeks,  the  first  publication  to  be  at  least  sixty  days  before  the 
vote  is  taken  on  the  question  of  consohdation,  the  notice  to  be  signed  by 
the  secretary  of  the  company  intending  to  have  such  a  meeting  and 
vote.  At  the  meeting  the  scheme  of  consolidation  may  be  adopted  by 
the  votes  of  a  majority  in  interest.  (4. )  A  copy  of  the  contract  of 
consolidation  must  be  filed,  in  accordance  with  an  act  "  to  provide  for 
the  incorporation  of  railroad  companies,"  passed  February  12th,  1855, 
and  its  amendatory  acts,  with  theSecretary  of  State,  and  a  certified  copy 
of  it  by  the  Secretary  of  State  is  evidence  in  all  courts.  (5.)  The 
companies  are  now  merged  in  the  new  corporation,  in  pursuance  of  the 
agreement  of  consohdation.  All  franchises  and  rights  of  every  kind  of 
the  old  companies  are  transferred  to  and  vested  in  the  new  company ; 
but  all  rights  of  creditors,  and  Hens  on  property  of  either  of  the  constit- 
uent companies,  remain  unimpaired ;  and  the  respective  companies  are 
deemed  to  exist  so  far  as  necessary  to  enforce  the  same.  AU  debts, 
habihties,  and  duties  of  either  of  the  old  companies  attach  to  the  new 
and  are  enforcible  against  it,  as  though  incurred  by  it.^ 

§  310.  Missouri  :  Railroad  Companies.  —  By  the  Missouri  stat- 
utes it  is  provided:  (1.)  That  two  or  more  railroad  companies,  owning 
railroads  forming  a  continuous  line,  may  consoHdate  and  form  one  com- 
pany, owning  such  continuous  road,  with  all  powers,  rights  and  privi- 
leges and  immunities,  and  subject  to  all  obligations  and  liabilities  of  the 
constituent  companies.  (2.)  The  steps  to  effect  a  consolidation  are : 
a.  The  companies  enter  into  an  agreement  as  to  the  terms  and  condi- 
tions of  the  consohdation,  and  this  is  ratified  by  a  majority  in  interest 
of  the  stock  in  each  company,  at  a  meeting  of  stockholders  regularly 
called  for  that  purpose,  or  by  approval  in  writing  of  such  majority  in 
interest.  6.  A  certified  copy  of  the  articles  of  consolidation  is  filed  with 
the  Secretary  of  State,  and  a  certificate  from  his  oflHce  is  conclusive  evi- 
dence of  the  consolidation,  c.  The  board  of  directors  of  the  new  com- 
pany may  thereupon  carry  out  the  contract  of  consohdation.  (3. )  Only 
continuous  Unes  of  railroad  can  be  thus  merged,  so  as  not  to  deprive  the 
public  of  competition,  and  any  prohibited  consolidation  is  void,  and  any 
person  may  bring  an  action  in  the  circuit  court  of  any  county  through 

*  Howell  Mich.  Stat.  1882,  §3343.  only,  and  to  he  published  ou)y  in  tlie 
The  notice  of  each  company  is  to  be  counties  through  which  its  own  road 
signed  separately  by  its  own  secretary      passes.     Wells  v.  Ilodgers,  60  Mo.  525. 

14  209 


1  Thomp.  Corp.  §  311.]      consolidation. 

which  the  raih-oad  passes,  which  shall  have  jurisdiction  to  grant  an  in- 
junction against  it.     (4. )  Companies  must  accept  the  provisions  of  article 

2  of  the  general  laws  entitled  "Railroad  Companies,"  by  a  resolution 
filed  with  the  Secretary  of  State,  signed  by  their  respective  presidents 
and  attested  by  their  respective  secretaries,  and  under  the  seal  of  the 
corporation,  —  which  resolution  shall  be  passed  by  a  majority  vote  of 
the  stock  of  each  company,  at  a  meeting  called  for  the  purpose,  — sixty 
daj's'  notice  of  the  time,  place  and  purpose  of  the  meeting  having  been 
given  in  the  newspapers  in  the  county  where  its  general  office  is  located. 
(5.)  Competing  or  parallel  lines  may  not  consoUdate,  nor  may  one  such 
corporation  in  any  manner  exercise  control  over  the  road  of  the  other, 
but  each  must  be  run  and  managed  separately.  The  punishment  for 
a  Aiolation  of  this  provision  is  a  fine  and  forfeiture  of  corporate  fran- 
chises.^ 

§  311.  New  York:  Railroad  Companies.  —  (1.)  In  this  State 
railway  companies  may  consolidate  where  their  roads,  or  branches,  or 
any  part  thereof  form  continuous  connected  lines.  This  may  be  between 
a  company  organized  under  the  laws  of  New  York  or  of  New  York  and 
any  other  State,  and  a  company  organized  under  the  laws  of  New  York 
or  of  any  other  State.  (2.)  The  steps  taken  to  effect  such  a  consolidation 
are :  a.  The  dkectors  may  agree  to  consolidate,  by  an  agreement  under 
seal  prescribing  the  terms,  conditions  and  mode  of  consolidation,  the 
name  of  the  new  company,  the  number  and  names  of  its  directors  and 
officers,  the  number  and  value  of  its  shares,  and  all  the  details  neces- 
sary to  perfect  a  consolidation ;  but  its  capital  stock  shall  not  exceed 
the  sum  of  the  capital  stock  of  the  constituent  companies,  nor  shall  bonds 
or  other  evidences  of  debt  be  issued  as  a  consideration  for  consolidated 
roads.  The  scheme  of  consolidation  is  to  be  submitted  to  the  stock- 
holders of  each  constituent  company  at  a  meeting  called  to  consider  the 
agreement.  Due  notice,  specifjdng  the  object  of  the  meeting,  is  to  be 
given  for  a  stated  time  previous  thereto.  Votes  at  the  meeting  are  to 
be  taken  by  ballot,  and  if  two-thirds  of  the  ballots  favor  consolidation, 
the  fact  shall  be  certified  under  seal  by  the  secretary  of  the  company, 
and  a  certified  copy  of  the  agreement  so  adopted  shall  be  lodged  with 
the  Secretary  of  State.  A  certified  copy  by  the  Secretary  of  State, 
under  his  seal  of  office,  is  evidence  of  the  corporate  existence  of  the  new 
company,  in  all  courts.  (3.)  The  new  company  thus  created  becomes 
one  corporation,  under  the  restrictions,  disabilities  and  duties  of  its 
several  constituent  companies,  but  limited  to  the  power  of  exacting  a 
fare  of  two  cents  per  mile  for  carrying  passengers.     (4.)  It  succeeds 

1  Rev.  Stat.  Mo.  1889,  §  2567. 

210 


STATUTES.         [1  Thomp.  Corp.  §  312. 

to  all  the  rights,  powers,  franchises,  rights  of  way,  etc.,  of  its  constitu- 
ent eonapanies.  (5.)  Liens  and  rights  of  creditors  upon  the  property 
of  either  of  the  constituent  companies  are  preserved  unimpaired,  and 
each  constituent  company  is  to  be  deemed  to  be  still  in  existence  for  the 
purpose  of  preserving  the  same.  But  all  debts  and  liabilities,  except 
mortgages,  shall  attach  to  the  new  company  and  be  enforced  against  it, 
with  the  same  effect  as  if  incurred  by  it.  No  pending  suits  abate,  but 
may  be  prosecuted  in  the  name  of  the  former  corporation,  or  the  new 
corporation  may  be  substituted  as  a  party.  (6. )  The  consolidated  com- 
pany is  assessed  and  taxed,  as  to  its  lines  within  the  State  of  New  York, 
as  other  railroad  companies.  (7.)  It  shall  not,  in  any  place,  increase 
the  rate  of  passenger  fare  beyond  the  Umit  above  stated.  (8.)  This  act 
of  consolidation  does  not  apply  to  street  railway  companies.  (9.)  The 
general  act  organizing  and  regulating  railroad  companies  applies  to  con- 
solidated companies.  (10.)  Parallel  or  competing  lines  cannot  con- 
solidate. ^ 

§  312.  Ohio.  —  In  Ohio  the  following  kinds  of  corporations  may 
consolidate :  railway  companies  ;  ^  magnetic  telegraph  companies  ;  ^ 
bridge  companies ;  *  hydrauHc  companies  ;  ^  turnpike  or  plank  road 
companies ;  ®  fire  and  marine  insurance  companies ; ''  religious 
societies ;  ^  societies  for  the  relief  of  farm  laborers  and  other  charitable 
corporations. 9  The  scheme  of  consolidation,  prescribed  by  the  statute 
in  respect  of  each  of  these  companies,  follows  the  form  prescribed  for 
railroad  companies  as  a  type,  and  differs  from  it  but  little  in  details  of 
procedure.  Insurance  companies  must  file  an  agreement  of  consolidation 
with  the  superintendent  of  insurance.  Religious  societies  need  give  only 
such  notice  as  is  usual  for  caUing  together  the  congregation.  Farm  la- 
borers' societies  and  charitable  corporations,  when  consolidated,  do  not 
assume  the  debts  of  the  constituent  corporations.  These  acts  of  consoli- 
dation apply  equally  to  other  voluntary  associations,  but  may  apply  to  so- 
cieties when  incorporated.  As  to  railway  companies,  a  summary  of  the 
provisions  of  the  statute,  is:  (1.)  When  lines  of  the  several  companies 
permit  of  a  continuous  passage  of  trains  without  a  break  or  interrup- 
tion from  one  to  the  other,  the  companies  may  consolidate ;  and  when 
the  line  of  a  company  reaches  a  boundary  of  the  State  and  there  forms 
a  continuous  Une  with  the  line  of  a  company  outside  of  the  State,  these 

1  Rev.   Stat.  N.  Y.  (Banks  &  Bros.  ^  m^,^  §  3566. 
8th  ed.)  1889,  p.  1783,  et  seq.  «  Ibid.,  §  3506. 

2  Rev.  Stat.    Ohio    1880,   §  3379  et  '  Ibid.,  §  3G71  et  seq. 
seq.  8  jijid.^  §  3777  et  seq. 

3  Ibid.,  §  3470.  9  Ibid.,  §  3846. 
1  Ibid.,  §  3547. 

211 


1  Thoiii}).  Corp.  §  313.]     consolidation. 

companies  may  consolidate,  and  the  fact  that  an  unbridged  river  is  in- 
terposed as  a  barrier  between  them  does  not  prevent  a  consolidation. 
(2.)  The  steps  to  bring  about  such  a  consolidation  are:  a.  The  direct- 
ors of  the  several  companies  form  au  agreement,  fixing  the  terms  of 
union,  the  number  of  the  directors  of  the  new  company,  the  amount  of 
its  capital  stock,  number  of  shares  and  value  of  each,  mode  of  convert- 
ing the  stock  of  the  old  companies  into  that  of  the  new,  and  other 
necessary  details,  b.  This  scheme  is  to  be  submitted  to  the  stock- 
holders of  each  company,  at  a  meeting  called  for  the  purpose,  of  which 
due  notice  is  given, —  though  if  all  the  stockholders  are  present  they 
may  waive  notice.  A  vote  by  ballot  is  taken,  and  if  two- thirds  of  the 
stock  vote  for  the  adoption  of  the  scheme,  the  fact  is  certified  by  the 
secretary  of  each  company,  and  the  certificate  is  lodged  with  the  Secre- 
tary of  State.  This  completes  the  consolidation.  The  new  company, 
thus  formed,  possesses  within  the  State  of  Ohio  all  the  rights,  property 
and  franchises,  and  is  subject  to  all  the  restrictions  and  duties  of  the 
constituent  companies,  c.  An  election  is  held,  upon  due  notice,  for  the 
first  board  of  directors.  (3.)  The  new  company  now  assumes  all  the 
debts,  liabihties  and  duties  of  the  former  companies,  except  liens, 
mortgages,  etc.,  which  are  preserved  unimpaired;  and  the  several 
companies  are  deemed  to  be  still  in  existence  for  the  purpose  of  their 
enforcement.  (4.)  The  new  company  must  establish  its  principal 
office  and  give  public  notice  of  it,  and  may  sue  and  be  sued  as  other 
corporations  ;  and  its  road,  situated  within  the  State  of  Ohio,  is  subject 
to  taxation.  (5.)  Stockholders  in  the  old  companies,  who  refuse  to 
have  their  shares  converted  into  those  of  the  new,  shall  be  paid  the 
highest  market  price  for  them  which  has  obtained  within  six  months 
previous  to  the  consolidation ;  or  if  no  agreement  as  to  the  price  can 
be  reached,  it  is  to  be  submitted  to  arbitration.  (6.)  A  cei'tified  copy 
of  the  agreement  of  consolidation,  from  the  office  of  the  Secretary  of 
State,  is  conclusive  evidence  of  the  consolidation  in  the  courts.^ 

§  313.  Pennsylvania.  —  By  the  statutes  of  this  State  competing 
pipe  lines  and  telegraph  lines  may  not  consolidate ;  and,  in  the  case  of 
telegraph  companies,  a  violation  of  this  provision  works  a  forfeiture  of 
franchises.  The  chapter  relating  to  the  consolidation  of  railway  com- 
panies is  very  extensive,  but  the  provisions  are  substantially  the  same 
as  in  other  States.  A  summation  of  them  is  as  follows :  1.  Any  rail- 
road company  chartered  by  this  State  may  merge  with  any  like  com- 
pany or  with  any  foreign  railroad  company,  where  the  lines  of  such 
companies  unite  so  as  to  form  a  continuous  line,  intervening  rivers  being 

1  Rev.  Stat.  Ohio  1880,  §3379,  etseg. 

212 


STATUTES.  [I  Thomp.  Corp.  §  313. 

no  obstacle ;  and  they  may  consolidate  where  there  is  a  connecting 
line.  2.  The  steps  to  effect  such  a  consolidation  are  :  a.  An  agree- 
ment formed  between  the  boards  of  directors,  in  substance  the  same  as 
that  recited  in  the  case  of  other  States,  b.  This  scheme  submitted  to 
the  stockholders  of  each  company,  at  a  separate  meeting  duly  called, 
and  there  subject  to  ratification  by  a  majoi'ity  vote  of  the  stock,  c.  A 
certificate  of  consolidation  filed  with  the  Secretary  of  State,  and  this 
effects  a  merger  of  the  companies.  3.  The  new  company  is  possessed 
of  all  the  rights,  franchises  and  properties  of  the  constituent  companies. 
4.  All  liens  and  rights  of  creditors  are  preserved  against  the  property 
of  the  constituent  companies  to  which  they  attach,  which  companies  are 
deemed  to  exist  for  the  purposes  of  their  enforcement.  5.  All  debts, 
liabilities,  etc.,  of  the  constituent  companies  attach  to  the  new  company. 
If  differences  exist  in  the  statutes  regulating  the  respective  companies, 
the  consoUdated  company  is  to  be  governed  by  the  laws  regulating  the 
company  into  which  the  merger  of  the  others  has  been  made, — the 
statute  thus  recognizing  the  fact  that  the  consolidation  may  take  the 
form  of  an  absorption  by  one  company  of  several  others,  which,  as 
hereafter  seen,i  is  a  frequent  form  of  consoUdation.  A  certified  copy 
from  the  office  of  the  Secretary  of  State,  of  the  instrument  of  consoUda- 
tion, is  conclusive  evidence  thereof  in  the  courts.  A  dissatisfied  stock- 
holder of  the  constituent  companies  may  apply  to  a  court  to  have  arbi- 
trators appointed,  who  shall  estimate  the  damages  caused  to  him  by  the 
consolidation,  and  the  company  may  elect  to  pay  him  the  market  value 
of  his  shares,  unaffected  by  the  consolidation,  or  the  damages  found  by 
the  arbitrators,  and  he  thereby  becomes  divested  of  his  shares.  The 
finding  of  the  arbitrators  of  damages  acquires  the  force  of  a  judgment 
if  not  paid  within  thirty  days.  Executors,  guardians  or  trustees  of 
owners  of  shares  may  agree  to  contracts  of  consolidation  or  to  contracts 
fixing  the  specific  franchises  to  be  given  to  the  new  company.  The 
consoUdated  company  may  increase  its  capital  stock  as  much  as  neces- 
sary to  carry  the  purposes  of  the  merger  into  effect.  It  has  power  to 
issue  bonds,  to  mortgage  its  property,  franchises,  etc.,  as  security  there- 
for, and  to  deliver  the  bonds  in  discharge  of  the  debts  of  the  respective 
constitutent  companies.  Such  bonds  shall  not  exceed  the  whole  amount 
of  the  indebtedness  of  the  constitutent  companies,  nor  bear  more  than 
seven  per  cent,  interest.  They  are  given  in  lieu,  exchange,  or  satis- 
faction of  the  debts  of  the  old  companies,  on  such  terms  and  conditions 
as  the  parties  may  make.  If  the  consoUdated  company  is  composed 
of  a  foreign  constituent,  it  must  have  an  office  in  this  State,  and  also  be 
subject  to  taxation,  as  to  its  road  in  this  State,  under  the  laws  thereof.^ 

1  Post,  §  330.  2  Bright.  Purd.  Dig.  Penn.  Stat.,  11th  ed.  p.  1429,  et  seq. 

213 


1  ThoiUp.   Coi'l).    §   315.]       CONSOLIDATION. 

§  314.  Texas.  —  No  general  statute  has  been  found  in  the  statate 
books  of  Texas  authorizing  corporate  consoHdations,  though  no  doubt 
such  consoUdations  have  been  effected  under  special  acts.  There  are  in 
that  State,  however,  prohibitive  statutes,  which  seem  to  take  rise  in  the 
constitution  of  the  State,  and  are  in  the  substance,  —  1.  That  con- 
solidation by  lease,  ownership,  or  the  simple  consolidation  of  compet- 
ing or  parallel  lines  of  railroad,  shall  not  be  made.  This  prohibition  is 
enforced  by  fining  the  officers,  managers,  etc.,  who  have  any  voice  or 
control  of  the  corporations.^  2.  Consolidations  between  Texas  corpora- 
tions and  corporations  created  by  other  States  are  absolutely  prohibited. ^ 
3.  Quo  warranto  proceedings  shall  be  instituted  against  corporations 
violating  sections  5  and  6  of  article  X  of  the  constitution  of  Texas, 
containing  the  above  prohibitions  ;  and  if  it  is  found  that  such  violations 
are  taking  place,  the  consolidations  shall  be  perpetually  enjoined,  and 
a  receiver  appointed  to  carry  out  the  decree  of  the  court. 

§  315.  Necessity  of  Legislative  Action.  —  As  already  pointed 
out,  a  number  of  co-adventurers  cannot  constitute  themselves  a 
corporation,  by  merely  joining  together  and  agreeing  to  become 
such :  it  is  necessary  that  they  should  have  the  authority  of  the 
legislature  to  assume  the  franchise  of  being  a  corporation.^  The 
consolidation  of  the  funds  of  two  incorporated  companies,  so  as 
to  form  a  single  corporation,  has,  generally  speaking,  the  effect 
of  dissolving  both  the  old  corporations,  as  distinct  entities,  and 
of  creating  a  new  corporation.*  This  new  corporation  can  no 
more  be  created  without  the  sanction  of  the  legislature,  than 
could  either  of  the  original  constituent  corporations.^  Accord- 
ingly, it  is  held  in  England  that,  in  the  absence  of  any  special 
power  for  that  purpose  in  their  deeds  of  settlement,  an  amalgama- 
tion between  two  joint  stock  companies  is  ultra  vires  and  invalid, 
and  that  the  obligations  and  liabilities  arising  out  of  such  at- 
tempted amalgamation,  and  assumed  by  the  directors  of  the  pur- 
chasing company,  cannot  be  enforced  against  the  shareholders  of 
such  company.^     Where  power  is  given   by  statute  to  one  rail- 

1  Sayle  Civ.  Stat.  Tex.,  art.  4296.         How.    (U.     S.)    441;    Clearwater   v. 

2  Ibid.,  §  4247.  Meredith,  1  Wall.  (U.  S.)  25,  39;  State 

3  Ante,  §  35.  v.  Bailey,  16  Ind.  46. 

•*  Post,  §  395,  et  seq.  ^  Re  Era  Insurance   Soc,  9  Week. 

*  New  York  &c.  Canal  Co.  «.  Ful-  Rep.  67;  s.   c.    3  Law   Times    (n.  s.) 

ton    Bank,    7    Wend.    (N.    Y.)    412;  314;    30   Law  J.    Eq.    (N.  8.)    137;  6 

Pearce   v.   Madison    &c.     R.   Co.,  20  Jur.  (n.  s.)  1334. 
214 


LEGISLATIVE    AUTHORITY.       [1  Thomp.   Coip.    §   316. 

road  corporation  to  consolidate  with  any  other,  whatever  other 
corporation  it  selects  for  a  union,  and  finds  willing  to  join  it,  has 
power  to  unite  with  it,  althongh  such  other  corporation  is  not 
named  in  the  statute.^  But  an  agreement  cannot  be  made  by 
which  one  railway  company  shall  turn  over  its  railway  to  be 
worked  by  another  company,  unless  the  latter  company  pos- 
sesses, under  its  governing  statute,  the  power  to  receive  and  work 
it;  for  the  former  company  cannot  delegate  or  transfer  its 
power  to  work  the  road  to  the  latter.^  Where  the  power  to 
consolidate  exists,  and  the  essential  steps  pointed  out  by  the 
statute  to  effect  a  consolidation  have  been  taken,  the  question 
whether  the  new  company  has  a  legal  existence,  in  view  of  a 
doubt  as  to  the  legal  existence  of  one  of  the  preceding  companies, 
is  one  which  cannot  be  determined  by  a  proceeding  instituted  by 
the  stockholders,  but  only  in  a  proceeding  instituted  by  the 
State. 3  This  is  an  application  of  the  principle  hereafter  con- 
sidered,* that,  where  the  circumstances  are  such  that  an  assumed 
corporation  7?^^^/^^  exist,  the  fact  of  its  existence  will  not  be  tried 
collaterally,  but  only  in  a  direct  proceeding  instituted  by  the 
State. 

§  316.  Legislature  cannot  Compel  Consolidation  of  Private 
Corporations.  —  The  legislature  has  no  power  to  compel  the  con- 
solidation or  merger  of  corporations  of  a  purely  private  char- 
acter which  have  assumed  no  public  duties,^  any  more  than  it 
can  force  private  persons  to  become  members  of  such  a  corpora- 
tion.^ Nor  can  a  private  corporation,  without  taking  some  steps 
for  that  purpose,  become  absorbed  or  merged  in  any  new  cor- 
poration, so  as  to  relinquish  its  former  status,  without  taking 
some  corporate  action,  which  fully  authorizes  such  a  result.  And 

1  Matter  of  Prospect  Park  &c.  R.  mortgage  or  sell  its  property  to  an- 
Co.,  67  N.  Y.  371.  other  company. 

2  Winch  V.   Birkenhead  &c.  R.  Co.,  ^  j^qh  „_   Pennsylvania  &c.  R.  Co., 

16    Jur.  1035,    1037.     Compare   South      — N.J.Eq. ;  s.  c.  10  Atl.  Rep.  741 ;  9 

Yorkshire  &c.  R.  Co.  w.  Great  North-  Cent.    Rep.  138;  2   Rail.  &  Corp.  L.  J. 

ern   R.  Co.,  3   De  Gcx   M.  &   G.  576;  476. 

State    V.    Consolidation  Coal  Co.,  46  *  Post,  §  505. 

Md.    1.     These  last  two  cases  affirm  *  Mason   v.   Finch,   28   Mich.  282; 

the  principle  that,  without  legislative  conceded  in  Pennsylvania  College 
authority,  a  railway  company  cannot      Cases,  13  Wall.  (U.  S.)  190,  212. 

«  Ante,  §  52. 

215 


1  Thoinp.  Corp.  §  318.]  consolidation. 

where  there  is  a  vohuitary  association,  e.g.,  a  Masonic  chapter,, 
in  existence,  the  mere  fact  that  another  body  becomes  incor[)0- 
rated  by  the  same  name,  does  not  merge  the  former  in  the  latter^ 
or  creiite  any  identity  between  the  two.  Such  an  essential  change 
in  the  character  of  an  organization,  involving  such  an  accession 
to  its  membership,  cannot  be  had  without  some  action  denoting 
unanimous  consent.^  Nor  would  acquiescence,  by  the  voluntary 
association,  in  the  claims  of  the  corporation  that  it  was  identical 
with  it,  in  the  absence  of  any  special  circumstances  creating  an 
estoppel,  operate  to  extinguish  the  separate  existence  of  the 
latter.  Nor  would  acquiescence  on  the  part  of  its  officers  bind 
the  members,  except  to  the  same  extent  that  their  actual  agree- 
ment to  the  same  end  would  bind  tliem.  An  act  of  a  constituent 
character  of  this  kind  cannot  be  taken  by  the  officers  merely,  or 
if  taken  by  them  must  be  ratified  by  the  members,  for  they  alone 
could  authorize  it  in  the  first  instance. ^  But  where  there  is  a 
reservation  in  the  constitution  of  the  State,  allowing  the  legisla- 
ture of  the  State  "  to  alter,  revoke,  or  annul  any  charter  of  in- 
corporation thereafter  granted,  whenever  in  their  opinion  it  may 
be  injurious  to  the  citizens,  ...  in  such  manner,  however, 
that  no  injustice  shall  be  done  to  the  corporators,"  an  act  of  con- 
solidation, unless  plainly  unjust  to  some  of  the  corporators,  is 
not  unconstitutional  on  the  ground  of  impairing  the  obligation 
of  a  contract.^ 

§  317. — Validation  by  Curative  Statutes.  —  If  the  legislature 
has  power  in  the  first  instance  to  authorize  the  consolidation  of 
certain  corporations,  it  has  the  power  by  a  subsequent  curative 
act  to  validate  their  consolidation  informally  or  irregularly 
made.* 

§   318.     Validation    by    Legislative    Recognition. — On    a 

principle  more  fully  discussed  hereafter  ^  an  informal  or  def ect- 

^  Mason  v.  Finch,  28  Mich.  282.  419.     Compare   Racine  &c    R.  Co.  v. 

2  Ihid.  Farmers'   &c.   Co.,   49   111.   331.     See 

3  Pennsylvania  College  Cases,  13  also  Fisher  v.  Evansville  &c.  R.  Co.^ 
Wall.  (U.  S.)  190;  affirming  s.  c.  7  Ind.  407,  413  (doctrine  recognized)  j 
sub  nom.  Houston  v.  Jefferson  College,  post  §  512. 

63  Pa.  bt.  428,  437.  5  Pos«,  §  512. 

*  Mitchell  V.   Deeds,  49    111.   416, 

216 


LEGISLATIVE   RECOGNITION.       [1  Thomp.  Coip.   §  318. 

ive  consolidation  may,  in  like  manner,  be  validated  by  a  subse- 
quent legislative  recognition.^  Thus,  a  railway  corporation  was 
formed  by  consolidation  of  several  railway  corporations,  neither 
of  which  had  any  authority  to  construct  its  road  in  the  city  of 
Chicago.  Subsequently  to  the  consolidation,  the  legislature 
passed  an  act  providing  that  the  rate  of  speed  of  the  consolidated 
company  (using  the  name  which  it  had  taken),  "  within  the  limits 
of  that  city,  should  be  under  the  control  of  the  common  council," 
etc.  "  This  amendatory  act,"  said  Sheldon,  C.J. ,  "  is  a  legislative 
recognition  of  this  consolidated  company,  and  of  the  name  of  the 
consolidated  company,  adopted  by  the  articles  of  consolidation, 
amounting  to  legislative  ratification  of  the  consolidation  which 
has  been  effected;  and  it  is  also  a  like  recoornition  of  the  right  of 
the  company  to  construct  a  railway  within  the  limits  of  the  city 
of  Chicago."  The  court  accordingly  held  that  the  consolidated 
company  could  proceed  to  condemnland  for  its  route  within  that 
city. 2  This  principle  has  been  applied,  in  a  case  where  it  was 
necessary  to  the  validity  of  a  railway  consolidation,  that  it  should 
be  sanctioned  by  the  concurrent  legislation  of  the  States  of  Con- 
necticut and  New  York.  A  general  lawof  New  York  authorized 
railroad  companies,  having  continuous  lines,  to  unite  and  form  a 
single  corporation.  A  resolution  of  the  legislature  of  Connecti- 
cut provided  that,  whenever  a  company  owning  a  road  lying 
partly  within  that  State  should  be  consolidated  with  any  other 
company  in  the  State  of  New  York,  in  pursuance  of  the  laws  of 
that  State,  the  new  company  should  have  all  the  rights,  within 
the  State  of  Connecticut,  which  were  possessed  by  the  old  com- 
pany. With  these  laws  in  force,  a  railway  company  owning  a 
railway  lying  wholly  within  the  State  of  Connecticut,  and  an- 
other company  owning  a  road  lying  partly  within  the  State  of 
New  York  and  partly  within  the  State  of  Connecticut,  attempted 
a  consolidation.  The  question  having  been  made  as  to  the 
validity  of  its  consolidation,  on  the  ground  that  the  roads  did  not 
form  a  continuous  line,  as  required  by  the  laws  of  New  York, 
the  legislature  of  that  State  passed  an  act  recognizing  the  exist- 
ence of  the  consolidated  corporation,  and  validating  and  estab- 

1  Mead  v.  New  York  &c.  K.  Co.,  45  -  McCauley    v.    Columbus    &c.    R. 

Conu.  199.  Co.,  83  111.  348,  352. 

217 


1  Thomp.  Corp.  §  320.]     consolidation. 

lishing  the  aorreemeiit  under  which  the  consolidation  had  been 
made.  It  was  held  by  the  Supreme  Court  of  Connecticut  that 
this  might  be  done,  and  that,  when  the  legal  existence  of  the  cor- 
poration in  the  State  of  New  York  became  thus  established,  it 
satisfied  the  requirements  of  the  Connecticut  statute,  and  the 
new  company  became  possessed  of  all  the  rights  in  the  State  of 
Connecticut  which  had  been  possessed  by  the  old  company.' 

§  319.  Consolidation  with  Foreign  Corporation.  —  As  al- 
ready seen,  there  is  no  insuperable  difficulty  in  the  creation  of 
one  corporation  by  the  concurrent  legislation  of  two  States  of  the 
Union,^  though  there  are  theories  that  such  legislation  operates 
to  create  two  corpoi'ations,  and  not  one.^  Pursuing  that  subject 
further,  we  find  that  the  old  view  was  that  expressed  by  Mr. 
Justice  Story  at  circuit,  that,  where  two  corporations,  created 
by  the  legislation  of  two  States,  for  the  purpose  of  constructing 
a  public  improvement  extending  across  the  boundary  between 
such  States,  are  united  by  new  concurrent  acts  of  the  legislatures 
of  the  two  States,  by  which  the  stockholders  of  each  are  made 
stockholders  in  the  other,  they  do  not  cease  to  exist  as  distinct 
corporations;  that  the  effect  of  such  legislation  is  a  mere  union 
of  stocks  and  interests,  but  not  a  merger  of  powers.^  This  doc- 
trine, it  is  to  be  observed,  remained  that  of  the  United  States 
down  to  the  year  1861,^  and  still  inheres  in  our  jurisprudence 
to  a  qualified  extent.® 

§  320.  Remains  a  Domestic  Corporation  in  Each  of  the 
Concurring  States.  — From  the  foregoing  observations,  we  are 
justified  in  the  conclusion  that  a  corporation  created  by  the  con- 
current legislation  of  two  or  more  States,  exists  in  each  of  such 
States  as  a  domestic  corporation  of  that  State.'     This  conclusion 

1  Mead  v.  New  York  &c.  R.  Co.,  45  See  also  Farmers'  Loan  &  Trust  Co.  v. 
Conn.  199.  Trust  Co.,  21  Abb.  N.  C.  (N.  Y.)  104. 

2  Ante,  §  47.  ^  So  held  in  Re  St.  Paul  &c.  R.  Co., 

3  Ante,  §  48.  36  Minn.  85.     The  constitution  of  Col- 

*  Furnum  v.  Blackstone  Canal  orado  so  provides  in  express  terms, 
Corp.,  1  Sumn.  (U.  S.)  46.  thus:    "  If    any  railroad,    telegraph, 

*  Ohio  &c.  R.  Co.  V.  Wheeler,  1  express,  or  other  corporation  or- 
Black  (U.  S.),  297.  ganized  under  any  of  the  laws  of  this 

^  Ante,^  il.    Receo.  Newport  News      State    shall    consolidae    by    tale   or 
&c.  Co.,32W.  Va.l64;  9S,E.  Rep.  212.      otherwise,    with    any   railroad,    tele- 
218 


WITH    FOREIGN    CORPORATION.       [1  TllOllip.  Coip.   §   320. 

is  justified  by  a  comparatively  recent  decision  by  the  Supreme 
Court  of  the  United  States,  in  a  case  where  a  railroad  corpora- 
tion, chartered  in  Connecticut,  had  bought  the  franchises  and 
properties  of  a  railroad  corporation  created  under  the  laws  of 
Connecticut  and  of  Rhode  Island.  The  legislature  of  Rhode 
Island  ratified  the  sale,  and  authorized  the  Connecticut  company 
to  exercise  the  rights  thus  acquired.  It  was  held  that  the  Con- 
necticut company  thus  became  the  successor  of  the  consolidated 
company,  and,  as  to  so  much  of  its  road  as  existed  within  the 
State  of  Rhode  Island,  a  corporation  of  that  State. ^  This  is 
quite  in  conformity  with  the  observation  of  the  same  court, 
speaking  through  Mr.  Justice  Swayne,  in  a  former  case  :  *'  Nor 
do  we  see  any  reason  why  one  State  may  not  make  a  corporation 
of  another  State,  as  there  organized  and  conducted,  a  corpora- 
tion of  its  own,  quoad  any  property  within  its  territorial  jurisdic- 
tion."^ It  was  reaffirmed  by  the  Supreme  Court  of  Illinois  in 
1868,  that  court  holding  that  a  contract  of  consolidation,  validated 
by  subsequent  legislation,  created  substantially  a  new  corpora- 
tion with  a  new  name,  but  that  such  corporation,  in  a  legal  point 
of  view,  remained  a  distinct  corporation  in  each  State.  That  is 
to  say,  there  was  a  Wisconsin  corporation  of  a  given  name  and 
an  Illinois  corporation  of  the  same  name,  although  the  officers 

graph,  express  or  other  corporation  under  which  a  company  organized 
organized  under  any  laws  of  any  other  under  the  laws  of  one  State,  and  after- 
State  or  territory,  or  of  the  United  wards  consolidated  with  a  company 
States,  the  same  shall  not  thereby  be-  created  by  another  State,  might  in- 
come a  foreign  corporation,  but  the  crease  its  capital  stock,  in  pursuance 
courts  of  this  State  shall  retain  juris-  of  the  law  of  the  State  of  its  creation: 
diction  over  that  part  of  the  corporate  Attorney-General  v.  Boston  &c.  R.  Co., 
property,    within  the  limits    of    this  109  Mass.  99. 

State  in  all  matters  which  may  arise,  i  Clark  v.  Barnard,  108  U.  S.  436. 
as  if  said  consolidation  had  not  taken  2  Railroad  Co.  v.  Harris,  12  Wall, 
place."  Colo.  Const,  of  1876,  art  15,  (U.  S.)  66,  82.  That  this  may  be  done, 
§14.  One  of  the  results  of  such  a  doc-  seems  to  have  been  the  view  of  the 
trine  is  that  the  provisions  of  the  law  same  court  in  the  previous  case  of 
of  each  of  the  States  whose  legisla-  Ohio  &c.  R.  Co.  v.  Wheeler,  1  Black 
ture  has  concurred  in  creating  the  (U.  S.),  297;  ante,  §  47.  See  also 
united  company,  relating  to  the  service  Railway  Co.  v.  Wliitton,  13  Wall.  (U. 
of  process  on  domestic  corporations,  S.)  270;  Railroad  Co.  v.  Vance,  96  U. 
applies  to  such  a  corporation.  Re  St.  S.  450;  Memphis  «&c.  R.  Co.  v.  Ala- 
Paul  &c.  R.  Co.,  36  Minn.  85.  Cir-  baraa,  107  U.  S.  581. 
cumstauces  of  concurrent   legislation 

219 


1  Thomp.  Corp.  §  320.]     consolidation. 

and  stockholders  of  both  corporations  were  the  same.*  From 
such  a  refinement  it  would  seem  to  follow  that,  when  the  per- 
sons comi)osing  the  two  corporations  acted  in  Illinois,  there  was 
present  a  domestic  corporation  and  also  a  foreign  corporation,  — 
that  is  to  say,  they  were  there  as  an  Illinois  corporation  and 
also  as  a  Wisconsin  corporation ;  and  so,  conversely,  when  they 
acted  in  Wisconsin.  The  court,  however,  went  so  far  as  to 
concede  that  "  the  principle  that  a  single  corporation  cannot 
be  created  by  the  joint  legislation  of  two  States,  while  an  irre- 
sistible inference,  from  the  established  law  in  regard  to  corpo- 
rate bodies,  is  nevertheless  a  technical  and  abstract  principle  ;  and 
when  adjoining  States  authorize  consolidations,  as  in  the  present 
instance,  and  the  consolidated  lines  are  placed  under  a  common 
board  with  a  common  name  and  seal,  such  board  will  naturally 
act  as  one  company;  and  when  their  contracts  assume  that 
form,  the  courts  must,  for  the  protection  of  the  public,  and  to 
enforce  good  faith,  hold,  as  we  have  done  in  this  case,  that  the 
contract  is  to  be  construed  as  made  by  the  corporation  of  each 
State  in  which  the  subject-matter  of  the  contract  lies:  ut  res 
magis  valeat  quam  pereat?  The  court  accordingly  held  that 
where,  after  such  a  consolidation,  a  mortgage  had  been  made  in 
the  name  conferred  upon  the  corporation  by  the  legislation  of 
each  State,  by  the  officers  of  the  corporation  as  consolidated, 
upon  the  line  of  railroad  of  the  corporation  in  Illinois,  the  mort- 
gage would  stand  as  the  sole  mortgage  of  the  Illinois  corporation, 
and  as  such  be  legal  and  valid. ^  That  such  a  corporation  is  a 
corporation  created  by  the  laws  of  each  of  the  concurring  States, 
cannot  be  denied  ;  and  accordingly  it  has  been  well  reasoned 
that,  for  the  purpose  of  taxation,  a  corporation  created  by  the 
concurrent  legislation  of  the  State  of  Illinois  and  other  States  is 
a  company,  "  incorporated  under  the  laws  of  this  State,"  within 
the  meaning  of  a  statute  of  Illinois  relating  to  revenue  and  tax- 
ation.* Obviously,  the  effect  of  such  legislation  is  not  to  dis- 
place the  local  law  of  either  of  the  States  in  regard  to  the  mode 
of  condemning  land,  or  of  acquiring  the  right  of  way  for  the  use 

1  Racine   &c.    R.   Co.   v.  Farmers'  *  Ohio  &c.  R.  Co.  v.  Weber,  96  111. 
Loan  &  Trust  Co.,  49  111.  331.                      443   (following  Quincy  Bridge  Co.  v, 

2  Ibid.,  p.  352.  Adams  County,  88  111.  615). 
^  Ihid. 

220 


WITH   FOREIGN    COMPANY.       [1  Thomp.  Coip.    §  321. 

of  the  consolidated  railway  company  thus  created,  nor  to  import 
into  a  particular  State  a  provision  of  the  statutes  of  the  other 
concurrent  States  in  that  regard.^ 

§  321.  Foreign  Law  not  Transferred  :  Liocal  Law  not  Dis- 
iplaced.  —  Such  statutes  do  not  transfer  the  law  of  one  State  to  the 
other,  except  permissively,  nor  displace  the  local  law,  unless  otherwise 
expressly  provided.  Thus,  a  statute  of  lUinois,  authorizing  the  consol- 
idation of  a  railway  company  created  by  the  laws  of  that  State,  with 
companies  created  by  the  laws  of  other  States,  contained  the  following 
recital:  "  And  the  said  corporation  shall  also  possess  all  the  faculties, 
powers,  authorities,  immunities,  privileges  and  franchises  at  any  time 
held  by  the  said  Pittsburgh,  Ft.  Wayne  and  Chicago  Railway  Company, 
or  by  any  of  the  corporations  heretofore  consohdated  into  the  said 
company,  or  conferred  on  the  said  company,  the  said  corporations,  or 
either  of  them,  by  an  act  or  law  of  this  State,  or  of  either  of  the  States 
of  Ohio,  Indiana  or  Pennsylvania,  and  shall  have  power  and  capacity  to 
hold  and  exercise  within  each  and  every  of  the  said  States,  and  so  far 
as  it  may  be  deemed  necessary  to  the  general  objects  of  its  business, 
within  any  other  of  the  United  States,  all  the  faculties,  powers,  author- 
ities, pri\dleges,  and  franchises,  and  all  others  which  may  hereafter  be 
conferred  upon  it  by  or  under  any  law  of  this  State,  or  of  any  of  the 
aforesaid  States,  and  to  hold  meetings  of  stockholders  and  directors, 
and  do  all  corporate  acts  or  things  within  any  of  the  aforesaid  States,  as 
validly  as  it  might  do  the  same  within  this  State  ;  and  may  consohdate 
with  any  corporation  of  said  other  States  authorized  to  hold,  maintain 
and  operate  the  aforesaid  railroad."  It  was  held  that  this  statute  had 
no  reference  to  the  subject  of  the  acquisition  of  the  right  of  way  by  the 
company  to  which  it  related.  The  court  said:  "It  relates  purely,  as 
the  language  unmistakably  shows,  to  the  faculties,  powers,  authorities, 
privileges  and  franchises  which  may  be  deemed  necessary  to  the  general 
objects  of  its  business  within  any  other  of  the  United  States.  It  relates 
to  the  corporation  itself,  and  is  designed  to  make  it  a  unit  in  each  and 
all  of  the  States  in  which  its  line  is  located  ;  but  it  does  not  assume  to 
affect  the  local  law  in  regard  to  the  mode  of  acquiring  title  to  the  right 
of  way.  It  has  the  same  power  and  capacity  to  take  and  hold  right  of 
way  in  this  State  that  it  does  in  the  other  States ;  but  the  mode  of 
acquiring  right  of  way  is  obviously  very  different  from  the  capacity  to 
take  and  hold  it.  The  control  of  streets,  and  the  mode  of  regulating 
their  use,  and  the  mode  of  executing  and  acknowledging  deeds  and 
•effecting  condemnations  are  matters  of  local  law,  affected,  to  some  ex- 

1  Pittsburgh  &c.  R.Co.v.  Reich,  101  111.  157. 

221 


1  Thomp.  Corp.  §  322.]     consolidation. 

tent,  by  local  constitutions,  which  it  would  doubtless  be  impossible  ta 
place  under  precisely  the  same  law  in  each  of  these  four  States.  At  all 
events,  we  feel  quite  confident  no  such  attempt  has  been  here  made."  ^ 

§  322.  With  what  Powers  and  Liabilities. — In  respect  of 
the  financial  poivers  possessed  by  the  consolidated  company,  it 
can  be  safely  said  that  it  succeeds  to  whatever  power  of  issuing 
bonds  and  mortgaging  its  property  and  franchises  was  possessed 
by  both  of  the  preceding  companies  under  their  governing 
statutes.^  But  whether,  in  case  the  governing  statute  of  one  of 
the  companies  conferred  upon  it  larger  powers  than  that  con- 
ferred by  its  governing  statute  upon  the  other,  the  united  com- 
pany would  succeed  to  the  larger  class  of  powers,  may  be  a 
question  of  difficulty.  Where  the  act  of  consolidation  passed  by 
the  legislature  of  each  of  the  concurring  States  provided  that  the 
holders  of  the  stocks  of  the  two  companies  should,  when  consoli- 
dated, hold,  possess  and  enjoy,  all  the  property,  rights  and  priv- 
ileges and  exercise  all  the  powers  granted  to  and  vested  in  the 
companies,  or  either  of  them,  by  that  law  or  any  other  law  or  laws 
of  that  State,  or  of  the  concurring  State,  —  it  was  held  that  the 
purpose  of  the  two  provisions  was  to  vest  in  the  new  company 
the  rights  and  privileges  which  the  original  companies  had  pre- 
viously^ possessed  under  their  separate  charters,  —  the  rights  and 
privileges  which  one  of  the  original  companies  had  enjoyed  in 
the  State  of  its  creation,  and  the  rights  and  privileges  which  the 
other  had  in  like  manner  enjoyed  in  the  State  of  its  creation,  — 
and  not  to  transfer  to  either  State  or  to  enforce  therein  the 
legislation  of  the  other.  The  new  company,  after  the  consolida- 
tion, stood  in  each  State  as  the  original  company  had  previously 
stood  in  that  State,  invested  with  the  same  rights,  and  subject  to 
the  same  liabilities. ^  As  elsewhere  seen,*  specitic  liens  upon  the 
property  of  a  railway  company  follow  the  property  into  the 
hands  of  the  new  company  after  the  consolidation.  The  effect 
of  the  consolidation  is  not,  unless  otherwise  provided  in  the 
governing  statute,  to  enlarge  the  rights  of  the  lien-holders,  and 

1  Pittsburgh  &c.  R.  Co.  v.  Reich,  ^  Delaware  Railroad  Tax,  18  Wall. 
101  111.  157,  174.  (U.  S.)  206. 

2  Mead  v.  New  York  &c.  R.  Co.,  45  *  Post,  §  365,  et  seq. 
Conn.  199,  221. 

222 


WITH  FOREIGN  CORPORATION.     [1  Thomp.  Corp.  §  324. 

it  is  not  competent  for  the  leojislature  to  diminish  them. ^  The 
lien  of  a  mortgage  upon  the  road-way  of  one  of  the  precedent 
companies  is  therefore  enforcible  by  a  sale  of  such  road-way,  al- 
though it  may  operate  to  sell  a  portion  of  a  continuous  line  of 
railway.  Where  the  consolidation  has  assumed  the  form  of  a 
purchase  by  the  absorbing  company  of  the  line  of  the  absorbed 
railway,  which  line  is  covered  by  a  mortgage,  the  purchasing^ 
company  will  be  estopped  from  setting  up  the  defense  that  the 
effect  of  such  a  sale  will  be  to  sever  their  line.^ 

§   323.  Jurisdiction  not   Parted   with    or    Transferred.  — 

Where,  in  such  a  case,  the  State,  the  railway  of  whose  corpora- 
tion is  absorbed,  under  the  permission  granted  by  its  statute,  by 
the  foreign  corporation,  —  grants,  by  the  terms  of  such  statute,  to 
the  foreign  State,  no  jurisdiction  over  the  property  which  it  thus 
allows  to  be  absorbed  by  the  foreign  corporation,  an  action  can- 
not be  maintained  in  such  foreign  State  to  foreclose  a  mortsfase 
existing  prior  to  the  consolidation,  upon  the  property  thus  ceded 
to  the  foreign  corporation.  It  follows  that  the  existence  in  the 
foreign  State,  of  a  foreclosure  suit,  in  respect  of  such  domestic 
property,  is  no  bar  to  the  bringing  and  prosecution  of  such  an 
action  in  the  State  which  has  authorized  the  absorption.  This 
ruling  proceeds  upon  the  principle  that  a  State  will  not  be  con- 
sidered to  have  parted  with  jurisdictional  power  without  the 
clearest  expression  of  the  fact.^ 

§  324.  Selling  out  to  a  Foreign  Corporation  and  Taking  its 
Shares  in  Payment.  —  Consolidations  have  often  taken  the  form 
of  a  purchase  and  sale,  —  that  is,  a  purchase  by  one  corporation 
of  all  the  shares  of  stock  of  another  corporation,  payment  being 
made  in  the  shares  of  the  purchasing  corporation.*     Of  course, 

1  Eaton  &c.  R.  Co.  v.  Hunt,  20  Ind.  mortgage."  Eaton  &c.  R.  Co.  v. 
457,   464,  per  Perkins,  J.;  Gantly  v.      Hunt,  20  Ind.  457,  464. 

Ewing,  SHOW.  (U.  S.)  707;  Scobey  u.  3  Eaton  &c.  R.  Co.  v.  Hunt,  20  Ind. 

Gibson,  17  Ind.  572.  457,  460;  citing  to  tlie  principle  just 

2  For  "  it  will  not  do  for  the  com-  stated,  Newcastle  &c.  R.  Co.  v.  Peru 
pany  to  say  that  six  miles  of  road  &c.  R.  Co.,  3  Ind,  464;  Johns  v.  State, 
could    not  be  sold    separately,   they  19  Ind.  421. 

having  purchased  it  after  it  had  been  *  Such  was  the  scheme  in  the  case 

mortgaged  separately,  subject  to  the      of  Lauraau  v.  Lebanon  Valley  R.  Co., 

30  Pa.  St.  4G. 

223 


1  Thomp.  Corp.  §  325.]     consolidation. 

it  is  competent  for  the  legislature  to  authorize  one  corporation 
to  become  consolidated  with  a  foreign  corporation,  in  such  a 
manner  as  to  place  the  control  of  the  consolidated  stock  in  the 
board  of  directors  of  the  foreign  company.^  But  this  cannot  be 
done  without  legislative  authorization ;  and  the  statute  author- 
izing it  ought  to  be  express.  Such  a  power  will  not  be  allowed 
to  arise  upon  a  doubtful  implication.^ 

§  325.  Illustrations. — Accordingly,  it  has  been  held  that  a  corpora- 
tion organized  under  the  laws  of  New  York  has  no  power  to  transfer  all 
its  property  to  a  foreign  corporation  carrying  on  the  same  business, 
taking  in  payment  the  stock  of  the  foreign  company,  and  thus  termi- 
nating its  own  existence.  Nor  can  a  majority  of  the  stockholders  bind  a 
dissenting  minority  by  a  scheme  of  this  kind,  which  operates  to  dissolve 
the  domestic  corporation  and  to  transfer  its  property  to  the  foreign  one, 
so  as  to  escape  that  scrutiny  into  its  affairs  which  is  enjoined  by  the  laws 
of  New  York.  In  such  a  case  a  dissenting  stockholder  may  maintain  a 
suit  in  equity  to  have  the  transaction  enjoined  and  to  have  the  corpora- 
tion wound  up.  Said  the  court:  "  He  became  a  stockholder  under  the 
security  of  the  New  York  law,  and,  when  that  is  taken  from  him,  at  least 
he  should  have  the  property  of  his  corporation  appUed  to  the  payment 
of  its  debts,  and  the  surplus,  if  any,  divided  among  the  stock- 
holders." ^  -  .  _  -  Of  course,  what  a  ma/or%  of  the  stockholders 
cannot  do,  the  trustees  cannot  do.  Accordingly,  on  the  dissolution  of  a 
joint-stock  corporation,  it  is  the  duty  of  the  trustees  to  convert  the  as- 
sets into  money,  and  to  distribute  the  proceeds,  first  to  the  creditors, 
and  then  to  the  stockholders.  They  have  no  right  to  exchange  the  assets, 
or  any  portion  of  them,  for  the  stock  of  any  other  corporation,  without 
the  consent  of  all  the  stockholders ;  and  a  stockholder,  not  consenting 
to  such  exchange,  may  recover  of  the  trustees  the  value  of  his  stock 
thus  wrongfully  disposed  of,  on  the  theory  of  a  conversion^ 

1  Kacine  &c.  R.  Co.  v.  Farmers'  &c.  granted  is  withheld,  and  that  any  am- 
Co.,  49  111.  331.  biguity   in    the   terms    of    the    grant 

2  Thus,  where  a  statute  authorizes  must  operate  against  the  corporation 
railroad  companies  to  Zease  their  prop-  and  in  favor  of  the  public.  Or,  as  it 
erties,  but  does  not  in  terms  author-  has  been  expressed,  that  to  be  in 
ize  such  a  company  to  lease  its  prop-  doubt  is  to  be  resolved,  and  every 
erties  to  a  railroad  company  created  resolution  which  springs  from  doubt 
by  the  legislature  of  another  State,  is  against  the  corporation.  Black  u. 
such  a  power  will  be  held  not  to  exist,  Delaware  &c.  R.  Co.,  24  N.  J.  Eq.  456. 
on  the  settled  rule  of  construction,  in  ^  Taylor  v.  Earle,  8  Hun  (N.  Y),  1. 
respect  of  legislative  grants  to  cor-  *  Frothingham  v.  Barney,  6  Hun 
porations,   that    what  is  not  clearly  (N.  Y.),  366.     That  a  shareholder  has 

224 


HOW  EFFECTED.     [1  Thomp.  Coup.  §  327. 

§  326.  Power  to  Consolidate  a  Contract  Right  and  Invio- 
lable. —  The  power  given  to  a  railroad  company,  by  the  statute  of  its 
creation,  to  form  a  union  by  consolidation  with  other  companies,  has 
been  said  to  be  a  right  in  the  nature  of  a  contract,  when  the  statute  is 
accepted  and  acted  upon  by  the  corporation,  which  cannot  be  subse- 
quently withdrawn  or  substantially  impaired  by  the  State,  in  consequence 
of  the  prohibition  of  the  constitution  of  the  United  States. ^ 

§   327.  What    Steps  Necessary  to  Effect  a  Consolidation. — 

It  follows  from  what  has  just  been  said  that  a  corporation,  e.g., 
a  railway  company,  by  "  associating,  allying  and  connecting  it- 
self "  with  another,  does  not  thereby  become  equitably  "  amalga- 
mated "  with  it;  2  though  two  such  companies  may  form,  by 
agreement,  such  traffic  arrangements  as  to  operate  their  roads  as 
a  continuous  line.,  and  render  either  company  liable  to  a  passen- 
ger for  the  loss  of  his  baggage,^  or  such  as  to  render  iheva  jointhj 
liable  to  shippers.*  As  in  the  case  of  the  creation  of  a  corpora- 
tion under  a  general  law,^  where  two  or  more  companies  under- 
take to  consolidate,  the  essential  steps  pointed  out  by  the  statute, 
in  so  far  as  they  constitute  conditions  precedent,  must  be  taken 
before  the  consolidation  is  effectual  and  the  new  company  comes 
into  existence.  Thus,  if  the  governing  statute  requires  a 
certificate  of  consolidation  to  be  filed  with  the  Secretary  of  State, 
until  this   is  done  the  new  company  does  not  exist.^     On  the 

a  right  to  have  the  contract,  embodied  5  Hill  (N.  Y.),  383;  ante,  §  T-t;  post, 

in  the  articles  of  association,  per/ormed  §  343. 

by  the  trustees  according  to  its  terms,  ^  Zimmer  v.  State,  30  Arlj.  077,  680, 

and  that  he  has  a  right  to  the  aid  of  a  per  Harrison,  J. 

court  of  equity  to  compel  them  to  per-  ^  Shrewsbury   &c.  R.  Co.  v.    Stonr 

form  it,— as  for  instance  to    compel  Valley   Co.,  21    Eng.  L.  &  Eq.   C28;2 

them  to  wind  up  the  company,  dispose  De  Gex,  M.  &  G.  8G6. 

of  its  property  and  distribute  its  pro-  ^  Hart  v.  Rensselaer   &c.  R.  Co.,  8 

ceeds,  as  provided  in  the  articles,  al-  N.  Y.  37;  Stralton  v.  New  York  &c.  R. 

though  some  different  scheme  might  Co.,  2  E.  D.    Smith  (N.   Y.)  184;  Lee 

be  more  profitable  and  more  beneficial  Lin  v.  Terre  Haute  &c.  R.  Co.,  10  Mo. 

to  all  the  shareholders,  —  was  held  in  App.  125,  and  cases  there  cited. 

Mann «.  Butler,  2  Barb.  Ch  (N.Y.)3G2.  *  Wyraan  v.  Railroad   Co.,   4   Mo. 

That  stockholders    cannot    be  forced  App.  95. 

into  relations  with  new  corporations  ^  Ante,  §  226. 

against  their  consent,  see  Blatchford  ^  Commonwealth  v.  Atlantic  &c.  U. 

w.  RoKs,  54Barb.  (N.  Y.)  42.   And  com-  Co.,  53  Pa.  St.  !).     Peninsular   R.   Co. 

pare  Hartford  &c.  K.  Co   v.  Crosswell,  v.  Tharp,  28  Mich.  506. 

15  225 


1  Thomp.  Corp.  §  338.]     consolidation. 

other  hand,  as  in  the  case  of  an  original  incorporation,'  the  fil- 
ing of  such  an  instrument  is  usually  sufficient  to  constitute  the 
consolidated  company  a  legal  corporation  within  the  state.'' 
But  when  it  is  proved  that  a  certificate  of  consolidation  was  de- 
posited with  the  Secretary  of  State,  as  provided  by  law,  the 
presumption  is  that  the  secretary  filed  the  same  of  record  and 
that  it  remains  of  record,  and  a  mandamus  will,  if  necessary, 
issue  to  the  Secretary  of  State  to  add  the  date  of  filing,  or  to  do 
any  other  ministerial  act  in  the  premises  required  by  the  govern- 
ing statute.^  Moreover,  as  in  the  case  of  an  original  incorpora- 
tion,* unless  the  certificate  in  its  recitals  complies  in  substance 
with  the  statute,  there  will  be  no  incorporation.  It  was  so  held 
under  a  statute  of  Ohio,  where  the  certificate  failed  to  state  the 
residence  of  the  directors  of  the  new  company.^  Outside  of  the 
making  and  filing  of  the  certificate,  the  statute  may  impose  con- 
ditions precedent  to  the  existence  of  the  consolidated  company, 
as,  under  one  statute,®  the  condition  of  the  election  of  a  board  of 
directors  of  the  new  company,  until  which  the  new  company  does 
not  acquire  the  rights  and  franchises  of  the  precedent  companies.'' 
Again,  while  in  the  case  of  an  original  incorporation,*  the  filing 
of  a  duplicate,  or  copy  of  the  certificate  of  incorporation,  with 
the  Secretary  of  State,  is  generally  not  regarded  as  a  condition 
precedent  to  the  existence  of  the  corporation,  —  yet,  under  a 
statute  of  Michigan,  it  has  been  held  such  in  respect  of  the  filing 
of  a  duplicate  of  the  agreement  of  consolidation  between  rail- 
way companies.^ 

§  328.  Distinction  between  Consolidation  and  Agreement  to 
Consolidate.  —  Two  things  are  of  course  necessary  to  the  consolida- 
tion  of  two  or  more  corporations:  1.  An  enabling  statute.  2.  An 
agreement  between  the  consohdating  companies  that  they  will  cousoU- 

1  Ante,  §  220,  et  seq.  State  v.  Lee,  21  Oh,  St.   662;  State  v. 

2  Commonwealth  V.  Atlantic  &c.  R.  Central  &c.  Asso.,  29  Oh.  St.  399; 
Co.,  53  Pa.  St.  9.  People  v.  Chambers,  42  Cal.  201. 

3  Com.  «.  Atlantic  &c.  R.  Co.,  63  Pa.  «  Comp.  Laws  Mich.  1857,  §  1996. 
St.  9.  '  Mansfield  &c.    R.  Co.  v.  Drinker, 

*  Ante,  §  221,  30  Mich.  124, 

«  State  V.   Vanderbilt,  37  Ohio  St.  «  Ante,  §    240. 

590,  645.    The  court  cited :  Atlantic  ^  Mansfield  &c.  R.  Co.  v.  Drinker, 

&c.  R.  Co.  V.  Sullivant,  5  Oh,  St,  276 ;  supra. 

226 


HOW  EFFECTED.      [1  Thonip.  Coip,  §  330. 

date.  In  addition  to  this,  there  must  follow  the  other  steps  pointed  out 
by  the  statute  to  make  the  consolidation  effectual.  An  agreement  to 
consolidate  at  a  future  time  is,  of  course,  no  consolidation,  and  will  not 
amalgamate  the  two  companies  under  any  circumstances  until  the  time 
arrives.^ 

§  329.  A^eements  which  do  not  Amount  to  a  Consolida- 
tion. —  A  mere  alhance,  or  association,  or  traffic  comiection  hetween  two 
railroad  companies,  does  not  have  the  effect  of  consolidating  them,  even 
in  the  \dew  of  a  court  of  equity. ^  But  where,  under  such  an  agreement, 
one  of  the  companies  has  acquired  rights  against  the  other  in  respect  to 
the  use  of  its  properties,  as  the  right  to  the  joint  use  of  one  of  its  stations^ 
a  court  of  equity  will  interfere  in  its  behalf  to  protect  these  rights,  pro- 
vided the  occasion  is  grave  and  the  complaining  corapanj^  is  otherwise 
without  remedy.  In  such  a  case,  the  court  may  direct  a.  partition  of  the 
station,  and  appoint  a  receiver,  if  necessary.  But  where  provisions  exist 
for  the  settlement  of  disputes  on  such  subjects  by  arbitration,  the  court 
will  withhold  its  interposition  until  the  remedy  thus  provided  for  has 
been  resorted  to.  ^ 

§  330.  By  One  Company  Purchasing-  the  Capital  Stock  of 
the  Other  Company.  —  Statutes  authorizing  the  consolidation 
of  railway  companies  have  sometimes  taken  the  form  of  em- 
powering one  company  to  purchase  the  capital  stock  of  the  other 
company.  Such  was  held  to  be  the  effect  of  certain  special 
statutes  of  New  Jersey.  One  of  these  authorized  certain  rail- 
road companies  to  consolidate  their  capital  stock.  Another 
authorized  one  of  the  companies,  which  had  then  mortgnged  its 
after-acquired  property,  to  purchase  the  stock  of  the  other  com- 
pany, in  lieu  of  a  consolidation  of  its  own  stock  with  the  capital 
stock  of  ihe  latter.  The  purchase  and  delivery  of  the  stock 
were  actually  made,  for  the  purpose  of  consolidation.  An  actual 
consolidation  took  i)lace,  and  was  completely  recognized  by  the 
parties  in  interest ;  and  the  company  whose  stock  had  been  sold, 
thereafter  ceased  to  exist,  except  as  a  mere  matter  of  form,  and 

1  Shrewsbury  &c.  R.  Co.  v.  Stour  3  j^j-^^,  nphat  contracts  between 
Valley  R.  Co.,  21  Eng.  L.  &  Eq.  628;  2  diffiTent  companies  for  an  amalgaraa- 
De  Gcx,  M.  &  G.  80G.  lion  are  in  England  recognized  and  en- 

2  Shrewsbury  &c.  R.  Co.  v.  Stour  forced  in  equity,  see  Mozley  r.  Alston, 
Valley  R.  Co  ,  21  Eng.  L.  &  Eq.  G28;  2  1  Pliil.  Ch.  790. 

De  Gex,  M.  &  G,  SCG. 

227 


1  Thomp.  Corp.  §  JJSl.]     consolidation. 

for  the  benefit  of  the  other  oompany.  It  was  held  that  the  sale 
and  delivery  of  the  capital  stock  of  the  absorbed  company  was 
a  consolidation,  in  accordance  with  the  provisions  of  the  acts  in 
question  ;  that  the  covenant  for  further  assurance  as  to  sucli 
after-acquired  property  contained  in  the  mortgage,  would  be 
specifically  enforced;  and  that  equity  would  in  such  a  case  supply 
all  the  formalities.^  Such  also  was  the  effect  of  the  statute  under 
consideration  in  an  important  case  in  Indiana,  where  the  legis- 
lature of  that  State  authorized  the  consolidation  of  a  railway 
company  of  that  State  with  a  similar  company  of  the  State  of 
Ohio.  The  Indiana  statute  provided  that  "  the  corporate  name, 
franchises,  rights,  immunities  and  organization,  of  the  Eaton 
and  Hamilton  Railway  Company  [the  Ohio  Company]  shall  be 
preserved  and  remain  intact ;  "  and  that  "  the  name  and  organiza- 
tion of  said  Richmond  and  Miami  Railroad  Company  shall  cease ;  " 
and  that  all  the  property,  rights,  etc.,  of  the  Richmond  and 
Miami  Railroad  Company,  "  are  hereby  conveyed  to  "  "  the  said 
Eatonand  Hamilton  Railroad."  "  It  thus  appears,"  said  Perkins, 
J.,  "  that,  by  the  act  of  consolidation,  the  exact  existence  of  the 
Ohio  Company  is  continued,  while  that  of  the  Indiana  company 
is  extinguished,  after  all  its  property  is  transferred  to  the  Ohio 
Company.  It  comes  to  this  :  the  Eaton  and  Hamilton  Company 
bought  out  the  Richmond  and  Miami  corporation,  and  now  owns 
a  line  of  railroad,  six  miles  of  the  western  end  of  which  is  in 
the  State  of  Indiana,  and  which  that  corporation,  though  a  for- 
eign one,  thus  owns  and  operates  under  the  authority  of  the  law 
of  Indiana."  ^ 

§  331.  Railroad  CompaniesCombining  to  Purchase  Another 
Road. —  Where  a  railroad  company,  by  reason  of  a  lack  of 
proper  running  arrangements  with  other  roads,  is  unable  to  pay 
its  expenses,  and  it  appears  unavoidable  that  it  must  go  to  sale, 
either  under  a  mortgage  or  under  a  judgment  obtained  by  its 
general  creditors,  courts  of  equity  see  nothing  wrong  or  fraudu- 
lent in  connecting  companies  combining  and  forming  an 
association  for  purchasing  it,  and  for  operating  it,  under  such 

'  Williamson  v.  New  Jersey  South-  '^  Eaton  &c.  R.  Co.  v.  Hunt,  20  Ind. 

em  R.  Co.,  2G  N.  J.  Eq.  398.  457,  462. 

228 


WHEN   FRAUDULENT.       [1  Thomp.  Coi'p.    §   332. 

arransements  as  will  give  it  through  connections,  and  enable  it 
better  to  serve  the  public,  and  afford  profit  to  its  owners.^ 

§  332.  When  Deemed  Fraudulent  in  l/avv.  —  The  rule  of 
equity  being  that  the  assets  of  a  corporation  are  a  trust  fund  for 
its  creditors,  and  it  being  the  settled  policy  of  these  courts  to 
guard  sedulously  this  fund,  and  to  annul  all  arrangements  and 
devices  whereby  it  is  frittered  away ,2  they  will  scrutinize  with 
jealousy  any  arrangement  by  which  the  assets  of  one  corporation 
are  turned  over  to  and  swallowed  up  by  another,  leaving  the 
debts  of  the  former  unpaid  and  unsecured.  Such  arrangements 
are  justly  characterized  as  against  public  policy,  and  as  frauds 
upon  the  law.  The  motives  with  which  they  have  been  made 
will  not  be  regarded  as  a  question  of  much  concern;  the  result 
will  be  justly  looked  to,  for  the  purpose  of  determining  whether 
the  transaction  shall  be  permitted  to  stand  or  fall.  Care  must, 
of  course,  be  taken  to  discriminate  between  arrangements  of  this 
kind  done  by  the  directors  of  the  selling  corporations,  in  breach 
of  their  trust  and  in  fraud  of  the  rights  of  its  creditors,  and 
bona  fide  amalgamations  of  corporations,  accomplished  in  pur- 
suance of  law,  through  the  proper  corporate  action,  in  which 
case  the  assets  of  neither  of  the  amalgamating  corporations  are 
withdrawn  from  its  creditors,  but  the  amalgamated  corporation 
succeeds  to  the  liabilities  of  both  of  the  corporations  by  whose 
union  it  was  created,  and  holds  the  assets  of  both,  in  trust,  for 
the  purpose  of  discharging  those  liabilities.^     Equity  will  annul 

1  Kitchen  v.  St.  Louis  &c.  R.  Co.,  notice  of  the  indebtedness,  equity  has 
69  Mo.  224,  256;  ante,  §  271.  jurisdiction  of    a  suit  to  enforce  the 

2  Upton  V.   Tribilcock,  91  U.  S.  47.      indebtedness  against  the  latter  cor- 
2  One  court  has  held  that  a  corpora-      poration,    although    no    judgment    at 

tion  which  takes,  as  owner,  all  the  prop-  law   has    been  obtained    against    the 

erty  and  assets  of  an  old  corporation  former  one,  and  that  the  president  of 

(which  is  dissolved  without  providing  the  former  corporation  is  not  properly 

for  all  its  debts)    must  pay  the  debts  a  party  to   such  suit.     Hiberuia  Ins. 

of  the  old  corporation,  at  least  to  the  Co.   v.  St.  Louis  Transportation  Co., 

amount    of     the    assets     converted-  3  McCrary    (U.    S.),  3G8.     The  court 

Brum  V.  Merchants   Mut.  Ins.  Co.,  16  examines  Garrison  v.   Memphis   Ins. 

Fed.   Rep.    140,  Pardee,    J.     Another  Co.,   19   How.   (U.   S.)    312;    Case  v. 

court  has  held  that,  where  a  corpora-  Beauregard,    99  U.  S.    119;   s.  c.  101 

tion,  after   contracting  debts,  trans-  U.    S.  688.     A  construction  company 

fers,  without  consideration,  all  of  its  agreed  to  build  a  railroad  for  a  Georgia 

property  to  another  corporation  having  corporation.    As  security  for  the  out- 

229 


1  Thomp.  Corp.  §  332.]     consolidation. 

any  scheme  by  which  07ie  of  two  companies,  pending  negotia- 
tions for  a  consolidation,  commits  ix  fraud  upon  the  shareholders 
of  tlie  other.  Thus,  while  negotiations  were  pending  between 
two  gas  companies  for  their  consolidation,  upon  a  certain  basis 
of  indebtedness,  one  oi  the  companies  passed  a  resolution,  with- 
out the  knowledge  of  the  other,  declaring  a  scrip  dividend  often 
per  cent,  on  the  amount  of  their  capital  stock,  with  interest,  pay- 
able at  the  option  of  the  company,  thus  increasing  their  indebt- 
edness to  that  amount.  Certificates  of  indebtedness  were  issued 
in  accordance  with  the  resolution.  Consolidation  was  effected 
between  the  companies  without  any  knowledge  of  the  other  com- 
pany as  to  such  resolution  and  such  increased  indebtedness.  It 
was  held  on  a  bill  for  that  purpose,  that  the  scrip  should  be  de- 
declared  void,  and  the  company  issuing  it  restrained  from  recog- 
nizing the  scrip  as  a  valid  obligation,  and  from  permitting  its 
transfer.  The  certificates  should  have  put  the  purchasers  upon 
inquiry,  and  they  are  not,  therefore,  within  the  rule  applicable 
to  negotiable  paper.  Though  purchased  without  knowledge  of 
their  character  on  the  i)art  of  the  purchaser,  and  without  inquiry, 
they  might  be  ordered  to  be  delivered  up  to  be  cancelled.^  Con- 
solidation arrangements  will  be  set  aside  in  equity  where  one 
director  is  a  director  of  both  companies.  Thus,  it  has  been  held 
that  a  contract  by  which  the  bondholders  of  an  insolvent  rail- 
road company  agree  to  foreclose  a  mortgage  on  its  property,  to 

lay  to  be  incurred,  the  construction  held,  that  A.,  B.  and  C.  could  raain- 
company  received  most  of  the  stock,  tain  a  single  suit  to  prevent  the  con- 
bonds  and  assets,  of  the  railroad  cor-  summation  of  these  transactions,  and 
poration.  Then  without  beginning  to  charge  the  second  named  railroad 
the  construction,  the  construction  corporation  as  trustee  of  the  assets  of 
company  transferred  the  stock  to  the  the  construction  company  (which  was 
managers  of  another  railroad  corpora-  insolvent),  the  transactions  being  a 
tion  whose  road  competed  with  the  fraud  on  plaintiffs,  besides  being  with- 
projected  road  of  the  first  named  cor-  in  the  inhibition  of  the  provision  of 
poration.  The  money  used  by  these  the  Georgia  constitution  against  the 
managers  to  purchase  the  stock  was  purchase  by  one  corporation  of  the 
the  m')ney  of  the  corporation  which  shares  of  another  corporation,  and 
they  control'ed.  A.,  B.  and  C.  each  against  agreements  operating  to  de- 
lent  money  to  the  manager  of  the  con-  feat  or  lessen  competition  or  to  encour- 
struction  company  to  enable  that  com-  age  monopoly,  Langdony.  Branch,  37 
pany  to  carry  out  its  contract  to  build  Fed.  Hep.  44<J ;  5  Rail.  &  Corp.  L.  J.  107. 
the  road,  repayment  to  be  made  from  ^  Bailey  v.  Citizens'  Gas  Light  Co., 
the  profits  of  the  undertaking.  It  was  27  N.  J.  Eq.  196. 
230 


WHEN  FRAUDULENT.      [1  Thomp.  Corp.  §  333. 

buy  the  property  at  the  mortgage  sale,  and  to  transfer  it  to  an- 
otlier  company  of  which  one  of  the  bondholders  of  the  insolvent 
road  is  a  director,  in  consideration  of  the  transfer  of  certain 
bonds  of  the  proposed  new  company,  —  is  not  such  a  contract 
as  is  sanctioned  by  the  New  York  statute,  above  <quoted,^  re- 
lating to  the  reorganization  of  existing  railroads,  but  is  void  as 
ajrainst  public  policy,  on  the  ground  that  the  law  cannot  accur- 
ately measure  the  influence  of  the  single  director  who  acts  in  the 
double  capacity  of  buyer  and  seller.  The  court  say:  "The 
value  of  the  rule  of  equity  to  which  we  have  adverted,  lies,  to 
a  great  extent,  in  its  stubbornness  and  inflexibility.  Its  rigidity 
gives  it  one  of  its  chief  uses  as  a  preventive  or  discouraging  in- 
fluence, because  it  weakens  the  temptation  to  dishonesty  or  un- 
fair dealing  on  the  part  of  the  trustees,  vitiating,  without 
attempt  at  discrimination,  all  transactions  in  which  they  assume 
the  dual  character  of  principal  and  representative."  ^  The  cir- 
cumstances surrounding  every  case  of  amalgamation  are  so  mul- 
ti[)lied  and  various,  the  ramifications  of  fraud  are  so  extensive, 
and  its  devices  so  subtle,  —  that  it  would  be  impossible  to  in- 
dicate, by  any  general  statement,  what  amalgamations  are  to 
be  deemed  lawful  and  j.^roper,  and  what  fraudulent  and  unlaw- 
ful. Each  case  must,  obviously,  be  judged  by  its  own  facts; 
and  where  these  facts  clearly  appear,  experienced  and  upright 
judges  will,  in  many  cases,  come  to  opposite  conclusions  respect- 
ing them. 

§  333.  Illustration. —  A  transfer  of  the  assets  of  one  life  insur- 
ance company  to  another,  the  selUng  company,  and  probably  both, 
being  at  the  time  uisolvent,  through  the  following  method,  and  under 
the  following  circumstances,  was  h^ld  fraudulent  in  laio^  if  not  fraudu- 
lent in  fact:  — The  Life  Association  of  America  purchased  of  the  St. 
Louis  Life  Insurance  Company  all  its  stock  notes,  together  with  the 
mortpjages  and  collaterals  given  as  security  for  the  same,  paying  for 
them  by  its  own  draft.  This  draft  was  afterwards  subchvided  into  three 
others,  aggregating  in  amount  the  same  as  the  lu'st,  one  being  for 
$900,000,  and  the  other  two  for  smaller  amounts.     These  two  iauer 

1  Ante,  §  258.  K-    Cas.    377,    382.    opinion    by    An- 

2  Munson  v.  Syracuse  &c.   R.  Co.,      drews,  J. 
103  N.  Y.  58,  74;  s.  c.  29  Am.  &  Eng. 

231 


1  Thomp.  Corp.  §  331.]     consolidation. 

were  subsequently  paid.  With  the  stock  notes  and  securities  so  ob- 
tained and  a  little  cash,  the  Life  Association,  by  the  .nctive  nssistarx^e  of 
the  officers  and  directors  of  the  St.  Louis  Life  Insurance  Company,  pur- 
chased 9,703  of  the  10,000  shares  constituting  the  capital  stock  of  that 
corporation,  and  had  the  same  transferred  to  itself.  By  this  transfer 
the  offices  of  the  directors  of  the  St.  Louis  Life  Insurance  Company  be- 
came vacant,  and  the  Life  Association  caused  its  own  directors  to  be 
elected  in  their  places.  Using  the  power  thus  acquired,  the  Life  Asso- 
ciation then  procured  an  amendment  to  be  made  to  the  charter  of  the 
St.  Louis  Life  Insurance  Company  by  which  the  retirement  of  a  portion 
of  the  capital  stock  of  the  latter  was  authorized.  The  Life  Association 
then  presented  to  the  St.  Louis  Life  Insurance  Company  9,000  of  its 
9,763  shares  for  redemption,  and,  by  order  of  the  new  board  of  direct- 
ors, the  treasurer  of  the  St.  Louis  Life  Insurance  Company  redeemed 
the  same,  by  returning  to  the  Life  Association  the  above  mentioned 
draft  for  $900,000.^  It  was  also  held  that  a  receiver  of  the  selling 
comjDany  might  maintain  a  suit  in  equity  against  the  representative  of 
the  purchasing  company,  for  the  recovery  of  the  value  of  the  assets 
thus  transferred ;  that,  on  the  head  of  fraud,  and  for  the  purpose  of 
preventing  a  multiphcity  of  suits,  equity  has  jurisdiction  of  such  an 
action,  although  the  only  decree  rendered  will  be  for  the  recovery  of 
money  ;  and  that  the  measure  of  damages  in  the  particular  case  was  the 
face  value  of  the  draft  for  $900,000,  together  with  interest,  which  draft 
had  been  delivered  by  the  purchasing  company  to  the  selling  company, 
and  which  the  directors  of  the  purchasing  company,  after  they  had 
caused  themselves  to  be  elected  directors  of  the  selling  company,  had 
ordered  not  to  be  collected. ^ 

§  334.  Contract  of  Amalgamation  an  Entirety.  —  The  con- 
tract by  which  two  companies  amalgamate  or  consolidate,  or  by 
which  one  company  transfers  its  assets  and  liabilities  to  another 
company  must,  obviously,  as  a  general  rule,  stand  or  fall  as  an 
entire  thing.  When,  therefore,  an  insurance  company,  being  in 
difficulties,  transferred  its  assets  and  liabilities  to  another  insur- 
ance company,  on  a  contract  that  the  shares  of  stock  of  the  sell- 
ing company  should  be  taken  up  by  shares  of  stock  of  equal  par 
value  of  the  purchasing  company,  issued  to  the  shareholders  of 
the  selling  company,  and  that  the  new  shares  so  issued  should  be 
redeemable  at  par  by  the  purchasing  company  within  a  year,  at 
the  option  of  the  shareholders,  a  receiver  of  the  selling  company 

1  Alexander  v.  Relfe,  74  Mo.  495.  2  t^j^^. 

232 


DECISIONS  UNDER  SPECIAL  STATUTES.     [1  Tliomp.  Corp.  §  337. 

could  not,  after  the  validity  of  the  contract  of  transfer  had  been 
established  in  another  proceeding,  recover  of  one  of  such  share- 
holders the  redemption  money  which  he  had  thus  received  for  his 
shares  from  the  purchasing  company. • 

§  335.  Cannot  be  Rescinded  without  Restoring  Considera- 
tion.—  Where  two  corporations  have  become  consolidated, 
through  an  arrangement  under  which  a  portion  of  the  shares  of 
stock  of  the  purchasing  company  was  transferred  to  a  shareholder 
of  the  selling  company,  in  lieu  of  his  interest  as  a  shareholder  in 
the  selling  company,  neither  the  purchasing  company  nor  a  share- 
holder therein,  can  claim,  in  a  court  of  equity,  a  cancellation  of 
the  shares  so  issued  by  the  selling  company,  without  offering  to 
return  the  consideration  which  the  purchasing  company  received 
for  them.^ 

§  336.  Obligation  of  the  Committee  to  Account  for  Profits. — 

.  If  the  committee  to  whom  the  matter  of  the  arrangements  for  the 
amalgamation  sell  the  shares  of  the  intended  consolidated  com- 
pany, at  a  premium,  they  will  of  course  be  held  to  the  obligation 
of  accounting  to  the  company  for  the  premium,  on  principles 
hereafter  stated  and  discussed.^ 

§  337.  Decisions  under  Special  Statutes.  —  The  statute  of  New 
Hampshire,  regulating  the  compensation  to  be  paid  by  one  railroad  com- 
pany for  the  use  of  the  roadway  of  another  ^  has  been  held  not  to  repeal, 
by  implication,  a  statute  restraining  the  consolidation  of  rival  railroad 
lines,  by  arrangements  giving  to  one  the  management  of  both,  and  thus 
destroying  competition.  Such  an  effect,  it  was  reasoned,  might  be  pro- 
duced, not  only  by  a  lease,  but  by  an  agreement  to  divide  the  income 
of  both  roads.5  -  -  _  _  The  Pennsylvania  act  of  186 1,^  which  au- 
thorized any  railroad  company  chartered  by  the  commonwealth,  to  con- 
soUdate  with  any  other  raih-oad  company  so  chartered,  has  been  held  to 
have  no  application  to  siree^passewj/e?- railway  companies.''     -     -     -     - 

1  Bent  V.  Hart,  73  M->.  6U;  adicm-  ••  Gen.  Stats.  N.  H.,  oh.  150,  §  10. 
ings.  c.  10   Mo.  App.    143,   Sherwood,  »  Currier  v.  Concord  R.   Corp.,  48 
C.  J.,  dissented.  N.  H.  321. 

2  Buford  V.  Keoljuk  &c.  Packet  Co.,  ^  pub.  Laws  Pa.  1861,  702. 

69  Mo.  611;  a£fg.  s.  c.  3  Mo.  App.  159.  f  Philadelphia  v.  Thirteenth  &c.  R. 

^  Post,  §  457.     Compare  Rossmore      Co.,  1  Leg.  Gaz.  Rep.  (Pa.)  163. 
V.  Mowatt,  15  Jur.  (n.  s.)  238. 

233 


1  Thomp.  Corp.  §  337.]     consolidation. 

The  consolidation  between  the  Central  Railroad  and  Banking  Company 
of  Georgia  and  the  Macon  and  Western  Railroad  Company,  under  the 
name  and  charter  of  the  former  company,  created  a  new  corporation  for 
the  specified  purposes  therein  declared,  and,  as  no  time  was  specified 
in  the  act  for  its  continuance,  it  was  held  that  it  would  not  expire,  un- 
der the  general  law  of  the  State,  for  thirty  years. ^  The  fact  that  all 
the  rights,  privileges,  etc.,  of  the  Central  Railroad  and  Banking  Com- 
pany, as  specified  in  its  charter  granted  in  the  year  1835,  were  conferred 
upon  the  new  company,  by  general  reference  thereto  in  the  act  of  Au- 
gust, 1872,  did  not  cause  such  a  grant  to  operate  as  if  made  in  the  year 
1835,  but  the  legal  effect  was  the  same  as  if  such  rights,  etc.,  had  been 
specifically  enumerated  in  the  latter  act ;  and  the  right  of  withdrawal  or 
repeal  was  therefore  reserved  to  the  State  under  section  1682  of  the  code, 
in  view  of  the  provisions  of  which  the  new  charter  was  accepted,  and 
which  entered  into  it  and  became  a  part  of  the  contract  between  the 
new  company  and  the  State. ^  -  -  -  -  Of  course,  a  statute  provid- 
ing for  a  consoUdation,  and  containing  certain  provisions,  and  prescrib- 
ing certain  things  to  be  done  by  the  new  company,  cannot  become 
operative  unless  a  consohdation  in  fact  takes  place. ^  -  -  _  _  Under  a 
statute  of  Ohio,^  providing  that  railroad  companies  can  consolidate  only 
when  they  are  "  so  constructed  as  to  admit  the  passage  of  burthen  or 
passenger  cars  over  any  two  or  more  of  such  roads  continuously,  without 
break  or  interruption,"  two  companies,  whose  roads  are  nearly  parallel 
and  connected  only  by  leased  roads,  cannot  be  so  consolidated. ^  The 
statute  intends  to  Hmit  the  power  of  consolidation  to  railroads  which  may 
connect  so  as  to  extend  the  hue  of  either.  -  -  -  -  Where  the  roads 
of  two  companies  are  not  parallel  they  may  be  deemed  to  ' '  unite  and 
form  a  continuous  line,"  within  Ohio  Rev.  Stat.,  §  3380,  authorizing 
consolidation,  though  they  are  connected,  not  directly,  but  by  the  tracks 
of  a  "  union  ' '  company  organized  by  them  and  by  other  companies  to 
secure  a  union  depot  and  terminal  facilities.^  _  .  _  _  Under  the 
consohdation  act  (Ohio  Rev.  Stat.,  §§  3379-3388),  the  consolidating 
companies  may  agree  upon  the  number  and  amount  of  shares  of  the 
proposed  consohdation  company ;  may  classify  such  new  stock  into 
"  common  "  and  "  preferred, "and  may  issue  a  greater  or  less  number  of 
shares  than  that  of  the  aggregate  of  the  constituent  companies  to  secure 

1  Central  R.  &c.  Co.  v.  State,  54  Ga.  590.    As  to  when  consolidating  rail- 
401.  roads  are  to  be  regarded  as  connected 

2  Ibid.  and  continuous  lines,  see  Black  v.  Del- 

3  Gibbes  v.  Greenville  &c.  R.  Co.,  aware  &c.  Canal  Co.,  22  N.  J.  Eq.  130, 
13  S.  C.  228.  202,  and  cases  cited. 

*  Rev.  Stats.  Ohio,  §  337'J.  «  Burke  u.  Cleveland    &c.  R.  Co.,  22 

»  State  V.  Vanderbilt,   37   Oh.    St.      Week  L.  Bui.  (Oh.)  II. 
234 


DECISIONS  UNDER  SPECIAL  STATUTES.      [1  Thomp.  Coip.   §  337. 

a  just  and  equitable  division  of  property  between  the  shareholders 
of  the  constituent  companies.^  _  -  -  .  The  franchises  of  one 
company,  which  expire  by  limitation  at  a  definite  time,  caunot  be  re- 
vived and  extended  by  incorporating  such  company  with  another 
company,  whose  franchises  extend  to  a  later  date,  under  a  general 
statute  authorizing  consolidations ;  nor  can  a  corporation  whose  fran- 
chise has  expired  by  limitation,  be  revived  by  a  pretended  consolidation 
with  another  like  corporation,  whose  franchises  have  not  expired. ^ 
A  statute  of  Louisiana  ^  authorizing  three-fifths  of  the  stockholders  of 
two  gas-light  companies  to  effect  a  consolidation,  —  did  not  authorize 
them  to  place  stock  of  non-participating  stockholders  on  a  footing  infe- 
rior to  their  own,  or  to  transfer  their  right  to  third  persons  without  their 
consent.* 


1  Ibid. 

2  Thus,  the  Louisiana  law  of  1874, 
for  consolidation  of  corporations,  does 
not  authorize  a  compauy  incorporated 
in  1870,  with  the  exclusive  franchise 
of  making  and  vending  gas  in  New 
Orleans  for  fifty  years,  beginning  April 
2,  1875,  to  be  consolidated  with  one 
incorporated  in  1835,  with  an  exclu- 
sive franchise  of  making  and  vending 
gas  in  New  Orleans  until  April  1,  1875, 
when  its  charter  expired.  New  Or- 
leans Gas-Light  Co.  v.  Louisiana 
Light  &c.  Co.,  4  Woods  (U.  S.),  90. 

3  La.  Acts  of  1874,  No.  157. 

*  Fee  V.  New  Orleans  Gas-Light 
Compauy,  35  La.  An.  413.  Other  de- 
cisions in  particular  jurisdictions, 
construing  particular  statutes  of  con- 
.solidation,  with  reference  to  various 
questions,  can  only  be  referred  to.  As 
to  the  consolidation  between  the  Kan- 
sas Pacific  and  Union  Pacific  railroad 
companies,  in  respect  of  its  effect 
upon  tlie  right  of  the  United  States  to 
retain  a  part  of  the  earnings  of  that 
part  of  the  Union  Pacific  road  belong- 
ing to  the  K:insas  Pacific :  Union  Pacific 
R.  Co.  V.  United  States,  IG  Ct.  of  CI. 
(U.  S.)  353.  That  the  consolidation 
of  the  Southwestern  and  Muskogee 
railroad  companies  of  Georgia  was 
entered  into  in  view  of  the  provisions 
of  §  1082   of   the  code  of  that  State, 


reserving  to  the  State  the  right  to 
withdraw  the  franchise :  Southwestern 
R.  Co.  V.  State,  54  Ga.  401.  Effect  of 
the  Massachusetts  statute  of  1872, 
chaptLT  180,  permitting  the  lease  of 
a  railroad  under  certain  circum- 
stances, —  that  it  repeals  pro  tanto  the 
Mass.  Laws  of  1867,  ch.  298,  and  of 
1871,  ch.  389,  prohibiting  such  leases 
and  regulating  consolidations,  etc. : 
Peters  v.  Boston  &c.  R.  Co.,  114  Mass. 
127.  Elaborate  decision  of  the  chan- 
cery court  of  New  Jersey,  in  a  case 
where  the  opposing  parties  were  rep- 
resented by  counsel  of  great  ability, 
and  where  the  printed  arguments  con 
sumed  some  240  pages,  construing  the 
New  Jersey  act  of  March  17,  1870,  con- 
solidaing  the  Delaware  and  Raritan 
Canal  Co.,  the  Camden  &  Amboy  Rail- 
road &  Transportation  Co.,  and  the 
New  Jersey  Railroad  &  Transportation 
Co., — with  reference  to  a  variety  of 
questions,  including  the  power  of  the 
united  companies  to  lease  their  prop- 
erties to  the  Pennsylvania  Railioad 
Company,  a  corporation  of  another 
State,  etc.:  Black  v.  Delaware  &c. 
Canal  Co.,  22  N.  J.  Eq.  130,  393.  Va- 
lidity of  the  consolidation  of  Atlantic  & 
Pacific  Railroad  Co.  of  Missouri  with 
South  Pacific  R.  Co.  of  the  same  State 
und(!r  a  particular  enabling  act:  At- 
lantic &c.  R.   Co.  V.  St.  Louis,  GG  Mo. 

235 


1  Thomp.  Corp.  §  343.]     consolidation. 


Article  II.     Effect  Upon  Shareholders. 


Section 

343.  Effect  of  consolidation  upon  the 
rights  of  dissenting  sharehold- 
ers. 

3ii.  Illustration:  Effect  of  guaranty 
that  stock  of  precedent  corpo- 
ration shall  be  at  par  at  a  fu- 
ture date  named. 

345.  View  that  majority   can  consent 

on  giving  security  to  dissenting 
shareholders. 

346.  Rule  whore  a  statute  authorizes 

consolidation    at    date  of  sub- 
scription. 

347.  Where  there  is  a  reserved  power 

of  amending  the  charter. 

348.  Power  to    amend    articles  does 

not  extend  to  consolidation. 

349.  When  entitled  to  an  injunction  to 

restrain  consolidation. 

350.  Extent  of   injunctive   relief   af- 

forded. 


Section 

351.  No     injunction    if    interest    se- 

cured. 

352.  Action  in  equity  against  the  con- 

solidated company. 

353.  No  right  of  action  for  damages 

against  directors. 

354.  Effect  of  acquiescence   of  share- 

holders. 

355.  Rights  of  consolidated  company 

against     shareholders    of  old 
companies. 

356.  Action  by  new  company  for  as- 

sessments against  sharehold- 
ers in  the  old. 

357.  New    company  must    show    its 

title. 

358.  Stockholders  may  plead  no  con- 

solidation. 

359.  Illustration. 

360.  What  in  case  the   original  sub- 

scription was  conditional. 


§   343.  Effect  of  Consolidation  upon  the  Rights  of  Dissent- 
ing  Shareholders. — As  elsewhere   seen,  the    consolidation  of 


228.  Requisites  and  sufficiency  of 
proceedings  under  statutes  of  Michi- 
gan to  effect  the  consolidation  of 
railroad  companies :  Tuttle  v.  Michi- 
gan Air  Line  R.  Co.,  35  Mich.  247. 
Construction  of  Alabama  act  of  1848, 
incorporating  Alabama  and  Tennes- 
see River  R.  Company  and  that  of 
1866,  authorizing  the  company  to  ex- 
tend its  road  with  reference  to  an 
agreement  of  consolidation  made  in 
anticipation  of  special  enabling  legis- 
lation by  the  State  of  Georgia,— 
hoklinc  that  the  Georgia  companies 
were  dissolved  and  merged  into  the 
Alabama  company,  which  continued  its 
existence,  but  with  enlarged  powers 
and  extended  franchises,  etc.:  Meyer  V. 
Johnston,  53  Ala.  237 ;  Meyer  v.  Johns- 
ton, 64  Ala.  603.  As  to  the  respective 
•        236 


rights  of  stockholders  in  two  corpora- 
tions which  have  become  consoli- 
dated: Bishop  V.  Brainerd,  28  Conn. 
289.  Validity  of  a  payment  by  one 
company  to  another  to  influence  con- 
solidation where  legislative  consent 
doubtful:  Gould  v.  Seney,  5  N.  Y. 
Supp.  928;  6  R.  &  Corp.  L.  J.  143. 
Division  of  stock  of  new  company 
when  not  prohibited  by  §  309  of  Cal. 
Civil  Code:  Cole  v.  Lilenthal,  81  Cal. 
378;  s.  c.  20Pac.  Rep.  401.  New  York 
statute,  N.  Y.  Laws  1875,  c.  108,  pro- 
viding that  "in  any  case  where  two 
or  more  railroad  companies  shall  have 
been  or  shall  hereafter  be  organized 
under  the  general  laws  of  the  State 
the  whole  of  whose  lines,  as  located 
by  them,  respectively,  shall  foimone 
continuous    and    connecting    line    of 


EFFECT    UPON    SHAREHOLDERS.         [1  Thoilip.  Coi'p.    §   343. 

one  corporation  with  another  is  a  change  of  such  a,  fundamental 
character  that,  unless  the  change  is  authorized  by  the  original 
statute  creating  one  of  the  consolidating  corporations,  the  fact 
of  consolidation  will  operate  to  release  any  dissenting  share- 
holder.^ Having  embarked  his  money  in  one  venture,  he  can- 
not, without  his  consent,  be  compelled  to  transfer  it  to  another 
venture.  The  general  rule,  therefore,  is  that  a  consolidation 
can  only  take  place  with  the  unanimous  consent  of  the  share- 
liolders  of  both  companies.^  As  already  seen,^  statutes  exist 
providing  that  agreements  of  consolidation  may  be  ratified  by  a 
majority,  or  two-thirds,  or  three-fourths  of  the  shareholders  of 
each  company.  Where  these  statutes  exist  at  the  time  of  the 
shareholder's  subscription,  or  where  they  become  operative  upon 
it  in  consequence  of  a  legislative  right  —  reserved  in  the  consti- 
tution of  the  State  or  in  a  general  statute  at  the  time  of  the  sub- 
scription, —  they  establish  an  exception  to  the  above  stated  rule. 
Another  exception  exists  where  there  is  a  statute,  in  like  man- 
ner operative  notwithstanding  the  contract  of  subscription,  pro- 
viding for  the  purchase,  at  a  sale  or  appraisement,  of  the  shares 
of  the  dissenting  member.  But  in  the  absence  of  a  statute  thus 
entering  into,  or  qualifying  or  overriding  the  contract  of  sub- 
scription, any  rule  short  of  that  first  stated  allows  the  agree- 
ment of  consolidation  to  impair  the  obligation  of  the  contract  be- 
tween the  dissenting  stockholder  and  the  corporation  which  he 
originally  joined.  The  stockholders  in  the  old  corporation,  who 
do  not  enter  into  the  new  corporation,  are  therefore,  in  the  absence 

road,  the  said  companies  may  consoli-  Chapman  v.  Mad  River  &c.  R.  Co.,  6 

date  their  lines  of  road,  stock,  f ran-  Oh.  St.  119;  Fisher  v.  Evansville  &c. 

chises,    and    property,   according    to  R.  Co.,  7  Ind.  407;  Blatchford  w.  Ross, 

the  existing  laws  of  this  State  relating  54  Barb.  (N.  Y.)  42 ;  s.  c.  5  Abb.  Pr.  (n. 

to  the  consolidation  of   railroad  com-  s.)  (N.   Y.)  434;  37  How.  Pr.  (N.  Y.) 

panies,"  is  inconsistent  with  the  pro-  100;  McViclier  u.  Ross,   55  Barb.  (N. 

visions  of  N.   Y.  Laws   1809,  c.    917,  Y.)  247;  McCray  y.  Junction  R.  Co.,  9 

which  exempt   street  railroads  from  Ind.  358;  Illinois  &c.  R.   Co.  w.  Coolc, 

the  power  it  confers  to   consolidate,  29  111.   237;  Botts  v.  Simsonville  &c. 

and  it  therefore  repeals  by  implication  Turnpiiie  Co.,  88  Ky.  54 ;  s.  c.  10  S.  W. 

such  former   provisions.     Re    Wash-  Rep.  134;  Mowrey  v.  Indianapolis  &c. 

ington  Street  &c.  R.  Co.,    115  N.   Y.  R.  Co.,  4  Blss.  (U.  S.)  78;  Nathan  v. 

442;  22  Northeast.  Rep.  356;  2G  N.  Y.  Tompkins,    82    Ala.    437;      Indianola 

St.  Rep.  504.  R.  Co.  v.  Fryer,  50  Tex.  96,  117. 


»  Ante,  §  75.  3  jinCe,  §§  305-313. 

Kean  v.  Johnson,  9  N.  J.  Eq.  401 ; 


237 


1  Thomp.  Corp.  §  SIS.]     consolidation. 

of  such  statutes,  entitled  to  withdraw  from  the  venture  and  cease 
to  be  liable  on  their  stock  subscriptions.^  But,  in  the  absence 
of  a  statute  existing  at  the  time  of  his  subscription,  providing 
for  the  consolidation  upon  a  vote  of  less  than  the  whole,  or  for 
the  i)urchase  of  the  interests  of  dissenting  stockholders  in  the 
event  of  a  consolidation,  it  is  conceived  that  he  will  neither  be 
bound  to  consent  to  the  consolidation  nor  to  surrender  his  in- 
terest in  his  original  corporation.  In  such  cases  enabling  oc(s, 
authorizing  the  consolidation  of  existing  corporations,  or  the 
creation  of  a  new  corporation  by  a  union  of  the  members  of 
existing  corporations,  are  construed  as  permissive  merely,  and 
not  as  binding  a  dissenting  member.  Such  a  member  does  not 
become  a  member  of  the  new  corporation,  althougii  the  act  may 
be  duly  accepted  by  a  majority  of  the  members  of  each  of  the 
old  ones. 2  Nor  without  such  a  reservation  of  power  as  that 
already  stated,  can  the  legislature  confer  upon  existing  corpora- 
tions the  power  to  consolidate  their  stock  and  form  a  new  cor- 
poration, without  the  unanimous  consent  of  their  stockholders, 
because  so  to  do  would  impair  the  obligation  of  the  contract 
subsisting  between  the  stockholders  of  the  precedent  corpora- 
tions. In  such  an  event  a  dissenting  stockholder  would  not  be 
bound. ^  In  so  holding,  it  was  said  by  the  court,  speaking 
through  Mr.  Justice  Davis  :  "  ^Yhen  any  person  takes  stock  in 
a  railroad  corporation,  he  has  entered  into  a  contract  with  the 
company,  that  his  interests  shall  be  subject  to  the  direction  and 
control  of  the  proper  authorities  of  the  corporation,  to  accom- 
plish the  object  for  which  the  company  was  organized.  He 
does  not  agree  that  the  improvement  to  which  he  subscribed 
should  be  changed  in  its  purposes  and  character,  at  the  will  and 
pleasure  of  a  majority  of  the  stockholders,  so  that  new  responsi- 

1  McCray  v.  Junction  R.  Co.,  9  Ind.  ment  of  their  powers  and  franciiises 
358;  State  u.  Bailey,  16  Ind.  46;  Clear-  respectively,  and  may  accept  sub- 
water  V.  Meredith,  1  Wall.  (U.  S.)  scriptions  to  their  capital  st  >ck  at 
25,  49.  any  time  before  the   consolidation   is 

2  Hami'ton  Mut.  Ins.  Co.  v.  Hobart,  consummated  by  filing  the  agrei  ment 

2  Gray  (Mass.),  543.  Under  the  Ohio  of  consolidat'on  with  the  Secretary  of 
act  of  1856,  providing  for  the  consoli-  State.  Mansfield  &c.  R.  Co.  v.  Brown, 
dation   of    railroad    corporations  (53  26  Oh.  St.  223. 

Ohio  Laws,    143),    the    corporations  ^  Clearwater  v.    Meredith,  1  Wall, 

which  are  parties  to  an  agreement  to      (U.  S.)  25,  39. 
consolidate  continue  in  the  full  enjoy- 
238 


EFFECT    UPON    SHAREHOLDERS.        [1  Thomp.  Coip.    §   344. 

bilities,  and  it  may  be,  new  hazards,  are  added  to  the  original 
undertaking.  He  may  be  very  willing  to  embark  in  one  enter- 
prise, and  unwilling  to  engage  in  another;  to  assist  in  building 
a  short  line  of  railway,  and  averse  to  risking  his  money  in  one 
having  a  longer  line  of  transit.  But  it  is  not  every  unimportant 
channre  which  would  work  a  dissolution  of  the  contract.  It  must 
be  such  a  change  that  a  new  and  different  business  is  superadded 
to  the  original  undertaking."  ^ 

§  344.  Illustration :  Effect  of  Guaranty  that  Stock  of  Pre- 
cedent Corporation  shall  be  at  Par  at  a  Future  Date  Named. — 

A.  sold  a  tract  of  laud  to  B.  for  $10,000,  and  received  in  pa;^Tnent  200 
shares  of  stock  of  a  railway  corporation,  of  the  par  value  of  fifty  dol- 
lars per  share,  and  B.  executed  a  written  guaranty  that  the  stock  would 
be  worth  par  on  the  first  day  of  October,  1855,  in  Cincinnati.  Subse- 
quently, under  an  enabling  statute  of  the  State  of  Indiana,  the 
corporation  was  consolidated  with  another.  The  enabling  statute  pro- 
vided that  ' '  such  railroad  companies  are  authorized  to  merge  and  con- 
sohdate  the  stock  of  the  respective  companies,  making  one  joint  stock 
company  of  the  two  railroads  thus  connected. ' '  It  had  been  held  in  that 
State  that  the  effect  of  such  a  consolidation  was  to  create  a  new  com- 
pany out  of  the  elements  of  the  two  preceding  companies.^  Following 
this  exposition  of  the  State  statute  by  the  State  court,  and  applying  the 
principle  of  the  preceding  section,  the  Supreme  Court  of  the  United 
States  held  that  B.  was  liable  on  his  guaranty,  and  could  not  set  up,  in 
discharge  of  his  liabihty,  the  fact  of  the  consolidation ;  since,  as  the 
legislature  had  no  power  to  force  him  to  become  a  stockholder  in  the 
new  company  without  his  consent,  he  must  be  taken  to  have  consented  to 
the  change.^ 

§  345.  View  that  Majority  can  Consent,  on  Giving  Security 
to  Dissenting  Shareholders. —  So,  it  is  stated  in  a  case  in  Penn- 
sylvania, which  has  been  very  much  cited:  "The  contract  of 
consolidation  is  an  act  of  dissolution  in  form  and  substance  of 
the  Lebanon  company,  and  the  cor{)oration  cannot,  in  tlic  act 
of  dissolution,  dispose  of  the  rights  of  its  members.  The  act 
of  dissolution,  like  the  act  of  association,  is  not  a  corporate  act, 
but  an  act  of  the  members  of  the  association.     They  may  com- 

1  Clearwater  v.  Meredith,  1  Wall.  '  Clearwater  v.  Meredith,  1  Wall. 
(U.  S.)  25,  40.                                                     CU.  S.)  25. 

2  McMahan  v.  Morrison.  16  Ind.  172. 

239 


1  Thonip.  Corp.  §  346.]     consolidation. 

mit  to  their  officers  the  business  of  effecting  it  in  all  its 
details,  but  they  are  not  required  to  do  so  by  the  terms  of  their 
association,  and  in  effecting  such  a  purpose  the  officers  would  be 
rather  trustees  of  the  members  than  corporate  functionaries. 
Then  it  follows,  quite  obviously,  that  no  corporate  act  can 
settle  the  terms  of  dissolution,  or  distribute  the  effects  among 
the  members,  and  that  this  company  cannot  decide  what  the_ 
plaintiff  shall  take  for  his  interest.  The  act  of  dissolution 
works  a  change  in  the  form  of  the  interests  of  its  members, 
by  destroying  the  stock,  and  substituting  the  thing  which  the 
stock  represented, —  that  is,  a  legal  interest  in  the  property,  and 
leaves  the  members  to  seek  a  division  of  this.  But  this  property 
is  indivisible,  and  therefore  we  see  no  objection  to  the  act  of  the 
legislature,  so  far  as  it  allows  the  majority  to  dispose  of  it  in  the 
way  proposed,  except  that,  under  the  constitution,  they  cannot 
be  allowed  to  divest  or  embarrass  the  plaintiff's  interest  therein 
without  first  giving  security  therefor.  The  act  of  transfer  and 
dissolution  is  one.  If  carried  into  effect,  it  destroys  his  stock. 
Before  it  is  done  he  must  be  secured,  and  we  must  grant 
the  injunction  asked  for,  to  stand  until  this  is  done."  An  in- 
junction was  accordingly  ordered  to  be  issued,  on  the  plaintiff's 
giving  security  to  the  amount  of  $1,000  to  the  defendants;  "  and 
let  it  be  dissolved  on  the  defendants  giving  security  to  the 
plaintiff,  in  double  the  market  value  of  his  stock,  to  pay  for 
said  stock  when  its  value  shall  be  ascertained."  ^  This  was  a  case 
where  one  corporation  was  dissolved  and  extinguished  by  the 
conversion  of  its  stock  into  that  of  another  corporation, —  a 
mere  consolidation  ;  and  the  decision  is  to  be  quoted  to  the  point 
that  a  majority  may  force  a  dissenting  minority  into  such  a  con- 
solidation, provided  they  pay  them  the  actnal  vulue  of  their 
stock, —  a  proposition  which  must  be  regarded  as  doubtful. ^ 

§  346.  Rule  where  a  Statute  Authorizes  Consolidation  at 
Date  of  Subscription.  —  But  of  course  where  the  consolidation 
is  authorized  by  a  statute  existing  at  the  time  of  the  subscription, 
it  will  not  have  the  effect  of  releasing  a  subscriber  although  he 

1  Lauman  W.Lebanon  Valley  R.  Co.,  4  Biss.  (U.  S.)  78,  where  it  is  criti- 
30  Pa.  St.  42,  49.  cised  by  McDonald,  J. 

2  See  Mowrey  v.  Illinois  &c.  R.  Co., 

240 


EFFECT   UPON   SHAREHOLDERS.       [1  Thomp.  Corp.   §  346. 

did  not  consent  to  it,  unless  the  effect  of  the  consolidation  is  such 
as  to  work  a  material  change  in  the  organization  and  design  of 
the  company  as  originally  projected.^  Subscriptions  to  the  capi- 
tal stock  of  corporations  are  to  l)e  construed  with  reference  to  the 
statutes  in  force  relating  to  the  subject  of  consolidation,  on  the 
tlieory  that  governing  statutes  enter  into  and  form  a  part  of  every 
contract  of  stock  subscription.  It  is,  therefore,  no  defense  for 
a  stockholder  of  one  of  the  original  companies,  in  an  action  upon 
his  subscription  by  the  consolidated  company,  to  say  that,  as  he 
only  subscribed  for  the  stock  of  the  original  company,  his  con- 
trast has  been  changed  by  the  consolidation  without  his  consent. ^ 
In  such  a  case,  where  a  county,  which  had  subscribed  to  the  stock 
of  a  railroad  company,  sought  to  be  released  from  its  subscrip- 
tion, on  the  ground  that  there  had  been  a  subsequent  consolida- 
tion between  the  particular  company  and  another,  it  was  said  by 
the  Supreme  Court  of  the  United  States,  in  an  opinion  given  by 
Mr.  Justice  Strong:  "  It  must  be  conceded,  as  a  general  rule, 
that  a  subscriber  to  the  stock  of  a  railroad  company  is  released 
from  obliiration  to  pay  his  subscription  by  a  fundamental  altera- 
tion of  the  charter.  The  reason  of  the  rule  is  evident.  A  sub- 
scription is  always  presumed  to  have  been  made  in  view  of  the 
main  design  of  the  corporation,  and  of  the  arrangements  made 
for  its  accomplishment.  A  radical  change  in  the  organization  or 
purposes  of  the  company  may,  therefore,  take  away  the  motive 
which  induced  the  subscription,  as  well  as  affect  injuriously  the 
consideration  of  the  contract.  For  this  reason  it  is  held  that 
such  a  change  exonerates  a  subscriber  from  liability  for  his  sub- 
scription; or,  if  the  contract  has  been  executed,  justifies  a  stock- 
holder in  resorting  to  a  court  of  equity  to  restrain  the  comjjany 
from  applying  the  funds  of  the  original  organization  to  any  pro- 
ject not  contemplated  by  it.  But  while  this  is  true  as  a  general 
rule,  it  has  no  applicability  to  a  case  like  the  present.  The  con- 
solidation of  the  Kankakee  and  Illinois  River  railroad  company 
with  another  company  was  no  departure  from  its  original  design. 
The  general  statute  of  the  State,  approved  February  28,  1854, 
authorized  all  railroad  corai)anies  then  organized,  or  thereafter  to 
be  organized,  to  consolidate  their  property  and  stock  with  each 

1  Nugent  V.   Supervisors,  19  Wall.  ^  Manslield  &c.  R.  Co.  v.  Stout,  26 

(U    S.)  241.  Oh.  St.  241,  255. 

16  241 


1  Thomp.  Corp.  §  346.]     consolidation. 

other,  and  with  companies  out  of  the  State,  whenever  their  lines 
connect  with  the  lines  of  such  companies  out  of  the  State.  The 
act  further  declared  that  the  consolidated  company  should  have 
all  the  powers,  franchises,  and  immunities  which  the  consolidat- 
ing companies  respectively  had  before  their  consolidation.  Nor 
is  this  all.  The  special  charter  of  the  Kankakee  and  Illinois 
River  railroad  company  contained,  in  its  eleventh  section,  an  ex- 
press grant  to  the  company  of  authority  to  unite  or  consolidate 
its  railroad  with  any  other  railroad  or  railroads  then  constructed 
or  that  might  thereafter  be  constructed  within  the  State,  or  any 
other  State,  which  might  cross  or  intersect  the  same,  or  be  built 
along  the  line  thereof,  upon  such  terms  as  might  be  mutually 
agieeil  upon  between  said  company  and  any  other  company.  It 
was  therefore  contemplated  by  the  legislature,  and  it  must  have 
been  by  all  the  subscribers  to  the  stock  of  the  company,  that  pre- 
cisely what  has  occurred  might  occur.  Subscribers  must  be  pre- 
sumed to  have  known  the  law  of  the  State  and  to  have  contracted 
in  view  of  it.  When  the  voters  of  the  county  of  Putnam  sanc- 
tioned a  county  subscription  by  their  votes,  and  when  the  board 
of  supervisors,  in  pursuance  of  that  sanction,  resolved  to  make  the 
subscription,  they  were  informed  by  the  law  of  the  State  that  a 
consolidation  with  another  company  might  be  made  ;  that  the 
stock  they  proposed  to  subscribe  might  be  converted  into  stock 
of  the  consolidated  company,  and  that  the  liability  they  assumed 
might  become  owing  to  that  company.  With  this  knowledge, 
and  in  view  of  such  contingencies,  they  made  the  contract.  The 
consolidation,  therefore,  wrought  no  change  in  the  organization 
or  design  of  the  company  to  which  they  subscribed,  other  than 
they  contemplated  at  the  time  as  possible  and  legitimate.  It  can- 
not be  said  that  any  motive  for  their  subscription  has  been  taken 
away,  or  that  the  consideration  for  it  has  failed.  Hence  the  rea- 
son of  the  general  rule  we  have  conceded  does  not  exist  in  this 
case,  and,  consequently  the  rule  is  inapplicable."  ^  This  decision 
is  in  effect  an  affirmation  of  the  principle  that  the  subscriber  for 
stock  is  released  from  his  subscription,  by  a  subsequent  altera- 
tion of  the  organization  or  purposes  of  the  company,  only  when 
such  alteration  is  both  fundamental  and  not  provided  for  or  con- 

1  Nugent  V.  Supervisors,  19    Wall.  (U.  S.)  241,  248-50;    Miller  and  Davis, 
JJ.,  dissenting. 
242 


EFFECT   UPON    SHAREHOLDERS.       [1  Thomp.  Corp.   §   349. 

templated  by  either  the  charter  itself  or  the  general  laws  of  the 
Stale.  Other  American  authorities  are  not  wanting  in  support 
of  this  view.  In  a  case  in  Indiana,  after  a  public  act  had  taken 
effect,  authorizing  the  consolidation  of  the  charters  of  two  rail- 
road companies,  the  defendant  subscribed  for  shares  in  one  of 
them,  and  a  consolidation  was  afterwards  made.  He  was  held 
liable  to  the  consolidated  company  for  his  subscription ;  and 
this,  though  the  consolidation  took  place  without  his  knowledge 
or  consent.^ 

§  347.  Where  there  is  a  Reserved  Power  of  Amending  the 
Charter. —  The  Supreme  Court  of  Errors  of  Connecticut  has  gone 
fui-ther,  holding  that,  where  a  consolidation  has  been  effected  by  direct 
legislation,  under  the  reserved  power  of  amending  the  charter,  it  is  not 
necessaiy  that  the  assent  of  all  the  stockholders  should  be  obtained,  nor 
that  there  should  be  any  action  of  the  stockholders  or  du'ectors  on  the 
subject ;  and  this  effect  has  been  given  to  a  validating  or  curative  act  of 
the  legislature  passed  after  the  subscription  and  consolidation.^  But 
the  soundness  of  this  conclusion  is  doubted,  on  a  principle  elsewhere 
discussed. 3 

§  348.  Power  to  Amend  Articles  does  not  Extend  to  Con- 
solidation.— The  articles  of  association  of  a  company  prohibited  the 
union  or  consoUdation  of  the  company  with  any  other,  without  the  con- 
sent of  a  majority  of  the  stockholders,  but  also  contained  a  clause  pro- 
viding for  an  amendment  of  the  articles  by  a  concurrent  vote  of  two- 
thirds  of  the  executive  committee  and  a  majority  of  the  trustees.  It 
was  held,  that  the  authority  to  amend  the  articles  of  association  gave 
no  power  to  take  away  from  the  stockholders  the  power  to  prohibit  the 
merger  of  the  company  with  any  other  company,  which  they  had  ex- 
pressly reserved  for  their  own  protection.  Such  authority  to  amend 
should  be  limited  to  amendments  pertinent  to  the  business  and  objects 
for  which  the  association  was  organized.* 

§  349.  When  Entitled  to  an  Injunction  to  Restrain  Consol- 
idation.—  Where  the  general    rule    first  sti-ted^  has  not  beea 

1  Sparrow  v.  Evansville  &c.  R.  Co.,  2  Bishop  v.  Brainard,  28  Conn.  289. 

7    Ind.  3(59.     To    the    same  effect  see  ^ /ln«c,  §§  90,  91. 

Bish  I?.  Johnson,  21  Ind.299;  Compare  <  Blatchford  v.    Ross,  54  Barb.  (N. 

Cork  &c.  R.  Co.  v.  Patterson,  37  Eng.  Y.)  42;  s.  c.  5  Abb.  Pr.  (n.  s.)    (N.  Y.) 

L.  &  Eq.  398,  and  Nixon  v.  Brownlow,  434;  37  How.  Pr.  (N.  Y.)  110. 

3  Hurl.  &  N.  686.  »  Ante,  §  343. 

243 


1  Thoinp.  Corp.  §  349.]     consolidation. 

displaced  by  valid  and  operative  legislation,  the  dissenting 
shareholder  is  entitled  to  an  injunction  to  restrain  the  proi)osed 
consolidation,  on  the  ground  that  the  directors  and  officers  of  the 
corporation  of  which  he  is  a  member,  in  carrying  it  out,  are  at- 
tempting an  unauthorized  and  illegal  diversion  of  the  trust  funds 
committed  to  their  care,  —  at  least  until  his  interest  in  the  cor- 
poration is  secured.^  Nor  is  it  necessary  in  such  a  case,  as  it  is 
in  many  others,''^  for  the  dissenting  shareholder  to  make  a  vain  and 
useless  attempt  to  obtain  redress  within  the  corporation,  by  ask- 
ing the  corporation,  that  is  to  say  the  majority  who  have  deter- 
mined upon  the  unauthorized  consolidation,  to  bring  an  action 
against  themselves ;  ^  but  it  is  necessary  to  make  the  corpora- 
tion of  which  he  alleges  that  he  is  a  member,  a  party  defendant,^ 
Nor  is  it  a  ground  for  dissolving  an  injunction  against  an  unlawful 
attempt  to  consolidate  one  corporation  with  another,  that  the 
attempt  had   been  abandonedt  where   the    abandonment  is  not 


1  Laumanu.  Lebanon  &c.  R.  Co.,  30 
Pa.  St.  42;  State  v.  Bailey,  IGInd.  46; 
Mowrey  v.  Indianapolis  R.  Co.,  4  Biss. 
(U.  S.)  78;  Nathan  u.  Tomkins,  82  Ala. 
437;  19  Am.  &  Eng.  Corp.  Cas.  333;  2 
South.  Rep.  747;  2  Rail.  &  Corp.  L. 
J.  315.  In  England,  where  the  power 
of  Parliament  is  supreme  and  un- 
restrained by  any  constitutional 
prohibition  against  impairmg  the 
obligation  of  contracts,  its  power  to 
authorize  the  amalgamation  of  com- 
panies created  for  public  objects,  such 
as  railway  companies,  without  the 
consent  of  all  the  shareholders,  has 
never  been  doubted.  In  that  country 
a  shareholder  in  a  railway  company  is 
entitled  to  restrain  the  directors  from 
carrying  into  effect  an  agreement  with 
another  railway  company  for  the 
amalgamation  of  their  lines,  which 
has  not  received  the  sanction  of  the 
legislature.  So  held  where  such 
agreement  contained  clauses  provid- 
ing for  throwing  the  receipts  into  the 
common  fund,  and  dividing  the  profit 
and  loss  in  certain  proportions,  and 
also  for  handing  over  the  entire  man- 
244 


agement  and  plant  of  one  company  to 
the  other.  Charlton  u.  Newcastle  &c.R. 
Co.,  5  Jur.  (N.  s.)  1096;  7  Week.  Rep. 
731.  The  principle  is  a  very  general 
one  that  an  injunction  will  be  granted, 
at  the  suit  of  a  dissenting  shareholder, 
to  restrain  the  directors  and  m:inag- 
Ing  officers  of  a  corporation  from  di- 
verting its  funds  to  objects  not 
authorized  by  the  governing  statute. 
Post,  Ch.  90.  A  very  learned  decision 
on  this  question  is  the  case  of  Stevens 
V.  Rutland  &c.  R.  Co.,  published  as  an 
appendix  in  29  Vt.  545,  where  Chan- 
cellor Bennett  issued  an  injunction, 
at  the  suit  of  a  stockholder,  to  re- 
strain the  directors  of  a  railway  com- 
pany from  applying  its  funds  or 
pledging  its  credit  for  the  purpose  of 
constructing  a  road  beyond  the  termini 
fixed  by  the  statute  of  its  creation. 

2  Posi,  Chs.  90  and  187. 

3  Nathan  i;.  Tompkins,  82  Ala.  437. 
Contra,  Mozley  v.  Alston,  1  Phil.  Ch. 
790. 

*  Ridgway  Township  v.  Griswold, 
1  McCrary  (U.  S.),  151. 


EFFECT    UFO?^    SHAREHOLDERS.       [1  Thomp.  Coi'p.    §   351. 

shown,  by  an  official  declaration  or  by  the  rescission  of  the  reso- 
lutions under  which  the  consolidation  was  attempted. ^  A  clause 
in  the  charter  that  the  company,  "  in  matters  not  expressed  in 
the  charter,  shall  have  the  rights  and  privileges  to  the  most  fa- 
vored turnpike  companies,"  will  not  be  construed  as  conferring  or 
implying  power  to  compel  a  stockholder  to  consent  that  the  cor- 
poration of  which  he  is  a  member  shall  be  united  with  another.'' 

§  350.  Extent  of   Injunctive   Relief  Afforded.  —  But  it  has 

been  held  that  an  iniunction  to  prevent  the  consummation  of  a  consoU- 
dation  of  two  companies,  which  has  been  agreed  upon  by  their  respect- 
ive directors,  and  where  there  has  been  a  consequent  transfer  of  prop- 
erty of  one  of  the  old  companies  to  the  one  newly  formed,  —  ought  not 
to  be  extended  to  prevent  the  use,  under  the  new  company,  of  property 
which  has  been  delivered  before  the  appUcation  for  the  injunction  ;  nor 
so  as  to  restrain  stockholders  who  may  elect  to  do  so,  from  uniting  in 
the  new  organization.  But  it  was  held  that,  in  regard  to  property  not 
dehvered,  the  injunction  should  be  continued  and  that  the  directors  and 
executive  committee  should  be  restrained  from  enforcing  any  compli- 
ance with  such  terms  of  consolidation  by  the  plaintiff  and  other  share- 
holders, who  were  not  wiUing  to  become  members  of  the  new  company, 
by  collecting  assessments  on  the  shares  of  the  stock,  or  in  any  other 
manner  until  the  final  decision  of  the  cause.  ^ 

§  351.  No  Injunction  if  Interest  Secured.  —  And  while,  as 
already  stated,  a  dissenting  shareholder,  like  a  retiring  partner 
in  an  ordinary  partnership,  is  not  obliged,  in  the  absence  of  a 
statute  operative  at  the  time  when  his  contract  of  subscription 
was  made,  or  of  an  express  agreement  to  that  effect,  to  surren- 
der his  interest  in  the  property  to  his  remaining  associates  at  an 
estimated  valuation,  but  has  the  right  to  have  the  valuation 
actually  ascertained  by  a  sale^  in  the  ordinary  manner  of  clos- 
ing up  partnerships  where  there  is  no  express  stipulation;  yet 
such  an  injunction  will  not,  in  one  doubtful  view,*  be  continued 
after  his  interest  has  been  secured.     And  another  court  has  held 


1  Nathan     v.    Tompkins,    82    Ala.  consent  of  the  plaintiff  where  unanim- 
437.  ity  is  necessary :  Ibid. 

2  Botts  V.  Simpsonville  &c.  Turn-  ^  Blatchford  v.  Ross,  54  Barb.  (N. 
pike  Co.,  88  Ky.  54 ;  s.  c.  10  S.  W.  Rep.  Y.)  42 ;  s.  c.  5  Abb.  Pr.  (n.  8.)  (N.  Y.) 
134.     Injunction  should  not  be  dis-  434;  37  How.  Pr.  (N.  Y.)  110. 
solved  on  answf'r  T?hich  fail-;  to  allege  *  AntCy  §  345. 

245 


1  Thomp.  Corp.  §  354.]     consolidation. 

that,  where  the  amount  of  dissenting  stock  is  inconsiderable  in 
comparison  with  the  stock  whose  owners  have  acquiesced  in  the 
am-eement  of  consolidation,  the  court  will  order  the  consolidated 
company  to  give  a  bond  with  sureties,  conditioned  that,  upon  the 
final  judgment,  all  the  property  transferred  to  it  shall,  if  so  re- 
quired by  the  judgment,  be  delivered  into  the  custody  of  the 
court,  for  the  protection  of  all  the  shareholders.^ 

§  352.  Action  in  Equity  ag^ainst  the  Consolidated  Com- 
pany.—  Where  a  consolidation  between  two  corporations  is  wrongfully 
effected,  a  dissenting  stockholder  of  one  corporation  may  maintain  an 
action  in  equity  against  the  consolidated  corporation,  for  the  damages 
which  he  has  sustained,  upon  the  theory  of  a  wrongful  appropriation  by 
it  of  liis  equitable  interest  in  the  original  corporation  of  which  he  was  a 
member.  In  such  a  case  he  is  not  barred  by  a  delay  of  two  years, 
though  such  a  delay  might  operate  to  prevent  him  from  maintaining  a 
suit  to  restrain  the  consolidation. ^  In  such  an  action  the  shareholder  is 
not  precluded  by  the  erroneous  estimates  of  the  officials  of  the  corpo- 
ration of  which  he  was  a  member,  embodied  in  a  published  report,  from 
showing  the  true  value  of  its  assets. ^ 

§  353.  No  Right  of  Action  for  Damages  against  Direct- 
ors.— ■  Where  the  consolidation  is  effected  by  the  action  of  the 
shareholders,  it  cannot  be  made  the  foundation  of  an  action  by 
a  dissenting  shareholder  against  the  directors  for  damages.* 

§354.    Effect    of     Acquiescence    of    Shareholders." — Of 

course,  the  shareholders  who  consent  to  the  consolidation,  there- 
by estop  themselves,  in  the  absence  of  fraud,  from  raising  future 
objections  to  it.^  They  also  become  estopped  to  object  to  any 
precedent  steps  which  have  formed  an  inducement  to  the  consoli- 
dation. Thus,  where  an  amendment  of  the  charter  was  one  of 
the  chief  steps  leading  to  the  consolidation  of  a  railway  com- 
pany with  another,  the  stockholders  in  the  former  company, 
who  assumed  to  be  corporators  in   the  consolidated  company, 

1  McVicker  v.  Ross,  55  Barb.  (N.  *  International  &c.  R.  Co.  v.  Bro- 
Y.)  247.                                                              mond,  53  Tex.  96. 

2  International  &c.  R.  Co.  v.  Bre-  ^  Compare  ante,  §  80. 

mond,  53  Tex.  96.  ^  To  this  principle  see  Zabriskie  v. 

»  Ibid.  Hackensack   &c.  R.    Co.,  18  N.  J.  Eq. 

179. 
246 


EFFECT    UPON    SHAREHOLDERS.       [1  Thomp.  Coi'p.   §   355. 

thereby  became  estopped  from  proceeding  in  equity  to  have  the 
amendments  to  the  charter  declared  void.^  But  a  sharehokler  is 
not  precluded  from  making  such  an  objection  by  the  fact  of  his 
having  failed  to  object  to  an  enlargement  of  the  charter  of  the 
former  company,  which  did  not,  on  its  face,  purport  to  give  the 
power  to  consolidate.^  If  a  member  of  the  board  of  directors 
is  present  at  the  adoption  of  a  resolution  looking  toward  a  con- 
solidation with  another  company,  and  is  aware  of  what  is  l)eing 
done,  and  makes  no  opposition  to  its  adoption,  he  is  presumed  to 
have  assented  to  it.  But  if  the  proceeding  is  merely  preliminary 
to  a  decision  by  a  subsequent  vote  of  the  stockholders  on  the 
question  of  consolidation,  which  question  can  only  be  ultimately 
decided  by  a  vote  of  all  the  stockholders,  and  not  by  the  board 
of  directors,  —  the  consent  of  such  director,  so  given,  does  not 
estop  him  from  afterwards  objecting  to  the  consolidation. "^  But 
a  bill  in  equity  alleging  that  certain  railroads  were  fraudulently 
consolidated,  that  the  consolidated  road  issued  mortgage  bonds, 
that  the  mortgage  was  foreclosed,  and  a  decree  of  sale  made, 
and  asking  that  the  consolidation  be  declared  void,  will  be  dis- 
missed for  laches,  when  it  appears  that  the  complainants  were 
cognizant  of  all  the  proceedings,  and  took  no  action  until  after 
the  decree  of  sale  had  been  made.* 

§  355.  Rights  of  Consolidated  Company  against  Sharehold- 
ers of  Old  Companies. —  Generally  speaking,  upon  the  consoli- 
dation being  perfected,  a  stockholder  of  one  of  the  old  companies 
becomes  a  stockholder  in  the  new  company,  so  that  it  may  main- 
tain actions  thereon  for  assessments,^  though  this  is  a  matter 
which  may  be  varied  by  the  governing  statute  or  the  contract.® 
This  is   sometimes  effected  by  a  formal  assignment,  by  the  old 

1  Deaderick  v.  Wilson,  8  Baxt.  1  McCrary  (U.  S.),  151;  Wells  v.  Rod- 
(Tenn.)  108.  gers,  GO  Mich.  625;  s.  c.  27  N.  W.  Rep. 

2  International  &c.  R.  Co.  v.  Bre-  671;  Cooper  v.  Shropshire  Union  II. 
mond,  53  Tex.  9G.  Delay  of  two  years  &c.  Co.,  13  Jur.  443,  s.  c.  fi  Railw.  Cas. 
when  no  bar.     Ibid. ;  ante,  §  352.  (KngO  13G;  Foss  v.  Ilarbottle,  2  Hare, 

3  Mowrey  v.  Indianapolis  &c.  R.  461;  s.  c.  7  Jur.  163;  Exeter  &c.  R.  Co. 
Co.,  4  Biss.  (U.  S.)  78.  v.  BiiUer,  11  Jur.  527;  Lord  v.  Copper 

*  Bell  V.  Pennsylvania  &c.  R.  Co.,  Miners' Co.,  18  L.  J.  (Ch.)  65;  Mozley 
10  Atl.  Rep.  741;  9  Cent.  Rep.  138;  2  v.  Alston,  1  Phil.  (Ch.)  790;  s.  c.  11 
Rail.  &Corp.  L.  J.  476.  Jnr.  .",15. 

«  Riclgway  Township    v.  Griswold,  «  Bishop  v.  Brainerd,  28  Conn.  289. 

247 


1  Thomp.  Corp.  §  355.]     consolidation. 

corporatious  to  the  new  one,  of  their  properties  and  choses  in  ac- 
tion. Such  a  transfer,  it  has  been  hold,  is  not  invalid  against  the 
claim  of  a  creditor  of  one  of  the  original  corporations  accruing  after 
the  transfer ;  and  it  has  been  reasoned  that,  even  if  it  had  ac- 
crued previously,  yet  the  original  corporation,  in  the  absence  of 
any  fraudulent  intent,  had  a  right,  for  a  valid  consideration,  to 
dispose  of  its  property.^  The  soundness  of  this  reasoning  may, 
however,  be  doubted,  when  it  is  applied  to  a  disposition  of  all 
the  property  of  a  corporation,  in  view  of  the  doctrine  that  the 
property  of  a  corporation  is  a  trust  fund  for  its  creditors.  After 
a  consolidation  has  taken  place,  and  the  consolidated  company  has 
succeeded  to  the  right  to  enforce  the  stock  subscriptions  of  the 
antecedent  companies,  and  a  regular  assignment  by  the  officers  of 
the  consolidated  company  of  such  a  subscription  of  one  of  the 
antecedent  companies,  — as  by  using  the  name  of  such  company 
instead  of  the  consolidated  company, —  may  be  validated  by  a 
subsequent  ratification  of  the  board  of  directors  of  the  new 
company  .2  A  subscription  to  the  stock  of  the  amalgamated 
company  is  manifestly  a  sufficient  consent  on  the  part  of 
a  shareholder,  to  the  amalgamation.^  Where  it  appears 
from  the  articles  of  association  of  one  of  the  original  corporations, 
which  contains  among  its  members  a  dissenting  shareholder,  that 
the  consolidation  has  merely  the  effect  of  carrying  out  the  pur- 
pose of  its  organization,  such  shareholder  will  not  be  exonerated 
from  his  subscription  ;  *  for,  as  elsewhere  seen,^  one  corporation 
may  be  created  with  the  design  of  being  consolidated  with  or 
absorbed  by  another  corporation,®  and  in  such  a  case  it  will  not 
lie  in  the  mouth  of  a  shareholder  of  the  former  to  object  to  such 
consolidation :  it  is  no  change  of  the  contract  which  he  entered 
into  when  he  made  his  subscription.' 

1  Ibid;  ante,  §  332.  ^  Fisher  v.  Evansville  &c.  R.  Co.,   7 

2  Ibid.    Where     the     consolidated      Ind.  407. 

company  made  a  call  upon  its  share-  *  Hanna  v.  Cincinnati  &c.  R.   Co., 

holders  for  the  purpose    of  raising  a  20  Ind.  30;  anfe,  §  68. 

fund  to  pay  for  an  indebteduess  of  *  Ante,  §  346. 

one  of  the  precedent   companies,   the  *  Washburn    v.    Cass  Co.,  3  Dill. 

Enj^lish  Court  of  Chancery  refused  to  (U.S.)  251;    Nugent  v.   Supervisors, 

enjoin  the  enforcement    of    the    call.  19  Wall.  (U.  S.)  241. 

Mozley  v.  Alston,  1   Phil.  (Ch.)  790;  '  Injunction  to  restrain  a  creditor 

s.  c.  11  Jur.  315.  from  enforcing  his  demands  against 
248 


EFFECT    UPON    SHAREHOLDERS.       [1  ThoDip.   Corp.    §   357. 

§  356.  Action  l>y  New  Company  for  Assessments  against 
Shareholders  in  the  Old.  —  A  railroad  corporation  may  main- 
tain a  suit  upon  a  subscription  to  its  capital  stock,  after  consoli- 
dation with  another  company,  unless  this  fact  is  pleaded  in 
abatement;  in  which  case,  if  the  consolidation  is  authorized  by 
law,  the  suit  may  proceed  in  the  name  of  the  new  company,  if 
the  consolidation  is  pleaded  in  abatement.^  In  England,  until 
the  provisions  for  the  amalgamation  have  been  fnlly  carried  into 
eflfect  so  that  the  new  company  has  come  into  being,  no  suits  for 
calls  against  the  holders  of  the  consolidated  shares  can  be  sus- 
tained in  its  name.^  So,  in  America  the  consolidated  company 
cannot  proceed  to  enforce  the  stock  subscriptions  of  the  antece- 
dent companies  until  the  consolidation  is  complete,  that  is  to 
say  until  it  has  acquired  a  distinct  corporate  existence  by 
complying  with  the  conditions  precedent  named  in  the  statute  au- 
thorizing the  consolidation,  —  as  by  filing  the  instrument  of  con- 
solidation in  the  office  of  the  Secretary  of  State,^  or  by  electing 
a  new  board  of  directors.* 

§  357.  New  Company  must  Show  its  Title.  —  As  the  contract 
of  subscription,  which  is  the  subject  of  the  suit,  does  not  purport 
to  be  made  with  the  consolidated  company  by  name,  this  com- 
pany must,  on  the  most  obvious  grounds,  show  in  what  manner 
it  has  succeeded  to  the  right  of  the  original  company  to  enforce 
the  contract  against  the  subscriber.^  It  is  indeed  true  that, 
where  a  corporation  has  taken  a  contract  made  to  it  in  its  cor- 
porate name^  the  obligor  thereby,  under  a  well  understood  prin- 
ciple,^ confesses  its  existence  as  a  corporation  and  becomes 
estopped,  when  sued  by  the  corporation  to  enforce  the  obligation, 
from  denying  its  corporate  existence.     But  this  rule  does  not 

a  shareholder  in  one  of  the  precedent  L.  &  Eq.  17.    But  see  Cork  &c.  R.  Co. 

companies  denied  on  the  ground  of  an  v.  Patterson,  18  C.  B.  414 ;  Mansfleld 

adequate  remedy  at  law:     Ilardinge  &c.  R.  Co.  v.  Brown,  26  Oh.  St.  223. 
V.  Webster,  1    Drew.  &  S.  101 ;   s.  c.  6  »  Mansfleld  &c.  R.  Co.  v.  Brown,  26 

Jur.  (N.  s.)  88;  29  Law  J.   (n.  s.)   161.  Oh.  St.  223.     Compare  ante,  §  240. 

'  Swartwoiit  17.  Michigan  &c.  R.  Co.,  ■•Peninsular  R.  Co.   v.   Tharp,  28 

24  Mich.  389;  Hanna  t.  Cincinnati  &,c.  Mich.  506. 
R.  Co.,  20  Ind.  30.  *  Mansfield  &c.  R.  Co.  v.  Drinker, 

2  Midland  R.  Co.  v.  Leech,  3  H.  L.  30  Mich.  124. 
Cas.  872;  22Eng.  L.  &Eq.  45;  28  Eng.  «  Post,  §518,  and  Ch.  184,  Art.  I. 

249 


1  Thomp.  Corp.  §  358.]     consolidation. 

apply  where  a  consolidated  corporation  brings  an  action  for  an 
assessment  against  a  stockholder  of  one  of  the  precedent  corpora- 
tions. Such  a  stockholder  has  entered  into  a  contract  to  pay  for 
certain  shares  of  the  stock  of  corporation  A.,  and  this  Jigreeraent 
will  not  support  an  action  against  him  by  corporation  B.,  unless 
corporation  B.  alleges  and  proves  a  state  of  facts  showing  that 
it  has  become  the  successor  to  the  risfhts  under  the  contract  of 
corporation  A.  It  is  not  enough,  to  authorize  a  recovery  in  such 
an  action,  that  the  consolidated  company  is  shown  to  be  a  cor- 
poration de  facto  and  entitled  to  enforce  contracts  as  against 
parties  who  have  dealt  with  it.  To  acquire  the  rights  of  the 
original  corporation  in  its  contract  with  its  subscribers,  other- 
wise than  by  an  assignment,  it  is  essential  that  the  statutory 
requirements  of  a  transfer  by  succession  be  complied  with,  — at 
least  in  the  absence  of  any  participation  by  such  subscriber  as  a 
stockholder,  in  the  business  of  the  new  corporation,  by  virtue  of 
his  previous  character  of  stockholder  in  the  original  corporation, 
such  as  would  estop  him  from  disputing  the  consolidation.^ 

§358.  Stockholder  may  Plead  no  Consolidation.  —  This 
principle  would  be  nugatory,  if  the  subscriber  to  the  shares  of 
the  precedent  corporation  were  not  permitted,  in  an  action  upon 
his  subscription  by  the  new  company,  to  set  up  a  defense  in  the  na- 
ture of  the  plea  of  nul  iielcoi'poration  ;  and  it  has  been  accordingly 
held  that  such  a  defense  is  available  to  him.  He  may,  for  instance, 
dispute  the  corporate  existence  of  the  plaintiff,  on  the  ground 
that,  at  the  date  of  the  agreement  to  consolidate,  the  railroad  of 
the  company  to  whose  stock  he  subscribed,  was  neither  made  nor 
in  process  of  construction,  as  required  by  the  governing  statute 
before  a  consolidation  could  take  place. ^  He  is  not  precluded 
from  questioning  the  validity  of  the  steps  which  led  up  to  the 
consolidation,  provided  he  took  no  part  in  them,  although  they 
may  have  been  sufficient  to  make  the  new  corporation  a  corpora- 
tion de  facto.     The  reason  is  that  no  change  in  the  corporation 

'  Mansfield  &c.  R.  Co.  v.  Drinker,  ^  Maasfield  &c.    R,  Co.  v.  Stout,  26 

30  Mich.  124;  Tuttle  v.  Michigan  Air      Oh.   St.  241;   Tuttle   u.  Michigan    Air 
Line  R.  Co.,  35  Mich.  247,  249  ;  Mans-      Line  R.  Co.,  35  Mich.  247. 
field  &c.  R.  Co.  V.  Brown,  26  Oh.  St. 
223. 

250 


EFFECT   UPON    SHAREHOLDERS.       [1  Thoiup.  Coip.    §   360. 

which  has  violated  any  substantial  statutory  conditions  can  bind 
a  dissenting  stockholder,  or  compel  him  to  submit  to  the  new 
order  of  things  against  his  will.^ 

§  359.  Illustration.  —  A  person  who  becomes  a  subscriber  to  such 
stock  during  the  progress  of  the  arrangement  for  consoHdation  is  to  be 
regarded  as  a  stockholder  within  the  meaning  of  §  10  of  the  Ohio  stat- 
ute of  1856.2  After  the  consolidation  is  completed  by  filing  a  certificate 
with  the  Secretary  of  State,  the  new  corporation  thereby  created  can 
succeed  to  the  rights,  powers  and  franchises  of  the  original  corporation 
only  by  operation  of  the  statute,  which  provides  for  such  succession  only 
upon  the  election  of  the  first  board  of  directors  of  the  new  corporation. 
As  the  election  is  not  authorized  by  the  statute  before  consolidation  has 
been  consummated  by  filing  the  certificate  with  the  Secretary  of  State, 
it  follows  that  the  new  company,  in  an  action  for  money  due  on  sub- 
scriptions to  the  capital  stock  of  one  of  the  original  corporations,  must 
show  that  it  has  succeeded  to  the  rights  of  its  predecessors,  by  the  elec- 
tion of  a  board  of  directors  of  its  own.^ 

§  360.  What  in  Case  the  Original  Subscription  was  Con- 
ditional.—  As  hereafter  seen,*  in  the  case  of  conditional  sub- 
scriptions to  the  stock  of  corporations,  if  the  condition  is  law- 
ful and  expressed  in  the  contract,  the  corporation  cannot  enforce 
its  collection  without  performing  the  condition.  So,  in  the  case 
of  a  consolidation,  if  the  subscription  to  the  capital  stock  of  one 
of  the  original  companies  is  made  upon  a  valid  condition,  it  of 
course  passes  to  the  new  company  subject  to  this  condition.  If, 
therefore,  the  subscription  is  made  on  the  express  condition  that 
not  more  than  ten  per  cent,  shall  be  required  at  any  one  call,  and 
that  calls  shall  not  be  made  more  frequently  than  once  in  sixty 
days,  and  the  directors  of  the  original  company  make  a  general 
call  requiring  the  installment  of  five  dollars,  due  upon  each  share 
at  the  time  of  making  the  subscription,  to  be  paid  at  once,  and  ten 
per  centum  or  five  dollars  on  each  share  to  be  paid  on  the  fifteenth 
of  each  month  following,  until  the  whole  amount  shall  be  paid,  — 

1  Tuttlew.  Michigan  Air  Line  R.  Co.,  Oh.  St.  223;  Mansfleld  &c,  R.  Co.  /?. 
35  Mich.  247,  249.  See  also  Mansfleld  Drinker,  30  Mich.  124.  (Decision 
&.C.  R.  Co.  V.  Drinker,  30  Mich.  124.  under  Ohio  statute.) 

3  53  Oh.  Laws,  143.  <  Post,  §  1332. 

8  Mansfield  &c.  R.  Co.  v.  Brown,  26 

251 


1  Thomp.  Corp.  §  365.]     consolidation. 

this  call  h;is  no  validity  in  its  application  to  the  particular  sub- 
scription, and  cannot  be  enforced  against  a  particular  subscriber 
by  the  new  company.^ 

Article  III.     Transmission  of  Rights  and  Liabilities  of  Constit- 
uent Companies. 


Section 

365.  New  company  succeeds  to  rights 

and    obligations    of    the    old 
ones. 

366.  Succeeds  to  rights  of  old  in  re- 

spect of  municipal  aid. 

367.  "When      consolidation      revokes 

power  to  subscribe. 

Succeeds  to  exemption  from  tax- 
ation. 

How  as  to  accretions  and  better- 
ments. 

When  exemption' lost. 

Special  immunities  pass  by  the 
consolidation. 

Liability  of  new  for  debts  of 
old. 

Statute  of  consolidation  valid, 
although  not  providing  for 
payment  of  all  debts  of  ab- 
sorbed company. 

Act  of    merger    after  mortgage 
foreclosure. 
375.  Liable  in  equity  to  extent  of  as- 
sets received. 

Observations  and  illustrations. 

Rule  does  not  apply  to  bona  fide 
sale  of  assets. 

Rights  of  bona  fide  purchasers 
from  consolidated  company. 


368. 

369. 

370. 
371. 

372. 

373. 


374. 


376. 
377. 

378. 


380. 


381. 


382. 


383. 


Section 

379.  Creditor  of  old  corporation  not 
bound  to  accept  responsibility 
of  new. 

Power  of  new  company  to  deal 
with  credits  of  old. 

Guaranty  by  the  officers  of  one 
company  of  the  obligations  of 
the  other. 

Damages  for  refusal  to  carry  out 
obligation  of   old  corporation. 

Illustration:  damages  for  re- 
fusal to  exchange  bonds  for 
stock  of  consolidated  com- 
pany. 
384.  Right  of  bondholder  to  notice  of 
privilege  given  him  by  the 
consolidation. 

Validity  of  bonds  of  old  com- 
pany put  in  circulation  by  new. 

New  company  must  perform 
public  obligations  of  the 
old. 

387.  Illustration. 

388.  Enforcement  of    stipulations    in 

the  contract  of  consolidation. 

389.  Consolidated  company  subject  to 

existing  general  law  reserving 
right  of  alteration  or  repeal. 

390.  Illustration. 


385. 


386. 


§  365.  New  Company  Succeeds  to  Rights  and  Oblig-ations  of 
the  Old  Ones.  —  As  a  general  rule,  the  new  company  succeeds  to 


1  Mansfield  &c.  R.  Co.  v.  Pettis,  26 
Oh.  St.  259.  The  new  corporation 
may,  under  the  Ohio  statute  of  1856, 
perform  the  conditions  named  in  sub- 
scriptions to  the  capital  stock  of  the 
original  companies,  and  it  may  also,  by 
the  performance  of  the  conditions,  ac- 

252 


cept  a  continuing  conditional  offer  to 
subscribe  such  stock.  Where  a  gen- 
eral requisition,  otherwise  termed 
an  assessment  or  call,  is  duly  made  by 
one  of  the  precedent  companies  dur- 
ing the  pendency  of  the  consolidation 
proceedings    under  the  above  named 


RIGHTS    AND    LIABILITIES.       [1  TllOIlip.   Coip.   §   365. 

the  rights,  duties,  obligations  and  liabilities  of  each  of  the  pre- 
cedent companies,  whether  arising  ex  contractu  or  ex  delicto.^ 
The  charter  powers,  privileges  and  immunities  of  the  corporations 
pass  to  and  become  vested  in  the  consolidated  company,''^  except 
so  far  as  otherwise  provided  by  the  act  under  which  the  consoli- 
dation takes  place,  or  by  other  applicatoiy  constitutional  or 
legislative  provisions.*^  As  the  power  to  amalgamate  with  an- 
other corporation  is  in  the  nature  of  a  privilege  or  franchise,  the 
legislature  may  grant  iton  terms.  It  may  require,  as  a  condition 
of  the  grant,  the  new  company  to  assume  liabilities  of  the  old 
corporations;  ^  and  in  most  cases,  no  doubt,  statutes  authorizing 
the  consolidations  so  provide  in  express  terms. ^     A  decision  of 


act,  for  the  payment  of  subscriptions 
to  its  capital  stock  in  monthly  install- 
ments, and  the  consolidation  becomes 
complete  before  all  the  installments 
are  due,  the  requisition  will  continue 
in  force  for  the  benefit  of  the  consoli- 
dated company,  provided  an  officer 
authorized  to  receive  such  payments 
be  continued  at  the  place  named  in  the 
call.  Such  a  requisition  applies  to 
conditional  subscriptions  as  soon  as 
the  condition  is  performed,  and  to 
subsequent  subscriptions  made  before 
the  consolidation  is  complete,  as  well 
as  to  subscriptions  absolute  at  the 
date  of  the  call.  Mansfield  &c.  R.  Co. 
V.  Stout,  2G  Oh.  St.  241. 

1  Ridgway  Township  v.  Griswold,  1 
McCrary  (U.  S,),  151;  Chicago  &c.  R. 
Co.  V.  Moffitt,  75  111.  524;  Miller  v. 
Lancaster,  5  Coldw.  (Tenn.)  514; 
Atchison  &c.R.  Co.  v.  Phillips  County, 
25  Kau.  261;  Washburn  v.  Cass 
County,  3  Dill.  (U.  S.)  251 ;  Paine  v. 
Lake  Erie  &c.  R.  Co.,  31  Ind.  283; 
Zimmer  v.  State,  30  Ark.  C77;  Thomp- 
son v.  Abbott,  Gl  Mo.  176;  Barksdale 
V.  Finney,  14  Gratt.  (Va.)  338;  Harri- 
son V.  Arkansas  Valley  R.  Co.,  4 
McCrary  (U.  S.).  264;  Brum  v.  Mer- 
chants' Mut.  Ins.  Co.,  16  Fed.  Rep. 
140;  Sappington  v.  Little  Rock  &c.  R. 
Co.,  37  Ark.  23;  Louisville  &c.  R.  Co, 
V.  Boncy,  117  Ind.  501 ;  s.   c.  20  N.    E. 


Rep.  432;  3  Law.  Rep.  Ann.  435; 
Selma  &c.  R.  Co.  v.  Harbin,  40  Ga. 
70G;  Montgomery  &c.  R.  Qo.v.  Bor- 
ing, 51  Ga.  682;  Indianapolis  &c.  R. 
Co.  V.  Jones,  29  Ind.  465;  St.  Louis 
&c.  R.  Co.  V.  Miller,  43  111.  199; 
Peoria  &c.  R.  Co.  v.  Coal  Valley  Min- 
ing Co.,  68  111.  489;  Baltimore  &c.  R. 
Co,  V.  Musselman,  2  Grant  Cas.  (Pa.) 
348;  Lewis  u.  Clarendon,  6  Reporter,. 
609;  Baltimore  v.  Baltimore  &c.  R. 
Co.,  6  Gill  (Md.),  288;  s.  c.  48  Am. 
Dec.  531 ;  Tomlinson  v.  Branch,  15 
Wall.  (U.  S.)  460;  State  v.  Greene  Co., 
54  Mo.  540,  551. 

2  Robertson  v.  Rockford,  21  111. 
451 ;  Toledo  &c.  R.  Co.  v.  Dunlap,  47 
Mich,  456;  Central  R.  Co.  v.  Georgia, 
92  U,  S,  665;  New  York  &c.  R.  Co.  v. 
Saratoga  &c,  R.  Co.,  39  Barb,  (N.  Y.) 
289;  Daniels  v.  St.  Louis  &c.  R.  Co.,. 
62  Mo.  43;  Zimmer  v.  State,  30  Ark. 
677. 

3  Chicago  &c.  R.  Co.  v.  Moffitt,  75 
111.  524;  Zimmer  v.  State,  30  Ark.  677. 

4  Day  V.  Worcester  &c,  R.  Co,,  151 
Mass.  302;  s.  c.  23  N.  E.  Rep.  824. 

5  Ante,  §  305,  et  seq.  See  Lightner 
V.  Boston  &c.  R.  Co.,  1  Lowell  (U.  S.), 
338;  Shaw  v.  Norfolk  County  R.  Co,, 
16  Gray  (Mass.),  407;  Western  &c,  R. 
Co.  V.  Smith,  75  111.  496;  Hatcher  v. 
Toledo  &c.  R.  Co.,  62  111,  477.  It  has 
been  observed,  in  view  of  numerous 

253 


1  Thoinp.  Corp.  §  366.]     consolidation. 

the  Supreme  Judicial  Court  of  Maine  qualifies  this  rule,  by  hold- 
inf  that,  where  the  enabling  act  prescribes  that  the  new  company 
is  to  have  *'  the  powers,  privileges,  and  immunities  possessed  by 
each  of  the  corporations"  whose  union  constitutes  the  new 
corporation,  the  latter  will  have  only  the  privileges,  powers,  and 
immunities  which  the  corporation  with  the  fewest  privileges^ 
powers  and  immunities  possessed,  and  which  were  common  to 
all.^  The  mere  fact  that  a  corporation  is  created  with  the  same 
name  and  with  the  same  franchises  as  those  possessed  by  a  pre- 
ceding corporation,  does  not  make  it  a  continuation  of  the  pre- 
ceding corporation  and  liable  for  its  debts. ^  But  where  the 
legislature  authorizes  the  surrender  of  the  charter  of  one  com- 
pany and  its  incorporation  into  another  existing  company,  in  such 
a  sense  that  the  latter  company  succeeds  to  the  property,  rights 
andprivileges'of  the  former  and  becomes  merely  its  successor,  it 
will  be  bound  for  its  liabilities.' 

§  366.   Succeeds  to  Rights  of  Old  in  Respect  of  Municipal 
Aid.  —  The  consolidated  company  succeeds  to  whatever  rights 


decisions,  that  "it  is  usual  for  con- 
solidating statutes  to  introduce  more 
or  less  the  element  of  succession  or 
continuity  of  legal  person  as  to  exist- 
ing rights  and  duties,  notwithstand- 
ing the  fact  that,  in  other  respects,  the 
old  and  new  corporations  are  not  the 
same."  Holmes,  J.,  in  Hancock 
Mutual  Life  Ins.  Co.  v.  Worcester  &c. 
R.  Co.,  149  Mass.  214 ;  s.  c.  21  N.  E.  Rep 
364;  citing  Railroad  Co.  v.  Railroad 
Co.,  1  Gray  (Mass.),  340,  359;  Abbott 
V.  Railroad  Co  ,  145  Mass.  450,453; 
s.  c.  15  Northeast.  Rep.  91;  Pullman 
Palace  Car  Co.  v.  Missouri  &c. 
R.  Co.,  115  U.  S.  587;  s.  c.  6  Sup. 
Ct.  Rep.  194.  Where  such  is  the 
provision  of  the  statute,  the  new  cor- 
poration may  lawfully  use  a  patented 
invention,  which  both  the  old  corpora- 
tions had  been  licensed  to  use,  with- 
out a  formal  assignment  of  it.  Light- 
ner  V.  Boston  &.c.  R.  Co.,  1  Low.  (U. 
S.)  338.  Under  such  a  statute  provi- 
sion, a  person  who  was  surety  by  bond 
254 


to  one  of  the  companies,  before  amal- 
gamation, for  the  conduct  of  an  em- 
ploy6,  was  liable  to  the  new  company 
for  breaches  of  the  bond  committed 
after  the  amalgamation.  Eastern 
Union  Railway  Co.  v.  Cochrane,  24 
Eug.  L.  &Eq.495;  s.  c.  17  Jur.  1103;  23 
Law  J.  (n.  s)  61.  The  power  of  a  rail- 
road company  to  begin  proceedings 
for  the  co7ideintmtion  of  lands  in  Michi- 
gan, is  not  lost  by  its  consolidation 
with  another  railroad  company  into  a 
new  organization  so  as  to  constitute  a 
corporation  subject  to  the  laws  of  the 
same  State  as  the  original  company. 
Toledo  &c.  R.  Co.  v.  Dunlap,  47  Mich. 
45G. 

1  State  V.  Maine  Central  R.  Co.,  66 
Me.  488. 

2  For  an  example  of  this  see  Bruf- 
fett  V.  Great  Western  R.  Co.,  25  IH. 
353,  and  the  very  lucid  opinion  of 
Walker,  J. ;  ante,  ^  202. 

3  Montgomery  &c.  R.  Co.  ».  Boring, 
51  Ga.  582. 


EIGHTS    AND    LIABILITIES.        [1  Thomp.  Coip.   §   366, 

each  of  the  old  companies  possessed  in  respect  of  municipal 
aid.  It  retains  the  privilege,  conferred  by  the  charters  of  the 
old  companies,  of  having  such  aid  voted,  if  the  proper  munici- 
pal body,  or  the  electors,  are  so  minded;  and  if  the  aid  has  been 
voted,  prior  to  the  consolidation,  to  one  of  the  constituent  com- 
panies, the  consolidated  company  is  entitled  to  the  bonds. ^  The 
authority  given  by  the  legislature  to  a  county,  to  subscribe  for 
the  stock  of  a  railway  company  and  to  issue  its  bonds  therefor, 
is  not  extinguished  by  the  subsequent  consolidation  of  the  com- 
pany with  other  companies.  The  statute  confers  a  riglit  and 
privilege  upon  the  company,  which  passes,  with  its  other  rights 
and  privileges,  into  the  new  conditions  of  existence  which  it 
assumes  under  the  consolidation. ^  In  holding  that  it  was  a 
privilege  to  the  corporation  as  well  as  an  enabling  act  to  the 
county,  the  Federal  court  followed  a  decision  of  the  Supreme 
Court  of  Missouri  which,  as  a  construction  of  its  own  statute, 
was  binding  upon  the  Federal  tribunal.  The  Missouri  court  said : 
"The  power  thus  conceded  to  the  counties  or  other  municipal 
bodies  may  well  be  termed  a  privilege  to  the  corporation,  and 
we  see  no  substantial  objection  to  a  transfer  of  such  a  privilege 
by  symbol,  in  general  terms,  embodying  the  section  of  the 
original  act  which  granted  it  into  the  new  law.  That  such  was 
the  intention  of  the  legislature  and  of  the  railroad  company  is 
clear;  and,  if  the  word  'privilege'  admits  of  the  narrow  con- 
struction claimed,  the  practical  construction  it  has  derived  in 
this  State,  as  may  be  seen  by  reference  to  the  decision  of  our 
courts,  would  preclude  any  inquiry  into  the  subject  now.  These 
provisions  were  the  principal  means  by  which  this  and  other 
roads  were  built,   and  without  them  the   charters  would  have 

1  East  Lincoln  V.  Davenport,  9i  U.  DilL  (U.   S.)    251;  Nugent  v.  Super- 

S.  801;   Henry  County  v.  Nicolay,  95  visors,  19  Wall.  (U.   S.)  241;   Atchi- 

U.  S.  619;  Callaway  County  v.  Foster,  son  &c,  R.  Co.  v.  Phillips  County,  25 

93  U.   S.    507;     Scotland     County    v.  Kan.  2G1. 

Thomas,  94  U.  S.  682;   Smith  v.  Clark  -  Scotland  County   v.  Thomas,    94 

County,  54   Mo.  58;    State  v.  Greene  U.  S.   682.     To  the   same   effect    see 

County,  54  Mo.  540;  Hannibal  &c.  R.  Lewis  v.  Clarendon,  6  Reporter,  609; 

Co.  V.    Marion  County,   36   Mo.   294;  Smith  v.  Clark  County,   64    Mo.    58; 

Branch  v.  Charleston,  92   U.  S.  677;  Hannibal  &c.  R.  Co.  r.  Marion  County, 

Tomlinson  v.  Branch,  15  Wall.  (U.  S.)  36  Mo.  294;  State  v.  Greene  County, 

460;  Hanna  V.  Cincinnati  &c.  R.  Co.,  54  Mo.    540;   Henry  v.  Nicolay,  95  U. 

20  Ind.    30;  Washburn  v.  Cass  Co  ,  5  S.  019. 

255 


1  Thomp.  Corp.  §  367.]     consolidation. 

been  of  no  value."  ^  Thus,  where  the  charter  of  a  railway 
compan}^  empowered  the  county  courts  of  the  counties  along  the 
line  of  its  projected  road  to  subscribe  for  stock  in  such  company, 
and  issued  the  bonds  of  their  respective  counties  in  payment 
thereof,  and  such  railroad  company  became  merged  in  another 
railroad  company  by  a  consolidation,  so  that  its  road  became  a 
branch  of  the  road  of  the  latter  company,  the  charter  right  of 
having  the  aid  of  the  counties  passed  to  the  latter  company, 
and  the  bonds  of  such  counties,  issued  and  delivered  to  the  latter 
company,  were  valid. ^  In  such  a  case  the  principle,  which  up- 
holds rights  depending  upon -the  existence  of  corporations 
de  facto ^  applies  in  favor  of  an  innocent  holder  of  the  bonds;  so 
that,  where  the  validity  of  the  consolidation  has  not  been  dis- 
puted by  the  State,  or  by  any  stockholder,  the  municipality  can 
not  dispute  it  by  way  of  defense  to  an  action  on  the  bonds. ^ 

§  367.  Wben  Consolidatioii  Revokes  Power  to  Subscribe. — 

But  where  authority  has  been  given  to  a  county  courts  by  the 
electors  of  a  township^  to  subscribe  in  its  behalf  for  stock  in  a 
certain  railway  company,  this  authority  does  not  continue  to 
exist  after  the  company  ceases  to  exist  in  its  separate  character, 
by  being  consolidated  with  another  company.  The  reason  is  that 
the  county  court  is  the  mere  agent  of  the  township,  having  no 
discretion  to  act  beyond  the  precise  terms  of  the  power  given. 
The  powers  of  an  agent  or  attorney,  authorized  to  act  for  another, 
are  very  different  from  those  possessed  by  a  person  acting  in  his 
own  behalf.  Authority  given  to  a  person,  to  be  exercised  for 
his  own  benefit,  and  at  his  own  discretion,  may  be  exercised  by 
him  under  a  change  of  circumstances  which  would  amount  to  a 
revocation  of  a  power  given  to  an  agent.  "  So  long  as  it  re- 
mains unexecuted,  the  occurrence  of  any  event  which  creates  a 
revocation  in  law  will  extinguish  the  power.  The  extinction  of 
the  company,  in  whose  favor  the  subscription  was  authorized, 
worked  such  a  revocation.  The  law  authorizing  the  consolida- 
tion of  railroad  companies  does  not  change  the  law  of  attorney 

1  Smith  V.  Clark  County,  54  Mo.  58,  »  Washburn  v.  Cass  County,  3  Dill. 
67.                                                                    (U.  S.)  251. 

2  State  ex  rel.  v.  Greene  County,  54 
Mo.  540.     Vories,  J.,  dissented. 

256 


RIGHTS    AND    LIABILITIES.       [1  ThoDip.   Corp.    §   368. 

and  constituent.  It  may  transfer  the  vested  rights  of  one  railroad 
company  to  another,  upon  a  consolidation  being  effected,  but  it 
does  not  continue  in  existence  powers  to  subscribe  for  stock 
given  by  one  person  to  another,  which,  by  the  general  law,  are 
extinguished  by  such  change."  ^ 

§  368.  Succeeds  to  Exemption  from  Taxation.  —  If  the  pre- 
cedent corporations  enjoy,  under  their  statutes,  an  exemption 
from  taxation,  and  if  the  statute  authorizing  the  consolidation 
provides  by  whatever  language  that  the  new  company  shall  suc- 
ceed to  the  rights,  privileges  and  immunities  of  the  old,  this  ex- 
emption from  taxation  will  pass  to  and  become  vested  in  the  new 
corporation. 2  If  one  of  the  precedent  corporations  enjoys  this 
exemption,  it  will  not  be  enlarged  by  the  consolidation.  Nor 
will  it  be  diminished;  but,  as  to  its  property  which  passes  to  the 
new  corporation,  the  latter  will  take  it  subject  to  the  exemption.^ 
Thus,  where  one  of  the  consolidating  companies  enjoyed  under 
its  charter  an  exemption  from  taxation,  this  exemption  did  not, 
by  the  consolidation,  become  extended  to  the  new  company  in  re- 
spect of  its  entire  road,  but  only  in  respect  to  that  portion  of  it 
which  it  had  acquired  from  the  company  which  had  enjoyed  the 
exemption.*  So,  where  one  company,  which,  under  its  charter 
enjoyed  an  exemption  from  taxation  for  a  limited  period,  became 
merged  in  another  company  which  enjoyed  a  perpetual  exemption, 
this  perpetual  exemption  did  not,  by  the  consolidation,  become 
extended  to  the  road  of  the  company  which  thus  became  merged.^ 

1  Harshman  V.Bates  County, 92  U.S.  the  sale.  Atlantic  &c.  R.  Co.  v.  Allen, 
569.    This  case  is  distinguishable  from      15  Fla.  637. 

Scotland   County  v.  Thomas,  94  U.  S.  ^  Central  Railroad  &c.  Co.  v.  Geor 

682,   and     other   cases  cited    in     the  gia,  02  U.  S.  CGa,  075;  Phila.  &c.  R.  Co. 

preceding  section,  on  the  ground  that  v.  Maryland,  10  How.  (U.  S.)  376;  Del- 

in  the  latter  case  there  was  no  ques-  aware  Railroad  Tax  Case,  18  Wall.  (U. 

tion  of  agency,  S.)  206;   Toralinsou  v.  Branch,  15  Id 

2  Soulliwestern  R.  Co.  v.  Georgia,  400;  Charleston  v.  Branch,  15  Wa'.l. 
92  U.  S.  670;  State  v.  Woodruff,  30  N.  (U.  S.)  470;  Branch  v.  Charleston,  92 
J  L.  94.  A  statute  providing  that  "all  IT.  S.  077;  State  v.  Phila.  &c.  R.  Co., 
rights"  as  to  a  line  of  railway  which  45  Md.  361;  Chesapeake  &c.  R.  Co.  v. 
"are  and  have  been  legally  vested  "  in  Virginia,  04  U.  S.  718. 

one  corporation  shall  pass  to  another  *  Phila.  &c.  R.  Co.  v.  Maryland,  10 

corporation  upon  a  sale  by  one  to  the  How.  (U.  S.)  376. 

other,   passes    a  right  of  exemption  '^  Toraliuson   v.   Branch,    15   Wall. 

from  taxation,  where  such  rightexists  (U.  S.)  460. 

in  the  ven<l()r  conipany  at  t!ie  time  of 

n  257 


1  Thomp.  Corp.  §  370.]     consolidation. 

§  369.  How  as  to  Accretions  and  Betterments. —  When  two 
railroads  are  thus  united,  one  of  them  enjoying  an  exemption 
from  taxation  and  the  other  not,  embarrassing  questions  may 
arise  in  applying  this  principle.  Although  now  held  by  one  cor- 
poration, the  property  which  enjoyed  the  exemption  continues  to 
enjoy  it,  and  that  which  did  not  enjoy  such  an  exem])tion  remains 
subject  to  taxation.  But  how  shall  the  rule  be  applied  in  respect 
of  improvements  and  additions  put  upon  the  property  of  one  or 
the  other  sections  by  the  new  company?  These  questions  have 
been  the  subject  of  consideration  by  the  Supreme  Court  of  the 
United  States.*  In  the  last  of  these  cases  the  court,  in  carrying 
out  the  principle  already  stated,  held  that  any  repairs  or  im- 
provements made  on  the  old  line,  or  the  property  of  the  old 
company,  would  become  a  part  thereof  and  subject  to  taxation, 
since  its  original  property  was  subject  to  taxation  ;  but  newly 
acquired  property  might  not  be.  The  court  laid  this  down  only 
as  the  general  principle,  and  admitted  that  the  method  of  carry- 
ing it  out  in  detail  admits  of  some  latitude  for  the  exercise  of  de- 
liberation and  judgment ;  and  the  court  affirmed  a  decree,  rendered 
on  the  report  of  a  special  master,  with  the  exception  that  an  item 
of  $25,000,  for  replacing  the  tracks  and  side  tracks  within  the 
limits  of  the  city  of  Charleston,  fairly  belonged,  in  the  opinion 
of  the  court,  to  the  old  road,  which  did  not  enjoy  the  exemption, 
and  hence  should  have  been  taxed  in  toto  and  not  pro  tanto? 

§  370.  When  Exemption  Lost. —  But  where  the  exemption 
from  taxation,  although  vested  in  both  of  the  uniting  companies 
depends  upon  the  performance  of  certain  precedent  acts  to  be 
done  by  such  companies,  and  the  new  corporation  is  neither  re- 
quired by  the  act  of  consolidation,  nor  able  to  perform  such 
precedent  acts,  it  does  not  succeed  to  the  right  of  exemption.^ 
It  is  a  well  settled  principle  of  law  that,  when  a  creditor  has  two 
classes  of  claims  against  his  debtor,  by  uniting  them  in  one  suit 
and  obtaining  judgment  thereon,  he  reduces  that  in  which  his 
rights  are  superior,  to  the  level  of  that  in  which  his  rights  are  in- 

^  Branch  v.  Charleston,   92    U.    S.  ^  Branch  v.  Charleston,   supra. 

677.    See  also  Tomlinson   v.  Branch,  *  State  v.  Maine  Central  R.    Co.,  66 

15  Wall.  (U.    S.)    4G0;    Charleston   v.       Me.  488;  s.  c,  aff'd,  96  U.  S.  499. 
Branch,  15  Wall.  (U.  S.)  470. 
258 


RIGHTS  AND  LIABILITIES.      [1  Thomp.  Corp.  §  372. 

ferior.^  Thus,  by  joining  lien  debts  and  non-lien  debts  in  one 
suit  and  obtaining  judgment,  the  priority  of  right,  to  which  a 
portion  of  the  debts  was  entitled  before  such  joinder,  is  lost,  and 
1  he  lien  is  extinguished.  Upon  this  ground  it  has  been  held 
that,  by  the  consolidation  of  corporations  claiming  an  exemption 
from  general  taxation,  with  those  not  thus  exempt,  the  right  of 
limited  and  conditional  taxation  exists  no  longer  in  favor  of  those 
which  had  that  right,  it  being  impossible  in  this  confusion  of 
estates  to  ascertain  when  the  contingency  would  happen, —  when 
the  fraction  of  the  new  and  consolidated  corporation  would  be- 
come liable  to  the  special  and  limited  taxation  prescribed  in  the 
charter  of  such  fraction,  as  it  existed  before  the  consolidation. 
"  The  acceptance  of  tlie  new  charter  is  a  surrender  of  exemp- 
tions as  before  existing.  The  State  makes  no  surrender  of  any 
of  its  general  rights  of   sovereignty,  or  of  its  reserved  rights."  ^ 

§   371.   Special   Immunities  Pass    by  the    Consolidation.  — 

Special  immunities  inhering  in  one  of  the  precedent  corporations, 
although  attaching  to  its  officers  and  agents,  may  [)ass  to  the  new 
company  by  the  consolidation, — such  as  an  exemption  by  its 
charter  of  its  officers,  agents  and  servants  from  military,  jury 
and  road  duty.^ 

§  372.  Liability  of  New  for  Debts  of  Old  — Where  one 
corporation  goes  entirely  out  of  existence,  by  being  annexed  to 
or  merged  into  another  corporation,  if  no  arrangements  are 
made  respecting  the  property  and  liabilities  of  the  corporation 
that  cea-es  to  exist,  the  surviving  corporation  will  be  entitled  to 
all  the  property,  and  answerable  for  all  the  liabilities  of  the  other. ^ 
The  liabilities  of  the  old  corporations  are  enforcible  against  the 
new  one,  in  the  same  way  as  if  no  change  had  been  made.*^ 

1  Bicknell  u.  Trickey,  34  Me.  273;  stocks  and  loans,  and  annexin-j;  to  its 
Miller  u.  Scherder,  2  N.  Y.  202.  capital    and     loans  those    additions 

2  State  V.  Maine  Central  R.  Co.,  which  are  made  proportional  to  the 
€6  Me.  488,511;  s.  c.  aff' d,  9G  U.  S.  original  amounts.  Lake  Shore  &c.  R. 
499.    The   general   Michigan   rai'road  Co.  v.  People,  40  Mich.  193. 

law,  In   porn>itting  the  consolidation  3  Zimmer  v.  State,  30  Ark.  677. 

of  railroad  companies  within  the  State  *  Thompson  v.  Abbott,  01  Mo.  176. 

with  otl  crs    beyond   its  boundaries,      This  rule  had  reference   to   corpora- 
contemplates     leaving   the    domestic      tions  for  school  purposes, 
company  in  its  orimnai  position  as  to  ■•  Indianapolis  &c.  K.  Co.  v.  Jones, 

259 


1  Tlioinp.  Corp.  §  373.]     coxsolidation. 

§  373.  Statute  of  Consolidation  Valid,  altlion^h  not  Provid- 
tnsrf  or  Payment  of  all  Ocbts  of  Absorbed  Company.  —  A  decision 
of  the  Supreme  Court  of  the  United  States  must,  it  is  believed,  be  quoted 
in  support  of  the  proposition  that  an  act  of  consolidation  is  valid,  although 
it  does  not  provide  for  the  payment  of  all  the  debts  of  the  absorbed 
company,  butpro\ides,  in  a  schodule,  for  the  paAiuent  of  certain  debts, 
from  which  a  vahd  claim  is  omitted;  and  further,  that  the  omitted 
claimant  can  not  maintain  a  suit  in  equity  to  have  his  claim  audited  and 
paid,  in  the  manner  pro\'ided  by  the  statute  for  the  payment  of  tJie  debts 
which  are  included  iu  tlie  schedule.  The  case  was  that  tJie  Potomac 
Company,  haAiug  a  charter  from  the  States  of  Maryland  and  Virginia, 
was  authorized  by  the  legislatures  of  those  States,  with  the  consent  of 
the  stockholders,  to  surrender  their  charter,  and  assign  all  the  ' '  property, 
rights  and  pri\-ileges.  by  them  owned,"  to  tlie  Chesapeake  and  Ohio 
Canal  Company,  which  was  done.  By  the  chax-ter  of  the  latter  com- 
pany, they  were  to  receive  stock  of  the  Potomac  Company,  not  exceed- 
ing a  certain  amount,  in  payment  for  their  own  stock  issued  to  the 
holders,  and  were  to  pay  the  claims  of  creditors  of  the  Potomac  Com- 
pany, regularly  certified  by  the  president  and  directors  of  the  latter 
company, — pro\ided  they  should  not,  in  the  whole,  exceed  a  certain 
amount.  On  a  bill  against  tlie  new  company,  by  a  judgment  creditor  of 
the  Potomac  Company,  whose  debt  was  not  included  in  the  list  of  debts 
certified  by  the  president  and  directors  of  the  latter  company,  to  com- 
pel payment  of  his  judgment,  it  was  held,  that  Virginia  and  Maryland  had 
authority  to  authorize  the  surrender  of  their  charter,  bv  the  Potomac  Com- 
pany, with  the  consent  of  the  stockholders,  and  that  the  Canal  Company 
were  not  bound,  by  their  charter,  to  satisfy  the  complainant's  judgment. 
The  court,  speaking  tlu-ough  Mr.  Justice  McLean,  said:  "  There  can  be 
no  doubt  that  the  States  of  Virginia  and  Maryland,  iu  granting  the 
charter  of  the  Chesapeake  and  Ohio  Canal  Company,  had  the  power  to  au- 
thorize a  surrender  of  the  charter  of  the  Potomac  Company,  with  the  con- 
sent of  the  stockholders  :  and  to  make  the  provision  which  they  did  make- 
for  the  creditoi*3  of  the  company.  This  assignment  does  not  impair  the 
obUgation  of  the  contract  of  any  creditor  of  the  company,  nor  place  him 
iu  a  worse  situation  in  regard  to  his  demand.  The  means  of  payment 
possessed  by  the  old  company  are  carefully  preserved,  and,  indeed, 
guaranteed  by  the  new  company.  And  if  the  fact  can  be  established . 
which  is  denied  by  the  defendants,  that  some  botia  fide  creditors  of  the 

29  Ind.  465;  Montgomery  ic.  R.  Co.  r.      one  of  the  old  companies  in  its  char- 
Boring,  51  Ga.  582.    An  action  may  be      acter  of  a  common  carrier  of  passen- 
brought  against  the  new  company  to      gers.     Ibid. 
recover  damages  for  the  negligence  of 
260 


RIGHTS    AND    LIABILITIES.       [1  Thonip.  Coi'p.    §   374. 

Potomac  Company  were  unprovided  for  in  the  new  charter,  and  conse- 
quently have  no  redress  against  the  defendants,  it  does  not  follow  that 
they  are  without  remedy.  It  may  be  that  all  the  creditors  whose  de- 
mands make  up  the  sum  of  $175,800,  have  not  claimed  stock  in  the  new 
companj^  or  in  the  proportionate  dividend  secured  to  them.  But  if 
they  have  not  asserted  their  right  to  stock  or  the  dividend,  they  may 
well  claim  either,  and  the  defendants  are  bound  to  satisfy  their  de- 
mand." 1  It  seems  that  the  court  regards  the  assets  of  the  absorbed 
company  as  being,  by  virtue  of  the  statute  of  consolidation,  impressed 
with  a  trust  for  the  particular  creditors  named  in  the  schedule ;  and  while 
the  court  says  that  it  does  not  follow  that  the  complainant  is  without 
remedy,  it  does  not  state  what,  if  any,  remedy  he  has.  Modern  hold- 
ings would,  it  is  believed,  on  the  general  implications  of  the  law,  allow 
a  party  standing  in  such  a  position  as  the  complainant  in  this  case  did, 
to  bring  a  direct  action  against  the  consolidated  company,  and  recover  a 
judgment  in  ijersonam. 

§  374.  Act  of  Merger  after  Mortgage  Foreclosure.  —  As  al- 
ready stated, 2  the  foreclosure  of  a  railway  mortgage  has  the  effect  of 
extinguishing,  not  only  the  rights  of  the  shareholders,  but  also  those  of 
the  general  creditors,  unless  it  is  otherwise  provided  in  a  statute  opera- 
tive at  the  time  of  the  mortgage,  or  by  some  arrangement  made  between 
parties  interested,  at  the  time  of  its  foreclosure. ^  If,  therefore,  there 
has  been,  prior  to  the  consolidation,  the  foreclosure  of  a  mortgage  upon, 
all  the  property  and  franchises  of  one  of  the  companies,  the  effect  of  the 
consohdation  does  not  make  the  new  company  liable  for  the  general 
debts  of  the  company,  existing  prior  to  the  mortgage  foreclosure.  In 
such  a  case,  the  general  creditor  could  only  claim  through  the  pur- 
chasers at  the  foreclosure  sale;  and,  as  already  seen,  he  can  have  no 
rights  against  them  except  on  the  conditions  above  stated.*  Nor  will  a 
statute,  pro\idingfor  a  consolidation  and  enacting  that  the  consolidated 
company  shall  be  liable  for  all  the  debts  of  each  company  entering  into 
the  arrangement,  be  construed  as  retrospective ^  in  such  a  sense  as  to  re- 
vive the  general  debts  of  one  of  the  antecedent  companies,  which  have 
been  cut  off  by  a  mortgage  foreclosure,  and  to  make  the  consolidated 
company  liable  therefor ;  and  if  such  a  statute  were  in  terms  retroactive,  it 
would  be  invalid,  as  impaii'ing  the  obligation  of  the  contract  between  the 
original   corporation  and  its  mortgagee. ^    By  statute  in  Texas,  "the 

1  Smith  V.  Chesapeake  &  Ohio  Canal  '  Ante,  §§  2G0,  2C7. 

Co.,   14  Pet,  (U.  S.)  45,  47.     Compare  *  Houston  &c.  R.  Co.  v.  Shirley,  54 

Thomas    v.     Visitors     of     Frederick  Tex.  125. 

County  School,  7  Gill  &  J.  (Md.)  3C9.  «  Hatcher  v.  Toledo  &c.  R.  Co.,  62 

2  Ante,  §  2G3.  HI.  477. 

261 


1  Thomp.  Corp.  §  374.]     consolidation. 

road-bed,  track,  franchise  and  chartered  rights  and  privileges  "  are  to 
be  deemed  an  entire  thing  and  to  be  sold  as  such ;  and  ' '  the  pur- 
chaser or  purchasers  at  such  sale  and  their  associates  shall  be  deemed 
and  taken  to  be  the  true  owners  of  said  charter,  and  corporators  under 
the  same,  and  vested  with  all  the  powers,  rights,  privileges  and  benefits 
thereof,  in  the  same  manner  and  to  the  same  extent  as  if  they  were  the 
original  corporation  {sic)  of  said  company ;  and  shall  have  power  to  con- 
struct, complete,  equip  and  work  the  road,  upon  the  same  terms  and 
under  the  same  conditions  and  restrictions  as  are  imposed  by  their 
charter  and  the  general  laws  of  the  State."  ^  It  is  further  provided  that 
such  sale  shall  not  pass  to  the  purchaser  any  right  to  recover  of  "  former 
stockholders  any  sums  which  may  remain  due  upon  their  subscriptions 
of  stock,  but  said  stockholders  shall  continue  Uable  to  pay  the  same  in 
discharge  and  hquidation  of  the  debts  due  by  the  sold-out  company." 
The  directors  of  the  sold-out  company,  at  the  time  of  the  sale,  are  made 
"trustees  of  the  creditors  and  stockholders  of  the  sold-out  company, 
and  shall  have  full  powers  to  settle  the  affairs  of  the  sold-out  company, 
collect  and  pay  the  outstanding  debts,  and  divide  among  the  stockhold- 
ers the  money  and  other  property  that  shall  remain  after  the  payment  of 
the  debts  and  necessary  expenses;  and  the  persons  so  constituted 
trustees  shall  have  authority  to  sue  by  the  name  of  the  trustees  of  such 
sold-out  company,  and  may  be  sued  as  such,  and  shall  be  jointly  and 
severally  responsible  to  the  creditors  and  stockholders  of  such  company, 
to  the  extent  of  its  property  and  effects  that  shall  come  to  their  hands. 
And  no  suit  pending  for  or  against  any  railroad  company  at  the  time 
that  the  sale  may  be  made  of  its  road-bed,  track,  franchise,  and  char- 
tered privileges,  shall  abate,  but  the  same  shall  be  continued  in  the  name 
of  the  trustees  of  the  consohdated  company. ^  Construing  these  pro- 
visions, it  is  said :  ' '  The  plain  intent  of  the  statute  is  to  transfer  the  road- 
bed, track,  franchise  and  chartered  rights  entire  to  the  purchaser  and 
associates,  upon  their  adopting  the  form  of  organization  prescribed  in 
the  charter  and  complying  with  its  other  requirements ;  and  to  remit 
creditors,  unsecured  by  hen,  to  their  remedy  against  such  assets  as  pass 
to  the  trustees  of  the  sold-out  company.  Under  this  statute,  it  is  be- 
lieved that  a  number  of  railroads  in  this  State  have  been  sold  out  and 
purchased  by  individuals,  who  have  proceeded  to  organize  and  manage 
the  corporation  under  the  original  charter. ^  Not  only  the  road-bed  and 
other  mortgaged  property,  but  the  franchises  to  operate  a  road  and  the 

1  Pasch.   Dig.  Tex.  Stat.,  art.  4912;  ^  Citing  Galveston  R.  Co.  v.    Cow- 

Kev.  Code  Tex.,  art.  4260.  drey,  11  Wall.  (U.  S.)  459,  474. 

'  Pasch.  Dig.  Tex.  Stat.,  arts.  4915, 
4916;  Key.  Code  Tex.,  arts.  4262-5. 

262 


RIGHTS    AND    LIABILITIES.       [1  Thomp.  Copp.   §  376> 

very  corporate  existence  of  the  sold-out  railway  passes  to  the  new  or- 
ganization by  \irtue  of  the  statute.  Ordinarily  such  purchaser  and  as- 
sociates need  no  further  legislation."  ^ 

§  375.  Liable  in  Equity  to  Extent  of  Assets  Received. — 
Where  several  corporations  are  united  in  one,  and  the  property  of 
the  old  companies  is  vested  in  the  new,  the  latter  is  liable  in 
equity  for  the  debts  of  the  former,  at  least  to  the  extent  of  the 
property  received  from  them;  and  if  it  is  also  liable  at  law,  the 
legal  remedy  is  not  exclusive.^  The  governing  principle  here  is 
that  a  corporation  cannot  give  away  its  assets  to  the  prejudice  of 
its  creditors  ;  ^  but  that  a  court  of  equity  will  follow  such  assets 
as  a  trust  fund  into  the  hands  of  any  new  custodian,  the  same 
not  being  a  creditor  or  bona  fide  purchaser.*  It  is  scarcely 
necessary  to  add  that,  in  such  a  case,  the  consolidated  corporation 
holds  the  property  received  from  the  absorbed  company  with 
notice  of  any  trust  attaching  to  it  in  favor  of  its  creditors,  and 
cannot  claim  the  rights  of  a  bona  fide  purchaser  without  notice? 

§  376.  Observations  and  Illustrations.  —  A  statute  which  pro- 
vides for  a  consolidation  by  the  purchase  by  one  company  of  the  stock 
of  another,  and  the  issue  of  its  own  stock  for  the  same,  and  which  adds 
that  "the  pm-chases  herein  provided  for,  or  the  surrender  of  the  fran- 
chises, shall  in  no  way  affect  the  rights  of  the  creditors  of  the  company," 
that  is,  of  the  absorbed  company,  —  gives  to  the  general  creditors  of 
such  company  a  remedy  in  equity  against  the  assets  of  the  absorbed 
company  in  the  hands  of  the  absorbing  company,  upon  the  theory  of  a 
lien,  and  is  not  limited  to  the  vain  and  ideal  remedy  of  an  action  at  law 
against  the  absorbed  company,  although  the  existence  of  such  company 
is  continued  for  the  purpose  of  such  actions.^  In  so  holding  it  was 
said:  "If,  leaving  its  debts  unpaid,  its  capital,  property  and  effects 
are  distributed  among  the  stockholders,  or  transferred  for  their  benefit  to 
third  persons  who  are  not  bona  fide  purchasers  without  notice  —  and  still 
more,  if  the  corporation  be  dissolved,  or  become  so  disorganized  that  it 

>  Houston  &c.  R.   Co.  ».  Shirley,  54  S.)307;  Bacon  v.  Robertson,  18  MAS; 

Tex.  125,  138, 139.  Hij^htower  v.  Thornton,  8  Ga.  503. 

Harrison   ■;;.    Arkansas    Valley  R.  ^  Monti;;omcry&c.  R.  Co.  u.  Branch, 

Co.,  4   McCrary    (U.  S.),  264;  Barks-  59  Ala.  13!),  l.-,4;  The  Key  City,  14  Wall, 

dale   V.   Finney,    14  Oratt.   (Va.)  338;  (U.S.)  053. 

ante,  §  205.  6  Montgomery  &c.  R.  Co.  v.  Branch, 


«  Goodwin  v.  McGee,  15  Ala.  232.  59  Ala.  139. 

*  Curran  v.  Arkansas,  15  How.  (U. 


263 


1  Tliomp.  Corp.  §  377.]     consolidation. 

caunot  be  made  answerable  at  law,  —  then  a  court  of  equity  will  pursue 
and  lay  hold  of  such  property  and  effects,  and  apply  them  to  the  pay- 
ment of  what  it  owes  to  its  creditors.  A  suit  having  that  object  is  the 
most  direct,  if  not  the  only  efficient  means  of  asserting  and  vindicating 
any  right  of  the  creditors,  in  such  a  case  as  the  present;  and,  by  hold- 
ing that  it  is  not  maintainable,  we  should  refuse  to  give  any  real  effect 
to  the  saving  clause  in  the  statute,  if  such  a  clause  was  necessary  to 
enable  them  to  maintain  the  suit.  Certainly  if,  by  virtue  of  the  act,  one 
of  the  contracting  companies  might  transfer  all  of  its  ample  property  and 
effects,  out  of  which  its  creditors  ought  to  be  paid,  to  the  other  and 
weaker  company,  in  consideration  of  its  admitting  stockholders  of  the 
former  to  become  shareholders  of  its  capital  and  property  thus  aug- 
mented, and  might  then,  b^^  a  sort  of  legal  suicide,  slip  out  of  existence, 
leaAdng  those  creditors  to  sue  at  law  the  surviving  company,  which 
they  had  never  dealt  with,  or  accepted  as  their  debtor,  their  rights 
would  be  very  seriously  affected  thereby. "  ^  -  -  -  -  Another  ex- 
cellent illustration  of  the  principle  of  the  preceding  section  is  found  in 
a  well  considered  case  in  Virginia  where  the  president  and  acting  man- 
ager of  a  mining  corporation  which  will  be  designated  as  the  B.  com- 
pany, who  owned  most  of  the  shares  in  it,  contracted  with  certain  per- 
sons that  he  would  obtain  an  act  of  incorporation  for  a  new  company, 
with  provisions  which  would  enable  them  to  conduct  the  business  in 
England ;  that  he  would  cause  to  be  transferred  to  the  new  company 
all  the  property  of  the  B.  company  (except  slaves  and  some  specified 
lands)  and  all  the  shares  of  stock  in  that  company;  for  which  they 
were  to  paj^  him  a  certain  sum  of  money  and  a  royalty  upon  the  product 
of  the  mines.  The  new  company  was  organized,  and  the  shares  of 
stock  in  the  B.  company  were  transferred  on  their  books  to  the  new 
company,  but  there  was  no  conveyance  of  the  real  estate,  which,  how- 
ever, the  new  company  took  possession  of  and  held  as  its  own.  It  was 
held  that  the  new  company  was  the  successor  of  the  old,  and  held  the 
pi'operty  of  that  company  subject  to  its  debts,  and  that  equity  would 
charge  it  with  the  payment  thereof.^ 

§  377.  Rule  does  not  Apply  to  Bona  Fide  Sale  of  Assets.  — 

The  foregoing  does  not,  it  is  assumed,  apply  to  a  hona  fide  sale, 
for  a  good  consideration,  by  one  company,  of  all  its  properties, 
to  another.  In  such  a  case  the  consideration  of  the  sale  would 
pass  to  the  directors  of  the  selling  company,  and  they  would  hold 
it  as  a  trust  fund  for  their  creditors  first  and  their  shareholders 

1  Ibid.  153,  per  Manning,  J.  2  Barksdale  v.  Finney,  14  Gratt.  (Va.)  338. 

264 


RIGHTS    AND    LIABILITIES.       [1  Thomp.  Coip.   §   378. 

next.  It  would  be  a  mere  substitution  of  trust  funds,  and  the 
purchasing  company  would  not,  on  well  settled  principles,  be 
bound  to  see  to  its  proper  application  by  the  directors  of  the 
selling  company.^  Such  purchases  can  only  take  place  under 
two  conditions  :  1.  Where  they  are  authorized  by  the  legislatuie. 
2.  Where  they  are  sanctioned  by  the  stockholders,  both  of  the 
purchasing  and  of  the  selling  company.  In  such  a  case  there  is 
no  principle  which  makes  the  purchasing  corporation  liable  for 
the  debts  of  the  selling  corporation,  except  so  far  as  it  has  un- 
dertaken, under  the  terms  of  the  contract  of  purchase,  to  become 
so  liable.  It  is  precisely  the  same  as  a  purchase  by  one  individ- 
ual of  the  property  of  another  individual.  If  the  purchase  is  in 
good  faith  and  for  a  valunble  consideration,  it  will  stand,  al- 
though it  may  operate  to  defeat  the  creditors  of  the  seller. ^ 
Where  the  transfer  is  of  this  nature,  a  bill  in  equity  by  a  cred- 
itor of  the  selling  corporation,  brought  against  the  purchasing 
corporation,  which  contains  no  allegation  of  fraud  nor  that  the 
transfer  was  not  made  for  a  valuable  consideration,  nor  that  the 
defendant  was  not  a  bona  fide  purchaser,  nor  that  there  was  any 
trust  for  the  benefit  of  creditors,  —  will  be  dismissed.^ 

§  378.  Rights  of  Bona  Fide  Purchasers  from  Consolidated 
Company.  — A  simple  contract  debt,  owing  by  one  of  the  ante- 
cedent companies,  does  not  constitute  a  lien  upon  the  property 
of  such  company,  which  passes  into  the  hands  of  the  consolidated 
company;  though,  while  it  remains  in  the  hands  of  the  consoli- 
dated company  it  will  be  chargeable  in  equity  with  any  of  the 
debts  of  the  antecedent  company,  the  new  company  not  being  an 

1  A  purchaser  in  good  faith  from  a  Although  this  case  seems  to  have  been 
trustee  is  not  bound  to  see  to  the  badly  decided  ou  its  facts,  the  reason- 
proper  application  of  the  purchase  ing  of  the  opinion  seems  well  enough, 
money.     Mason  v.  Bank  of  Commerce,  It  was,  that  there  had  been,  under  what 


16  Mo.  App.  275;  Goodwin  v.  Ameri 
can  Nat.  Bank,  48  Conn.  564;  Shaw  v 
Spencer,  100  Mass.  391;  Ashton  v 
Atlantic  Bank,  3  Allen  (Mass.),  217 
Fountain  v.   Anderson,    33  Ga.  337; 


had  taken  place,  no  consolidation  be- 
tween two  railroad  companies,  but  that 
the  property  of  one  had  merely  been 
conveyed  to  the  other;  and  stress  was 
laid  on  the  fact  that   thtre  was  no 


Rev.  Stat.  Mo.  1879,  §  3937.  averment  or  proof  that  the  defendant 

2  Powell  V.  North   Mo.  R.   Co.,  42  held  the  property  otherwise  than  as  a 

Mo.  631.     See  also  Bruffutt  v.  Great-  buna  fide    purchaser    for  a  valuable 

western  R.  Co.,  25  111.  353,  356.  consideration. 


2  Powell  ».  N.  Mo.  R.  Co.,  supra. 


265 


1  Thomp.  Corp.  §  380.]     consolidation. 

innocent  purchaser. ^  It  follows  that  if,  before  any  judgment  or 
other  lien  has  attached  to  the  property,  the  consolidated  com- 
pany conveys  it  to  an  innocent  purchaser,  one  who  brings  an  ac- 
tion against  the  original  company  and  prosecutes  it  to  judgment 
airainst  the  consolidated  company,  cannot  maintain  a  suit  in 
equity  against  the  innocent  purchaser  to  charge  the  property  in 
his  hands.  In  the  absence  of  fraud,  the  case  is  simply  that  of  a 
party  who  is  in  debt,  conveying  his  property  to  a  third  person, 
who  takes  as  an  innocent  purchaser.^ 

§  379.  Creditor  of  Old  Corporation  not  Bound  to  Accept 
Responsibility  of  New.  —  But  while  the  creditor  of  the  old  cor- 
poration may  pursue  his  remedy  against  the  new,  he  is  not  bound 
to  assent  to  the  arrangement  of  consolidation  so  as  to  create  a 
novation,  if  that  term  may  be  used.  Thus,  where  a  railroad  com- 
pany agreed  to  give  its  bonds  in  consideration  of  certain  moneys 
to  be  paid  in  installments,  and  afterwards  becoming,  by  legislative 
authority,  amalgamated  with  two  other  companies,  tendered  the 
bonds  of  the  consolidated  corporation,  and  brought  suit  for  the 
money,  it  was  held  that  the  action  would  not  lie,  the  considera- 
tion offered  not  being  that  agreed  for.=^  The  governing  principle 
here  is  that  a  party  to  a  contract  who  disables  himself  from  ren- 
dering the  agreed  consideration,  cannot  require  the  performance 
of  a  promise  which  rests  on  that  consideration.* 

§  380.  Power  of  New  Company  to  Deal  with  Credits  of 
Old. —  As  the  new  company  succeeds  to  the  rights  of  each  of 
the  precedent  companies,  it  may  compromise  and  settle  a  claim 
ao-aiiist  one  of  them,  and  sustain  an  action  to  enforce  the  settle- 
ment ;  ^  and  the  directors  of  the  new  company  have  authority 
without  a  vote  of  the  stockholders,  to  pay  and  cancel  as  many  of 
the  outstanding  obligations  of  one  of  the  precedent  corporations 
as  they  may  see  fit.® 

1  Ante,  §  375.  »•  Clarksou,  7  Cow.  (N.  Y.)  24;  New- 

2  McMahan  w.  Morrison,  16Ind.  172.  comb  v.  Brackett,  6  Mass.  161. 

3  New  Jersey  &c.  R.  Co.,  v.  Strait,  ^  Paine  v.  Lake  Erie  &c.  R.  Co.,  31 
35  N.  J.  L.  323.  Ind.  283. 

<  Keys    V.  Ilarwood,   2   C.  B.  905;  «  Shaw  v.   Norfolk  County  R.  Co., 

Planche  v.  Colburn,  3  Bing.  14;  Frost      16  Gray  (Mass.),  407. 

266 


RIGHTS    AND    LIABILITIES.        [1  ThoiUp.  Corp.    §  381. 

§  381.  Guaranty  by  the  Officers  of  One  Company  of  tlie 
Obligations  of  the  Other. —  The  courts  of  New  York,  with  some 
irregular  it}''  aud  coutradictiou,  have  made  an  innovation  upon  a  strict 
rule  in  the  law  of  contracts,  by  which  a  promise  made  by  A.  to  B.  for 
the  benefit  of  C,  may  become  the  foundation  of  an  action  by  A. 
against  C,  although  C.  was  privy  neither  to  the  promise  nor  to  the  con- 
sideration ;  ^  and  other  courts,  especially  those  which  have  adopted  the 
modern  codes  of  procedure  modeled  after  that  of  New  York,  have 
adopted  the  same  rule.^  In  New  York  it  has  been  held  that,  where  such 
a  promise  is  in  the  nature  of  a  contract  of  guaranty,  the  party  for 
whose  benefit  the  promise  was  made,  may  bring  an  action  thereon 
directly  against  the  guarantor ;  that  the  guaranty  goes  with  the  princi- 
pal obligation,  and  is  enforcible  by  the  same  person  who  could  enforce 
the  other. ^  But  the  application  of  this  principle  was  denied  in  a  case 
presenting  the  following  facts :  Pending  negotiations  for  the  consoli- 
dation of  the  business  of  the  A.  insurance  company  with  the  B.  insur- 
ance company,  officers  of  the  A.  company  wrote  that  they  pledged 
themselves  that  all  contracts  of  the  B.  company,  of  every  name  and 
nature,  would  be  fulfilled,  to  the  same  extent  and  in  the  same  manner 
as  though  no  change  had  taken  place.  The  consolidation  was  effected. 
Both  companies  then  were  solvent,  and  the  A.  company  agreed  to  as- 
sume the  habiUties  of  the  B.  company.  Afterwards,  both  companies 
were  dissolved,  and  the  assets  of  the  B.  company  were  insufficient  to 
reinsure  its  outstanding  risks.  It  was  held  that  the  officers  of  the  A. 
company,  who  had  written  as  above,  were  not  liable,  in  an  action 
brought  by  the  holder  of  a  paid-up  endowment  policy  in  the  B.  com- 
pany. The  court  laid  stress  on  the  fact  that  the  promise  which  the 
defendant  guaranteed  was  a  pledge  that  the  contract  obligations  of  one 
of  the  precedent  companies  with  its  policy  holders  and  others,  of  every 
nature  and  kind,  would  be  rigorously  fulfilled  to  the  same  extent  and 
in  the  same  manner,  as  if  the  change  contemplated  had  not  taken  place. 
The  court  could  not  read  it,  with  this  language  in  it,  as  a  guaranty  of 
the  absolute  payment  of  the  obligations  of  the  precedent  company,  but 
regarded  it  as  amounting  to  notiiing  more  than  an  assurance  to  the  five 

1  See  Lawrence  v.  Fox,   20  N.   Y.  (N.  Y.)    188;  Simson  u.  Brown,  (58  N. 

268,  where   the  doctrine   was    estab-  Y.  3G0;  Thorp  v.  Keokuk  Coal  Co.,  48 

lished   by  a  divided  court;  also  Burr  N.  Y.  257;  Arnold  v.  Nichols,  64  N.  Y. 

V.    Beers,  2t   N.  Y.    180;    TEtiia  Nat.  119;  Pardee  u.  Tnat,  82  N.  Y.  387. 
Bank  v.   Fourth  Nat.  Bank,  4G  N.  Y.  *  See,     for     instance,      Markel   v. 

82;  Coster  v.  Mayor  &c.  of  Albany,  43  Western  Union  Tel.  Co.,  19  Mo.  App. 

N.  Y.   411 ;  Merrill  v.  Green,  55  N.  Y.  80;  Fitzgerald  v.  Barker,  13  Mo.  App. 

270;  Claflin  v.    O-troni,  54N.Y.  531;  192. 
Secor    V.    Law,    4    Abb.     App.    Dec.  ^  ciaflin  v.  Ostrom,  54  N,  Y.  581. 

267 


1  Thomp.  Corp.  §  384.]     consolidation. 

trustees,  who  were  to  obtain  the  amount  of  stock  that  would  give  the 
absorbing  company  a  controlUug  interest  in  the  other  company,  and  to 
the  special  committee  to  whom  the  matter  was  referred,  that  the  men 
who  were  to  take  the  place  of  the  resigning  trustees,  and  who,  being  a 
majority,  were  to  have  thereafter  the  control  of  the  absorbed  company, 
would,  in  conducting  its  affairs,  recognize  and  fulfill  all  its  pre-existing 
contract  obligations  with  its  policy  holders  and  others.^ 

§  382.  Damages  for  Refusal  to  Carry  out  Obligation  of  Old 
Corporation.  —  Where  the  new  corporation  is  thus  made  the 
heir,  so  to  speak,  of  the  obligations  of  the  old,  if  the  new  com- 
pany refuses  to  carry  out  such  an  obligation,  the  obligee  can 
maintain  an  action  against  it  for  the  resulting  damages? 

§  383.  Illustration :  Damages  for  Refusal  to  Exchange 
Bonds  for  Stock  of  Consolidated  Company.  —  A  statute  consol- 
idating two  corporations  provided  that  the  new  corporation  should  ' '  be 
subject  to  all  the  duties,  restrictions,  obligations,  debts,  and  liabilities 
to  which  at  the  time  of  the  union  either  of  said  corporations  is  subject," 
and  that  "  all  claims  and  contracts  .  .  .  against  either  corpora- 
tion may  be  enforced  by  suit  or  action  .  .  .  against  the  "  new 
corporation.  Plaintiff  held  bonds  issued  by  one  of  the  corporations, 
convertible  into  its  stock  on  completion  of  its  road.  It  was  held  that, 
whether  or  not  plaintiff  was  entitled  to  demand  stock  in  the  new  corpo- 
ration, it  was  entitled  to  hold  the  new  corporation  to  its  predecessor's 
contract ;  and  that,  on  refusal  to  deliver  stock  either  in  the  new  or  old 
corporation,  on  demand,  the  plaintiff  could  recover  from  the  new  cor- 
poration the  damages  provided  for.^ 

§  384.  Right  of  Bondholder  to  Notice  of  Privilege  Given  him 
by  the  Consolidation.  —  Upon  the  consolidation  of  two  corpora- 
tions, the  holder  of  the  bonds  of  one,  containing  a  clause  author- 
izing their  conversion  at  any  time  into  stock  at  par,  cannot  be 
deprived  of  his  right  to  demand  such  conversion,  and  relegated 
to  different  rights  conferred  by  the  articles  of  consolidation, 
until  he  has  had  a  fair  opportunity,  after  notice,  to  exercise  his 

^  Wise  V.  Morgan,  13  Daly  (N.  Y.),  ^  Hancock  Mutual  Life  Ins.  Co.  x. 

402.  Worcester  &c.  R.  Co.,  149  Mass.  214; 

2  Hancock  Mutual  Life  Ins.  Co.  «.      s.  c.  21  Northeast.  Rep.  364. 
Worcester  &c.  R.  Co.,  149  Mass.  214; 
s.  c.  21  Northeast.  Rep.  364. 
268 


RIGHTS    AND    LIABILITIES.       [1  TllOmp.  Coip.    §   386. 

original  rights,  and  has  elected  not  to  do  so.^  The  words  "  all 
the  obligations,  debts,  and  liabilities,"  and  "  all  claims  and  con- 
tracts," in  a  statute  2  relating  to  the  liability  of  a  consolidated 
corporation  for  claims  against  one  of  the  old  companies,  include 
its  liability  on  a  contract  to  exchange  stock  for  bonds  ;  and  where 
such  stock  would  be  exchangeable  share  for  share  for  the  stock 
of  the  new  company,  its  stock  must  be  delivered.^ 

§  385.  Validity  of  Bonds  of  Old  Company  put  in  Circulation 
by  New.  —  Where  the  cousohdation  took  the  form  of  the  absorption  of 
one  company  into  another,  without  changing  in  any  respect  the  consti- 
tuent character  of  the  latter,  and  certain  bonds  had  been  put  in  circula- 
tion by  the  absorbed  company,  but  had  returned  into  its  hands  before 
matui'ity,  and  had  then  passed,  by  a  transfer  preceding  the  consoKda- 
tion,  to  the  absorbing  company,  by  which  company  they  were  re-issued 
before  maturity,  —  the  mortgage  securing  them  being  still  held  by  the 
trustee  to  whom  it  was  executed,  — the  court  lieklthat,  the  bonds  being 
commercial  paper  such  as  might  pass  by  delivery,  the  re-issue  was  legal 
under  the  powers  conferred  upon  the  absorbing  compau}-  by  the  statutes 
authorizing  the  consolidation, — intimating  also  the  opinion  that  the 
absorbing  company  would  be  estopped  from  denying  their  vahdity.* 

§  386.  New  Company  must  Perform  Public  Obligations  of 
Old.  —  After  the  consolidation  the  new  company  becomes  liable 
to  perform  the  public  duties  required  of  the  precedent  companies ; 
and  if  no  part  of  the  franchise  is  reserved  to  either  of  the  old 
companies,  they  will  not  be  liable  to  the  public  for  the  non-per- 
formance of  the  duties  thus  devolved  on  the  new  company.  The 
duties  which  railroad  companies  owe  to  the  public,  and  which  are 
the  considerations  upon  which  their  privileges  are  conferred  by 
the  legislature,  cannot  be  cast  off  by  an  agreement  between  such 
companies  and  other  persons  or  corporations.  Therefore,  so 
much  of  a  contract  for  the  consolidation  of  two  railway  companies, 
as  operates  to  prevent  a  faithful  discharge  by  the  new  company 
of  its  public  duties,  is  void  as  against  public  policy.^ 

1  Rosenkrans  v.  Lafayette  &c.  R.  ••  Eaton  &c.  K.  Co.  v.  Hunt,  20  Ind. 
Co.,  18  Fed.  Rep.  513.  467. 

2  N.  II.  Act  1883,  chap.  239,  and  «  Peoria  &c.  R.  Co.  v.  Coal  Valley 
Mass.  Act  1883,  chap.  129.  Mining  Co.,  68  111.  489. 

3  Day  V.  Worcester  &c.  R.  Co.,  151 
Mass.  302;  s.  c.  23  N.  E.  Kep.  824. 

269 


1  Tliomp.  Corp.  §  388.]     consolidation. 

§  3S7.  Illustration. —  Where  it  was  agreed,  upon  the  consoUda- 
tion  of  two  railroad  companies,  that  a  corporation  which  owned  one  of 
the  roads  so  consolidated,  and  which  had  rolling  stock  and  motive 
power  of  its  own,  should  cany  coal  over  a  certain  part  of  the  road,  to  a 
certain  amount,  without  charge,  and  that  the  new  company  should  pay 
the  coal  company  50  cents  per  ton  for  all  coal  transported  by  any  party 
except  the  coal  company,  it  not  appearing  that  the  coal  company  was 
under  any  legal  obligation  to  the  public  to  carry  coal  and  passengers 
after  the  consolidation,  it  was  held  that  a  court  of  equity  would  not  en- 
force the  stipulation  prohibiting  the  new  company  from  carrying  coal 
except  on  paying  50  cents  per  ton,  it  being  the  duty  of  the  new  company, 
under  the  law,  to  carry  all  freights,  and  the  court  not  having  the 
power  to  transfer  their  duty  to  another.^ 

§  388.  Enforcement  of  Stipulation  in  the  Contract  of  Con- 
solidation. —  Some  difficulty  must  attend  the  question  of  the 
enforcement  of  covenants  in  the  contract  of  consolidation, 
growing  out  of  the  difficulty  of  ascertaining  who  are  tlie  cove- 
nantees. If  the  contracting  parties  are  the  two  precedent 
corporations,  such  covenants  cannot  be  enforced  in  an  action  by 
one  or  either  of  them,  because  the  very  nature  of  the  contract  is 
to  dissolve  them  and  merge  their  existence  in  the  new  corpora- 
tions. If  it  is  to  be  regarded  as  a  contract  between  the 
aggregate  shareholders  of  one  of  the  old  corporations  on  the  one 
hand,  and  the  aggregate  shareholders  of  the  other  of  the  old 
corporations  on  the  other  hand,  then  other  questions  arise  in  re- 
spect of  pai'ties  and  form  of  relief.  These  difficulties  presented 
themselves  to  the  Supreme  Court  of  Ohio  in  a  case  where  two 
raih'oad  companies,  in  their  agreement  for  consolidation,  had  in- 
serted an  article  providing  for  the  completion  and  operation  of 
the  road  of  one  of  the  companies,  which  agreement  the  directors 
of  the  consolidated  compan^^  had  failed  to  perform.  It  was  held 
that,  if  the  duty  thus  created  was  owing  to   all  the  stockholders 

1  Peoria  &c.  R.  Co.  v.  Coal  Valley  tion  of  consolidated  gas  company,  in 

Mining  Co.,  68  111.  489.     Liability   of  Louisiana,  to  continue  furnishing  gas 

conS'Jidated company,  in  Sauth  Caro-  free  to  cliarity  hospital:  Charity  Hos- 

lina,  to  assessment  for  expenses  of  pital  v.  New  Orleans  Gas  Light  Co.,  40 

railroad  commission:  Charlotte  &c.  R.  La.   An.    382;    22  Am.  &    Eng.  Corp. 

Co.  V.  Giibes,  27  S.  C.  385;  31  Am.  &  Cas.  569;  4  South.  Rep.  433;  4  Rail.  & 

Eng.  R.  Cas.  404;  4   Southea.st.  Rep.  Corp.  L.  J.  115. 
49;  3  Rail.  &  Corp.  L.  J.  CA.     Obliga- 

270 


RIGHTS  AND  LIABILITIES.     [1  Thomp.  Corp.  §  389. 

of  the  new  company,  one  of  them  could  not  sustain  an  action 
against  the  directors  to  enforce  performance.  On  the  other 
hand,  if  the  duty  was  owing  to  a  class  of  stockholders  having,  in 
respect  of  the  covenant,  an  interest  or  right  distinct  from  an- 
other class,  any  proceeding  to  obtain  relief,  could  only  be  had 
after  both  the  directors  of  the  company  and  the  two  classes 
of  stockholders  had  been  made  parties.^  But  it  seems  that 
there  is  no  precedent  for  a  suit  in  equity  to  enforce  an  active 
duty  within  the  power  of  the  directors.  The  remedy  of  the 
stockholders  lies  in  the  election  of  a  new  board. ^  "  If  a  court 
of  equity  were  to  assume  jurisdiction  in  such  a  case,  could  it  do 
so  without  opening  its  doors  to  all  parties  interested  in  corpora- 
tions, or  joint-stock  companies,  or  private  partnerships,  who, 
although  a  small  minority  of  the  body  to  which  they  belong, 
may  wish  to  interfere  with  the  conduct  of  the  majority?  This 
cannot  be  done;  and  the  attempt  to  introduce  such  a  remedy 
ought  to  be  checked,  for  the  benefit  of  the  community,"  ^ 
"  There  may  be  cases,  however,  where  there  were  classes  of 
stockholders,  and  a  duty  may  be  owing  to  one  class.  This 
might  occur  where  there  is  preferred  stock,  and  it  might  possi- 
bly happen,  that,  in  the  consolidation  of  two  companies,  the 
stockholders  of  one  might,  as  a  class,  acquire  rights  distinct  from 
the  stockholders  of  the  other."  *  That  individual  stockholders 
have  a  remedy  in  equity  to  restrain  the  fraudulent  or  ultra  vires 
acts  of  the  directors  and  managing  oflScers,  is  a  principle  resting 
on  different  grounds.^ 

§  389.  Consolidated  Company  Subject  to  Existing  General 
liaw  Reserving  Right  of  Alteration  or  Repeal. —  On  a  princi- 
ple already  explained,  that  the  provisions  of  a  general  statute 
existing  at  the  time  of  the  formation  of  a  corporation,  unless 
otherwise  stated  in  the  statute  creating  it,  enter  into  it  and  I'orm 
a  portion  of  the  grant  by  the  legislature,^  it  has  been  held  that, 
where  two  corporations  are  consolidated  under  the  authority  of 

1  Fort  Clinton  &c.  R.  Co.  v.  Clevc-  Cleveland  &c.  R.  Co.,  13  Oh.  St.  544, 
land  &c.  R.  Co.,  13  Oh.  St.  544.  5G1. 

2  Ibid.,  501.  ■•  Ilnd.,  per  Gholson,  J. 

3  Lord    V.    Copper    Miners    Co.,  1  '^  Ante,     349;  post,  §§  1137,  2936. 
Hall.  &  T\v.  85,   9'.);  quoted  with  ap-  «  Ante^  §  92. 

proval  in  Fort  Clinton  &c.    R.  Co.  v. 

271 


1  Thomp.  Corp.  §  JiOO.]     consolidation. 

a  special  act,  and  there  exists  at  the  time  a  general  law  declaring 
that  any  act  of  incorporation  subsequently  passed  shall  at  all 
times  thereafter  "  be  liable  to  be  amended,  altered  or  repealed 
at  the  pleasure  of  the  legislature,  in  the  same  manner  as  if  an 
express  provision  to  that  effect  were  therein  contained,  unless 
there  shall  have  been  inserted  in  such  act  of  incorporation  an  ex- 
press limitation  or  provision  to  the  contrary,"  — this  provision 
of  the  general  law  qualifies  the  special  act  authorizing  the  con- 
solidation, and  the  consolidated  company  receives  its  franchises 
subject  to  the  right  of  amendment,  alteration  or  repeal  at  the 
pleasure  of  the  legislature, —  there  being  in  the  special  act  of 
consolidation  no  limitation  on  such  power. ^  It  has  been  added 
that  rights  and  interests  acquired  by  the  company,  not  consti- 
tuting a  part  of  the  contract  of  incorporation,  stand  on  a  differ- 
ent footing. 2  This  principle  applies  where  the  consolidation 
takes  place  in  such  a  manner  that  the  act  of  consolidation  is  to 
be  deemed  in  law  the  creation  of  a  neio  company}  If  the 
merger  is,  under  the  governing  statute,  of  such  a  character  as 
not  to  create  a  new  company,  but  merely  to  continue  the  exist- 
ence of  an  old  one,*  then  a  different  principle  may  apply. 

§  390.  Illustration. —  A  provision  of  the  code  of  Georgia,  which 
took  effect  January  1,  1863,  enacts  that  private  corporations  are  sub- 
ject to  be  changed,  modified,  or  destroyed  at  the  will  of  the  creator, 
except  so  far  as  the  law  forbids  it ;  and  that,  in  all  cases  of  private 
charters  thereafter  granted,  the  State  reserves  the  right  to  withdraw  the 
franchise,  unless  such  right  is  expressly  negatived  in  the  charter.  Two 
railroad  companies,  created  prior  to  that  date,  each  of  which  enjoyed 
by  its  charter  a  limited  exemption  from  taxation,  were  consolidated,  by 
virtue  of  an  act  of  the  legislature  passed  April  18,  1863, —  subsequent 
to  the  taking  effect  of  the  code.  This  act  authorized  a  consolidation 
of  their  stocks,  conferred  upon  the  consolidated  company  full  corporate 
powers,  and  continued  to  it  the  franchises,  privileges  and  immunities 
which  the  companies  had  held  by  their  original  charters.  It  was  held : 
1.  That,  by  the  consoUdation,  the  original  companies  were  dissolved^ 

1  Railroad  Co.  v.  Georgia,  98  U.  S.  S.  104:  Tomlinson  v.  Jessup,  15  Wall. 

359.  (U.S.)  454. 

-  Railroad  Co.  v.  Maine,  96  U.  S.  ^  Railroad  Co.  v.  Georgia,  98  U.  S. 

499;  afiBrming  s.  c.,S2i6  nom.     State??.  359. 

Maine    Central    R.    Co.,    G6  Me.  488.  *  As  was  the  case  in  Central  Rail- 
Compare  New  Jersey  v.   Yard,  95  U.  road  &c.  Co.  v.  Georgia,  92  U.  S.  665. 
272 


REMEDIES    AND   PROCEDURE.        [1  TllOmp.  Corp.   §  395. 

and  a  new  corporation  created,  which  became  subject  to  the  above  pro- 
vision of  the  code.  2.  That  a  subsequent  legislative  act,  taxing  the 
property  of  the  new  corporation  as  other  property  in  the  State  was 
taxed,  was  not  prohibited  by  that  provision  of  the  constitution  of  the 
United  States  which  declares  that  no  State  shall  pass  a  law  impairing 
the  obligation  of  contracts. ^ 


Article  IV.     Effect  on  Remedies  and  Procedure. 

Section  Section 

395.  View  that     consolidation     dis-      403.  View    that    new     process    not 

solves    the    constituent  com-  necessary:    effect    of    appear- 

panies.  ance    and    oral     evidence    of 

396.  Not  necessarily  a  dissolution  of  consolidation. 

both.  404.  Substitution  after  referee's   re- 

397.  Further  of  this  subject.  port  aud  before  judgment. 

398.  New  company  estopped  from  de-      405.  Action  by  creditors  of  old  com- 

f  ying  its  corporate  name  and  pany  against  new  company, 

character.  406.  How     fact      of      consolidation 

399.  Legal  existence  of  old  companies  averred. 

continued    in    the    new    com-       407.  How  averment  replied  to. 
pany.  408.  Proof  of  the  consolidation. 

400.  Effect  of   a  consolidation  upon      409.  Effect    of  dissolving  consolida- 

pending  suits.  tion    upon  judgments  against 

401.  View  that  action  abates  as  to  old  consolidated  company 

company.  410.  Binding  effect  of    admission  of 

402.  View  that  new  process  is  neces-  one  of  the  precedent  corpora- 

sary.  tions. 

§  395.  View  that  Consolidation  Dissolves  the  Constituent 
Companies.  —  It  has  been  frequently  said  that  the  usual  effect 
of  the  consolidation  of  two  railway  companies  is  to  extinguish 
the  two  companies  and  to  make  of  them  one  neio  company  .^  One 
of  the  earliest  expressions  on  the  subject  is  found  in  a  decision 
of  the  Supreme  Court  of  Indiana  to  the  effect  that,  where  the 
legislature  gives  its  consent  to  the  consolidation  of  existing  cor- 
porations, the  effect  is  to  dissolve  the  former  corporations,  and 
at  the  same  instant  to  create  a  new  corporation,  with  property, 
liabilities  and  stockholders  derived  from  the  old,  upon  such 
terms  and  conditions  as  may  bo  prescribed  by  the  act  of  consoli- 

1  Railroad  Co.  w.  Georgia,  98  U.  S.  Ion,  J.:  Clearwater  v.  Meredith,  1 
359.  Wall.    (U.      S.)      25;      Tomlinson    v. 

2  McMahan  v.  Morrison,  16  lud.  Branch,  15  Wall.  (U.  S.)  460;  Fee  v. 
172;  Ridgway  Township  u.  Griswold,  New  Orleans  Gaslight  Co.,  35  La. 
1  McCrary  (U.  S.),  151,  153,  per  Dil-  Ann.  113. 

18  273 


1  Thomp.  Coi'i).  §  395.]     consolidation. 

dation.  The  court  regard  this  as  an  illustration  of  the  principle 
that  the  corporation  may  be  dissolved  by  a  surrender  of  its  fran- 
chises and  the  acceptance  of  them  by  the  leo^islature.^  These 
views  received  the  subsequent  sanction  of  the  Supreme  Court  of 
the  United  States  ;  ^  but  that  court  in  a  subsequent  case  pointed 
out  that  the  question  was  not  necessary  for  its  decision,  and  held 
that,  in  the  case  before  it,  the  effect  was  not  a  dissolution  of  either 
of  the  precedent  corporations,  in  such  a  sense  as  prevented  its 
immunities  from  passing  to  the  new.^  In  Louisiana  it  is  said 
that  the  consolidation  terminates  the  existence  of  the  original 
corporations,  creates  a  new  corporation,  transmutes  the  mem- 
bers of  the  former  into  members  of  the  latter  and  transfers  the 
property,  rights  and  liabilities  of  each  of  the  old  to  the  new.* 
In  Ohio,  the  view  has  been  taken  that,  when  a  corporation,  in 
pursuance  of  an  act  of  the  legislature,  transfers  or  conveys  its 
franchise  to  be  a  corporation  to  another,  the  transaction,  in 
leofJil  effect,  is  a  surrender  or  abandonment  of  its  charter  to  the 
corporation,  and  a  grant  by  the  legislature  of  a  similar  charter  to 
the  transferees ;  and  the  charter  so  granted  is  subject  to  all  the 
provisions  of  the  constitution  existing  at  the  time  it  was  so 
granted.^  In  Massachusetts,^  and  in  Pennsylvania,^  the  effect 
of  a  consolidation  has  been  held  to  create  a  new  corporation  out  of 
the  members  of  several  existing  corporations.  In  Maine  it  has 
been  reasoned  that  the  old  corporations  exist  only  so  far  as  may 
be  necessary  to  protect  their  several  creditors  or  mDrtgugees, 
and  cease  to  exist  when  that  necessity  ceases.^  In  Texas,  the 
view  is  that  the  consolidation  extinguishes  the  precedent  compa- 
nies, so  that  thereafter  no  action  can  be  commenced  and  prose- 
cuted against  them.^  This  view  seems  to  be  a  sound  one  as  to 
actions  commenced  after  the  consolidation,  but  not  as  to  actions 
pending  before  it. 

^  McMahan  v.   Morrison,    16  Ind.  *  Hamilton  &c.  Ins.  Co  v.  Hobart, 

172.  2  Gray  (Mass.),  543. 

-  Clearwater  v.  Meredith,  1  Wall.  '  Com.  v.  Atlantic  &c.   R.  Co.,  53 

(U.  S.)  25,  40.  Pa.  St.  9. 

3  Central  R.  Co.  v.  Georgia,  92  U.  *  State  v.  Maine  Central  R.  Co.,  QQ 

S.  665,  671.  Me.  488,  500. 

•*  Fee  V.  New  Orleans  Gaslight  Co.,  ®  Indianola    R.   Co.    v.   Fryer,   56 

35  La.  An.  413.  Tex.  609. 

*  State  V.  Sherman,  22  Oh.  St.  411. 
274 


REMEDIES    AND    PROCEDURE.        [1  Thomp.  Corp.    §   396. 

§  396.  Not  Necessarily  a  Dissolution  of  Both.  —  But  it    is 

plain  that  the  consolidation  of  two  corporations  does  not  neces- 
sarily work  a  dissolution  of  both  and  the  creation  of  a  new  one ; 
but  that,  whether  such  is  its  effect,  depends  upon  the  legislative 
intent  manifested  in  the  statute  under  which  the  consolidation 
takes  place  ;  ^  and  distinct  expressions  on  this  subject  are  no 
doubt  found  in  most  of  the  statutes  authorizing  consolidations.^ 
It  has  been  seen  that  consolidations  frequently  take  the  form  of 
one  company  purchasing  the  capital  stock  of  another.^  In  such 
cases,  and  in  others  that  may  be  imagined,  the  terms  of  the  union 
may  be  such  that  one  corporation,  without  any  change  of  name, 
merely  absorbes  or  annexes  the  other.  In  such  a  case  the  ab- 
sorbing corporation  continues  unaffected  and  the  other  is  dis- 
solved. Railway  consolidations^  for  instance,  often  take  the 
form  of  the  absorption  by  one  railway  of  others,  as  where  branches 
are  united  Avith  a  trunk  line,  or  short  lines  are  united  with  longer 
lines,  so  as  to  form  one  continuous  line, — in  which  case  the  ab- 
sorbing company  proceeds  without  any  change  of  name,  and  suc- 
ceeds to  the  rights  possessed  by  the  absorbed  company.  A  good 
illustration  of  this  is  found  in  a  case  in  the  Supreme  Court  of  the 
United  States,  where  the  question  under  consideration  was  to 
what  extent  the  Georgia  Railroad  and  Banking  Company  had 
succeeded  to  an  exemption  from  taxation  possessed  by  the  Macon 
and  Western  Railroad  Company,  which  company  the  former 
company  had  absorbed  by  a  consolidation.  It  was  held,  in  view 
of  the  statutes  authorizing  the  consolidation,  that  the  former 
company  had  not  been  dissolved  by  the  fact  of  consolidation, 
such  not  being  the  intent  of  the  legislature,  but  had  succeeded  to 
the  immunity  from  taxation  possessed  by  the  latter  company,  so 
far  as  the  property  of  that  company,  which  passed  to  the  former, 
was  concerned,  but  no  further.^  Such  also  seems  to  have  been 
the  case  with  the  consolidation  which  took  place  between  the 
New  York  Central  Railroad  Company  and  the  Utica  and  Schen- 
ectady Railroad  Company.  The  latter,  it  was  held,  became  the 
proper  representative  of  the  former  in  regard  to  leases  executed 

*  Central  Railroad  &c.  v.  Georgia,  ^  Ante,  §  330,  et  seq. 

22  U.  S.  665.  *  Central   R.   Co.  v.  Georgia,  92  U. 

2  Ante,  §  306,  et  seq.  S.  665. 

275 


1  Tbonip.  Corp.  §  398.]     co.xsolidation. 

by  it,  and  entitled  to  the  benefit  of  the  provisions  of  such  leases.^ 
Again,  it  is  possible,  though  not  usual,  for  one  of  the  consolidat- 
ing companies  to  be  revived  by  the  legislature  as  a  separate  cor- 
poration, —  though  this,  it  is  supposed,  should  rather  be  regarded 
as  the  creation  of  a  new  one.^ 

§  397.  Further  of  this  Subject.  —  Under  the  statutes  of 
New  York,  Missouri  and  other  States,  the  managers  or  direct- 
ors of  a  dissolved  corporation  have  full  power  as  trustees  to 
settle  its  affairs,  if  no  other  trustees  are  appointed  to  perform 
this  duty.  Such  a  statute  applies  to  the  case  of  the  dissolution 
of  one  corporation,  by  its  being  absorbed  into  another,  in  which 
case  the  directors  of  the  dissolved  corporation  have  power  to 
execute  a  written  assignment  of  a  patent  to  the  new  corporation, 
which  assignment  will  pass  the  legal  title.^  It  has  been  reasoned 
that,  while  the  consolidation  and  merger  of  one  corporation 
in  another,  whereby  it  may,  in  respect  of  future  transac- 
tions, lose  its  separate  identity  and  corporate  existence,  will 
not  operate  to  relieve  it  or  its  corporators  from  responsi- 
bility to  those  to  whom  it  maybe  indebted,  —  yet  it  may,  by  the 
act  of  consolidation,  become  so  situated  as  to  be  estopped  from 
claiming  that  it  remains  undissolved,  against  one  who  seeks  to 
enforce  rights  which  accrue  to  him  by  reason  of  its  dissolution, — 
as,  for  instance,  against  one  who  has  conveyed  land  to  it,  and 
who  claims  that,  by  reason  of  the  fact  of  its  dissolution  and  of 
fraudulent  representations  by  which  the  conveyance  was  procured, 
the  land  has  reverted  to  him,  instead  of  passing  to  the  new  cor- 
poration.* 

§  398.  New  Company  Estopped  from  Denying  its  Corporate 
Name  and  Character.  —  Where  an  action  is  brought  against  the 
new  company  upon  an  obligation  of  the  old,  and  the  act  or  acts 
of  consolidation,  by  which  it  has  become  the  successor  of  the  old 
in  respect  of  the  obligation,  are  pleaded,  and  the  new  company 
pleads  the ^ewera^  issue,  it  is  estopped  to  deny  the  name  in  which 

1  New  York  &c.  R.  Co.  v.  Saratoga  ^  Edison  Electric  Liglit  Co.  v.  New 
&c.  R.  Co.,  39  Barb.  (N.  Y.)  289.  Haven  Electric  Co.,  35  Fed.  Rep.  233. 

2  See  New  Jersey  Zinc  Co.  v.  Bos-  ■*  Carey  v.  Cincinnati  &c.  R.  Co.,  5 
ton  Franklinite  Co.,  15  N.  J.  Eq.  418.  la.  357,  367. 

276 


REMEDIES    AND    PROCEDURE.        [1  TllOmp.  Coip.    §   399. 

it  is  sued  and  also  to  deny  that  the  old  company  executing  the 
obligation  by  the  name  then  used,  has,  by  force  of  the  consolida- 
tion, assumed  the  name  by  which  the  new  company  is  sued:  ^  a 
decision  which  seems  to  mean  that,  in  such  a  case,  the  non-liabil- 
ity of  the  defendant  must  be  specially  pleaded  and  proved.  The 
same  principle  has  been  declared  with  reference  to  a  case  where  an 
action  was  depending  against  one  of  the  old  companies  at  the  time  of 
the  consolidation,  and  the  consolidated  company  appeared  by  its 
counsel  and  defended.  By  so  appearing,  it  admitted  its  corpo- 
rate existence,  its  successorship  to  the  precedent  corporation,  and 
its  liability  in  case  the  precedent  corporation  should  be  adjudged 
liable. 2 

§  399.  tiBgal  Existence  of  Old  Companies  Continued  in  the 
New  Company.  —  The  Supreme  Court  of  Indiana  has  been 
troubled  with  the  question  of  the  effect  of  two  railroad  companies 
consolidating,  upon  the  rights  of  action  for  damages  against  one 
of  the  previous  companies,  — in  the  particular  case,  for  killing 
an  animal  upon  its  railway  track  where  it  was  not  fenced.  It 
was  contended  that  the  company  created  by  the  consolidation 
was  not  liable  for  damages  done  by  one  of  the  precedent  com- 
panies ;  but  the  court  overruled  this  contention  in  the  following 
language;  "By  the  consolidation,  both  of  the  old  companies 
ceased  to  exist  separately,  and  all  their  effects  and  franchises 
were  vested  in  the  new  company.  The  two  corporations  became 
merged  in  one.  We  cannot  imagine  how  the  Indianapolis  and 
Cincinnati  Railroad  Company  [the  company  by  which  the  alleged 
damage  was  done]  could  afterwards  be  sued.  Upon  whom  would 
process  be  served?  It  ceased  to  have  any  officers  or  agents.  It 
ceased  to  be  a  separate  legal  entity.  Instead  of  two,  there  was 
now  but  one  corporation,  made  up  of  the  mingled  elements  of  the 
two  pre-existing  companies,  so  combined  and  merged  that  neither 
could  be  identified  and  brought  into  court.  But  what  of  the 
rights  of  creditors  and  persons  upon  whom  torts  have  been  com- 
mitted by  the  vanished  corporations?  A  dead  mun  may  have  an 
administrator  to  represent  his  estate  and  answer  to  suits,  but  a 

1  Columbus  &c.  R.  Co.  o.  Skidraore,  2  Kiniou  v.  Karnsas  City  &c.  R.  Co., 

€9  111.  5G6.  39  Mo.  App.  382. 

277 


1  Thomp.  Corp.  §  400.]     consolidation. 

corporation  lawfully  disappearing  thus,  has  no  estate  to  be  ad- 
ministered. Its  assets  lawfully  vested  in  the  new  consolidated 
corporation.  Must  lawful  claims  be  lost  then?  That  result  can- 
not follow.  The  legislature  has  chosen  to  make  no  provision 
upon  the  subject ;  and  the  industry  of  counsel,  as  well  as  our  own 
examination  of  the  books,  has  failed  to  discover  any  direct 
authority  upon  the  question  before  us.  The  analogies  of  the  law, 
too,  afford  little  aid  in  its  solution.  We  regret  to  be  compelled 
to  decide  it  without  a  more  thorough  argument.  Giving  it,  how- 
ever, the  best  consideration  of  which  we  are  capable  under  the 
circumstances,  we  have  reached  the  conclusion  that,  for  the  pur- 
poses of  answering  for  the  liabilities  of  the  constituent  corpora- 
tions, the  consolidated  company  should  be  deemed  to  be  merely 
the  same  as  each  of  Us  constituents^  their  existence  continued  in 
it,  under  the  new  form  and  name,  their  liabilities  still  existing  as 
before,  and  capable  of  enforcement  against  the  new  company  the 
same  as  if  no  change  had  occurred  in  its  organization  or  name. 
This  doctrine  seems  to  spring  from  the  necessities  of  justice,  and, 
so  far  as  we  are  able  to  foresee,  cannot  result  in  wrong  or  em- 
barrassment." ^ 

§  400.  Effect  of  a  Consolidation  upon  Pending    Suits.  — 

The  consolidation  does  not  destroy  either  of  the  precedent  cor- 
porations, in  such  a  sense  as  works  an  abatement  of  actions 
pending  against  them  and  requires  the  plaintiffs  in  such  actions 
to  begin  anew  against  the  consolidated  company.  On  the  con- 
trary, the  effect  of  the  consolidation  is  rather  to  blend  the  tw(> 
companies  together  and  to  continue  the  existence  of  each  in  the 
united  corporation.  It  may  be  compared  to  the  mingling  of 
two  streams.  Ordinarily,  therefore,  it  is  not  such  a  dissolution 
of  either  of  the  precedent  corporations  as  will  abate  an  action 
commenced  by  or  against  it  before  the  consolidation  was  effected.' 

1  Indianapolis  &c.  R.  Co.  u.  Jones,  arrest  of  judgment;  and  that,  if  tlie 
29  Ind.  4G5,  0!>iuionby  Frazer,  J.  original   corporation  were   to   prose- 

2  Baltimore &C.R.  Co.  v.Musselman,  cute  an  appeal  to  the  Supreme  Court 
2GrantCas.  (Pa.),  348;  Hanuav.  Cin-  and  give  an  appeal  bond  in  its  o\v;i 
cinnati  &c.  R.  Co.,  20  Ind.  30;  Swart-  name,  it  would  thereby  be  estopped  to 
wout  V.  Michigan  Air  Line  R.  Co.,  24  deny  its  corporate  existence.  East 
Mich.  389,  394.  It  has  been  said  that  Tennessee  &c.  R.  Co.  v.  Evans,  G 
if  the  rule  were  different  the  question  Heisk.  (Teun.)  607. 

could  not  be   raised   by   a  motion   in 
278 


REMEDIES    AND    rROCEDURE.       [1  TllOllip.  Corp.    §   402. 

It  has  been  reasoned  that,  as  to  pendin<^  suits,  the  original  corpo- 
ration continues  to  exist  for  the  purpose  of  judgment —  that  as  to 
them  it  has  not  lost  its  individuality  or  identity.  Campbell,  J., 
said:  "  No  act  of  a  defendant  can  defeat  the  right  of  the  plaint- 
iff. At  common  law  a  feme  sole  defendant  marrying  after 
suit  brought,  though  she  lost  her  identity,  changed  her  name 
and  merged  her  separate  existence  in  that  of  her  husband,  did 
not  necessitate  the  taking  of  any  notice  by  the  plaintiff  of  her 
change.  He  is  entitled  to  judgment  against  her  by  her  former 
name.  After  judgment,  scire  facias  is  proper  to  charge  the 
husband.^  So  in  the  case  at  bar."  ^  Conversely,  a  suit  by  one 
of  the  consolidated  companies,  pending- at  the  time  of  the  consoli- 
dation,—  for  example,  a  suit  against  one  of  its  shareholders  for 
an  assessment,  —  does  not  abate  by  the  consolidation,  but  the 
original  company  retains,  it  has  been  held,  the  right  to  enforce 
the  collection  of  the  subscription.^  At  most,  as  the  cause  of 
action  in  such  a  case  does  not  die,  but  passes  to  the  new  com- 
pany, if  this  can  be  regarded  a  valid  objection  in  any  form,  it 
should  be  pleaded  in  ahatement^  by  a  plea  puis  darrein  contin- 
uance. If  so  pleaded,  the  suit  can  proceed  in  the  name  of  the 
new  company,  upon  the  proper  suggestion  being  made.* 

§  401.   View  that  Action  Abates   as   to  Old  Company.  —  In 

Kansas  the  exceptional  view  is  taken  that,  where  a  raikoad  company  is 
consolidated  with  other  raihoad  companies  under  a  new  name,  it  ceases 
to  exist  as  a  corporation,  and  an  action  brought  by  or  against  such 
railroad  company  before  its  consolidation,  cannot  afterward  be  prose- 
cuted by  or  against  it  or  in  its  original  name.^ 

§  402.  View  that  New  Process  is  Necessary.  —  The  Supreme 
Court  of  Georgia  has  held  that  it  is  eiTor  to  permit  the  plaintiff,  in  a 
suit  pending  against  one  of  the  precedent  companies  at  the  time  of  the 
consolidation,  to  take  judgment  against  the  consolidated  companj^  in  its 
new  name,  -v^dthout  taking  proper  steps  to  bring  the  new  company,  as 
such,  before  the  court,  — which  would  require  a  new  notice  and  proof 

1  Citing  Roosevelt  v.  Dale,  2  Cow.  ^  Hanna  v.  Cincinnati  &c.  R.  Co., 
(N.  Y.)  581.  20  Ind.  30. 

2  Shackleford  v.  Mississippi  &c.  R.  ■*  Swartvvout  v.  Micliigau  Air  Line 
Co.,  52  Miss.  150, 160,  opinion  by  Camp-  R.  Co.,  24  Mich.  389,  404. 

bell,  J.  5  Kansas  &c.  R.   Co.   v.  Smith,   40 

Kan.  192;  s,  c.  19  Pac.  Rep.  63G. 

279 


1  Thomp.  Corp.  §  4();J.]     consolidation. 

of  the  fact  of  consolidation  and  successorship.^  It  is  believed  that  this 
view  is  unsound,  and  that  the  true  view  is  that  the  consolidated  com- 
pany is  not  a  new  company  in  the  sense  wliich  requires  new  process. 
But  it  must  remain  that  there  is  a  burden  upon  the  plaintiff  of  alleging 
and  proAang  the  fact  of  the  successorship,  unless  it  has  been  produced  in 
such  a  manner  as  has  wrought  no  change  in  the  corporate  name,  in  which 
case  the  rule  would  apply  that  identity  of  name  presumes  identity  of  per- 
son. But  if  the  consohdated  company  has  taken  a  different  name  from 
the  company  whose  contract,  act,  or  neglect  is  the  foundation  of  the  suit, 
it  should  seem  that  the  plaintiff  must  regularly  allege  a  state  of  facts 
which  shows  the  consohdation  and  successorship  in  habihty ,  and  must  also 
prove  the  same,  unless  it  is  admitted,  as  it  may  be  a  general  appearance 
by  the  new  company.  This  must  be  so  regarded,  when  it  is  considered 
that  the  consohdation  of  two  private  corporations  is  a  fact  which  takes 
place  in  pats,  which  depends  upon  the  concun-ence  of  two  things:  1.  The 
passage  of  an  act  by  the  legislature,  or  the  existence  of  a  general  stat- 
ute authorizing  the  consohdation.  2.  An  agreement  or  arrangement  of 
consohdation,  followed  by  the  steps  prescribed  by  the  statute  to  bring 
about  the  amalgamation  of  the  two  companies.  As  the  existence  of  the 
statute  does  not  prove  the  fact  of  the  consolidation,  it  is  plain  that  the 
courts  cannot  take  judicial  notice  of  it,2  and  that  the  plaintiff  must 
therefore  ordinarily  allege  and  prove  it.  Another  view  of  this  subject 
is  that  the  effect  of  the  consohdation  is  to  dissolve  the  old  company,  so 
that  actions  thereafter  cannot  be  brought  against  it,  but  can  only  be 
brought  and  prosecuted  against  the  new  company.  When,  therefore, 
an  action  was  brought  against  the  old  company,  and,  by  an  amendment 
the  fact  of  consohdation  was  set  up  and  judgment  prayed  against  the 
new  company,  and  this  company  filed  a  general  demurrer,  it  was  held 
error  to  sustain  it ;  since,  by  reason  of  the  consohdation,  the  action 
could  only  be  prosecuted  against  the  new  company.^ 

§  403.  View  that  New  Process  not  Necessary :  Effect  of 
Appearance  and  Oral  Evidence  of  Consolidation. —  Where  an 
action  had  been  commenced  against  one  of  the  old  companies,  and  the 
only  evidence  of  the  consolidation  was  the  oral  admission  of  the  attor- 
ney of  the  consolidated  company,  who  appeared  in  the  action,  and  who, 
in  the  same  breath,  delivered  the  evidence  and  then  objected  to  it ;  and 
it  appeared  that,  in    another  record  between  the  same  parties  in  the 

1  Selma  &c.  R.  Co.  v.    Harbin,   40  ^  indianola  R.  Co.  v.  Fryer,  56  Tex. 

Gft   706.  609. 

2'southgate  t).  Atlantic  &c.  R.  Co.^ 
61  Mo.  90. 

280 


REMEDIES    AND    PROCEDURE.        [1  Thomp.  Coip.    §   403. 

same  court,  he  had  delivered  the  evidence  without  objection,  and  the 
evidence  stated  that  he  was  ' '  informed  unofficially  ' '  that  a  consolida- 
tion had  taken  place  at  a  given  date, —  the  court  refused  to  reverse  the 
judgment  on  the  assignment  of  error  that  the  fact  of  consolidation  was 
not  sufficiently  proved.^  The  court  said:  "  An  examination  of  the  de- 
cisions "will,  we  think,  show  that,  in  a  juridical  sense,  and  so  far  as 
regards  any  right  of  action  that  existed  against  either  of  the  corpora- 
tions prior  to  their  being  so  united,  the  effect  of  a  consohdation  is  not 
more  than  a  change  of  name.  "We  do  not  understand  that  an  action 
commenced  against  one  of  the  pre^dous  corporations,  abates  by  the  con- 
solidation, though  the  effect  may  be  to  dissolve  the  old  corporations  as 
such.  On  the  other  hand,  we  understand  that,  upon  proof  of  the  fact 
of  consohdation  being  made,  the  action  may  be  revived  against  the  new 
corporation,  by  an  amendment,  as  was  done  in  this  case.  We  know  of 
no  sound  reason  why  the  new  corporation  should  be  regarded  as  a  dif- 
ferent person  in  a  juridical  sense,  so  as  to  require  it  to  be  brought  into 
court  by  a  fresh  service  of  process.  So  to  hold  would  be  equivalent  to 
regarding  it  as  a  distinct  person  for  all  purposes  from  either  of  the  cor- 
porations by  the  amalgamation  of  which  it  was  created.  The  new 
corporation,  for  instance,  succeeds  to  the  proprietary  rights  of  the  old 
corporation,  without  any  new  conveyances.'^  We  apprehend  that,  for 
juridical  purposes,  in  the  case  of  such  a  consohdation,  the  new  com- 
pany may  be  regarded  as  identical  with  either  of  the  old  companies, 
though  under  a  different  name  ;  and  that,  where  an  action  is  commenced 
against  one  of  the  old  companies,  the  most  that  is  required  for  the  pur- 
poses of  practical  justice,  in  order  to  continue  it  against  the  new  com- 
pany, is  to  prove  the  fact  of  consolidation  and  amend  the  petition  by 
substituting  the  new  company  as  defendant,  as  was  done  in  this  case. 
The  new  company  is  the  old  company ;  it  is  each  of  the  old  companies. 
It  is  simply  the  onward  flow  of  a  stream  which  is  formed  by  the  uniting 
of  two  precedent  streams."  ^  In  the  other  case  between  the  same 
parties,  above  alluded  to,  oral  testimony,  of  the  character  above  stated, 
of  the  fact  of  the  consolidation,  was  given  without  objection ;  and  it 
was  held  that  this  was  tantamount  to  an  admission  of  the  fact  by  the 
defendant.  It  was  also  held  that  no  error  was  committed  in  permitting 
the  plaintiff  to  take  judgment  against  the  consolidated  company  without 
a  new  citation,  although  the  action  had  been  commenced  against  one  of 

1  Kinion  v.  Kansas  City  &c.  R.  Co.,      Scotland  County  v.  Thomas,  94  U.  S. 
39  Mo.  App.  574.  682;    State  ».  Greene  County,  54  M©. 

540. 

2  Citing  to  this  point,  Thompson  ^  Kinion  v.  St.    Louis  &c.  R.  Co., 
V.    Abbott,  61    Mo.    176 ;  Lightner   v.       ."O  Mo.  App.  574. 

Boston  &c.  R.  Co.,  1  Low.  (U.  S.)  338 ; 

281 


1  Thomp.  Corp.  §  401.]     consolidation. 

the  old  companies.  The  court,  speaking  tbrougli  Biggs,  J.,  said :  "  By 
the  contract  of  consolidation  all  property  belonging  to  the  old  com- 
panies, including  their  corporate  privileges  and  franchises,  is  trans- 
ferred to  the  consoUdated  company,  and  there  is  nothing  left  to  sustain 
the  corporate  life  of  the  original  corporations.  It  seems  to  us  that  the 
old  companies,  by  their  voluntary  act,  completely  merged  their  separate 
existence,  and,  strictly  speaking,  a  new  legal  entity  was  thereby  formed; 
The  exact  legal  status  of  the  consolidated  company  is  somewhat  anoma- 
lous and  hard  to  define.  Literally  speaking,  it  is  a  new  corporation, 
but  substantially,  it  is  but  the  continuation  of  the  old  companies  under 
a  new  name.i  It  is  not  formed  like  other  corporations.  The  reincor- 
poration, if  we  may  use  the  term,  is  made  complete  by  the  mere  act  of 
the  original  companies.  The  consent  of  the  State  is  not  necessary, 
and  the  acts  of  the  original  companies  leading  up  to  the  consoUdation 
need  not  be  ratified  or  approved  by  any  officer  of  the  State ;  and  it  is 
only  made  the  duty  of  the  Secretary  of  State  to  file  and  record  in  his 
office  the  contract  of  consohdation.  Technically  speaking,  however, 
and  for  general  purposes,  it  may  be  conceded  that  the  consohdated 
company  is  a  new  corporation ;  but,  touching  the  business  of  the  old 
companies  and  the  rights  of  their  respective  creditors,  we  think  the 
consolidated  company  ought  to  be  regarded  as  the  continuation  of  the 
old  companies  under  a  new  name,  and  to  that  extent  it  ought  not  to  be 
regarded  as  a  new  corporation.  Mr.  Morawetz,  in  his  treatise  on  the 
law  of  corporations,  in  discussing  this  question,  said :  '  In  considering 
the  rights  of  creditors  of  original  companies,  the  consolidated  company 
may  be  regarded  as  a  continuation  of  each  of  these  respective  com- 
panies, with  a  change  of  its  name  and  constitution  and  of  the  amount 
of  its  capital  stock.'  2  Under  this  view  it  was  not  necessary  to  bring 
defendant  into  court  by  a  new  summons,  and  the  simple  and  direct  act 
of  substitution  adopted  by  the  court  was  right.  If  John  Smith  is  sued, 
and,  during  the  pendency  of  the  suit,  he  has  his  name  changed  to  John 
Jones,  a  claim  that  he,  as  John  Jones,  must  be  brought  into  court  by 
additional  summons,  would  be  somewhat  novel.  Practically,  that  is 
this  case.  We  think,  however,  that  the  amended  complaint  ought  to 
have  set  forth  the  fact  of  consolidation,  etc.,  but  we  cannot  see  that 
this  omission  did  any  particular  harm."  ^ 

§  404.  Substitution  after  Referee's  Report  and  before 
Judgment. —  There  may  be  sound  reasons,  however,  why  the  consoli- 
dated company  should  not  be  substituted  in  the  place  of  the  new  com- 

1  Citing  Evans  v.  Exchange  Bank,  ^  Kinion  v.  Kansas  City  &c.  R.  Co., 
79  Mo.  182.                                                          39  Mo.  App.  382,  385. 

2  Citing  2  Mor.  Priv.  Corp.,  §  956. 

282 


REMEDIES    AND    PROCEDURE.        [1  Thouip.  Coip.    §   404. 

pany,  after  the  action  has  been  prosecuted  against  the  new  company  to 
a  decision;  because  there  may  be,  in  particular  cases,  particular  grounds 
for  the  conclusion  that  the  properties  of  the  new  company  should  not, 
in  the  aggregate,  be  subjected  to  the  restraints  which  might,  by  an  in- 
junction or  otherwise,  be  imposed  upon  the  properties  of  the  old.  This 
is  illustrated  by  a  case  in  New  York,  where  the  holder  of  certain  pre- 
ferred stock  of  one  of  the  old  companies,  prosecuted  a  suit  in  equity 
against  it,  to  a  final  decision  by  a  referee,  whose  report  recommended  a 
judgment  that  the  defendant  company,  its  officers,  agents,  etc.,  and 
their  successors,  be  restrained  from  laying  out,  expending,  disposing 
of,  or  in  any  manner  charging  the  property  and  assets  of  the  company, 
or  its  rights  and  franchises,  until  the  payment  of  the  amount  found  to 
be  due  should  be  made.  After  the  coming  in  of  this  report  the  con- 
solidated company  was,  on  motion  of  the  plaintiff,  substituted  in  the 
place  of  the  original  company,  and  this  order  of  substitution  was  ap- 
pealed from.  It  was  held  that  it  was  erroneous.  The  reasoning  of  the 
court,  in  a  per  curiam  opinion,  was  that,  as  far  as  the  creditors  of  one 
of  the  original  companies  were  concerned,  the  consolidated  company 
was  the  successor  of  the  old  company ;  but  that,  in  respect  of  the  pro- 
perties of  the  other  companies,  it  was  a  new  and  independent  company, 
in  such  a  sense  that  the  creditors  of  one  of  the  old  companies  had  no 
claim  against  it  upon  their  original  contracts,  but  only  by  virtue  of  its 
assumption  of  the  obligations  of  the  old  company.  The  court  also  rea- 
soned that  the  officers  of  the  new  company,  so  far  as  the  trust  devolved 
upon  them  of  managing  the  property  acquired  from  the  old  company, 
occupy,  in  relation  to  its  creditors,  the  position  of  successors  to  the 
officers  of  the  old  company,  and  are  bound  by  all  proceedings 
had  against  them ;  but  that,  as  to  the  properties  formerly  of  the  other 
companies,  they  are  successors  to  the  officers  of  those  companies, 
against  whom  such  creditors  have  no  right  of  action  upon  their 
original  contracts.  The  court  concluded  with  this  observation:  "It 
may  be  that  the  obligations  which  the  consolidated  company  has  as- 
sumed render  it  just  that  such  a  judgment  [as  the  referee  had  recom- 
mended] should  ultimately  be  rendered  against  it.  But,  however 
clearly  it  may  appear  that  the  plaintiff  and  those  in  whose  behalf  the 
action  purports  to  be  brought,  are  entitled  to  such  a  remedy,  it  can 
legally  be  obtained  only  in  an  action  against  the  parties  affected, 
founded  upon  their  assumption  of  the  Uabilities  of  others,  and  not  by 
the  summary  process  of  a  motion  to  insert  their  names  as  defendants, 
and  thus  to  apply  to  them  an  adjudication  previously  made  against  the 
original  debtors. ' '  ^     The  soundness  of  this  decision  may  well  be  doubted. 

1  Prouty  V.  Lake  Shore  &c.  R.  Co.,  50  N.  Y.  303,  368. 

283 


1  Thorn  p.  Corp.  §  405.]     consolidation. 

It  seems  to  involve  the  conclusion  that  the  right  of  a  preference  share- 
holder is  merely  a  right  in  the  nature  of  lien  upon  the  particular  prop- 
erty owned  by  the  original  company,  in  which  he  was  such  a  shareholder, 
and  that,  upon  the  consolidation,  it  does  not  become  a  general  obliga- 
tion of  the  new  company;  for,  if  it  does  become  such  an  obligation 
there  is  no  sound  reason  why  it  should  have  the  opportunity  of  relitigat- 
ing  the  question  of  its  duty  to  discharge  it.  The  decision  seems  to  in- 
volve the  conception  of  a  consolidation  which  does  not  consolidate,  so 
far  as  the  properties  are  concerned ;  and  of  a  union  which  still  continues 
to  be  a  separation. 

§  405.  Actions  by  Creditors  of  Old  Company  against  New 
Company.  —  Where  the  statute  of  consolidation  saves  the  rights 
of  creditors  of  the  old  corporations,  they  may  enforce  such  rights 
by  a  direct  action  against  the  new  corporation. ^  There  is  also 
much  authority  to  the  effect  that  the  new  corporation  will  be 
liable  in  a  direct  action  by  a  creditor  of  the  old,  although  the 
statute  of  consolidation  contains  no  express  provision  saving  the 
rights  of  creditors  of  the  old  or  giving  such  an  action,^ — a  doctrine 
specially  appropriate  to  municipal  and  other  public  corporations.^ 
It  is  immaterial  whether  this  right  of  action  is  supported  on  the 
ground  that  it  is  the  case  of  a  promise  made  between  two  parties, 
founded  on  a  good  consideration,  for  the  benefit  of  a  third  party, 
which  he  may  adopt  and  enforce,  or  whether  it  rests  on  tne  ground 
that  the  effect  of  the  consolidation  is  not  to  dissolve  the  corpora- 
tion which  is  his  immediate  debtor,  but  to  continue  its  existence 
in  the  consolidated  company.     Reasoning  upon  this  question,  it 

1  Western  &c.   R.  Co.  v.  Smith,  75  by   implication  the  obligations  of  the 
111.  496;  Warren  v.  Mobile  &c.  R.  Co.,  new  corporation,  it  is  settled  in  this 
49  Ala.  582;  Mt.  Pleasant  «.  Beckwith,  State  that  the  act  of  consolidation  in- 
100  U.  S.  514;  Pullman  Car  Co.  V.  Mis-  volves  an    implied   assumpsit  by    the 
souri  Pacific    R.  Co.,    115  U.   S.  581;  new  company  of  all  the  valid  debts  and 
Louisville    &c.   R.  Co.  v.   Boney,  117  liabilities  of  the   consolidated  com- 
lud.  501;  s.c.  20 Northeast.  Rep.  432;  3  panics."     Louisville     &c.    R.   Co.    v. 
Law  Rep.  Ann.  435.     Speaking  of  this  Boney,  117  Ind.  501,  504 ;  citing  Indian- 
question  in  a  late  decision  in  ludiaua,  apolis  &c.  R.  Co.  v.  Jones,  29  Ind.  465; 
it    is    said    by  Mr.  Justice  Mitchell:  Columbus  &c.  R.  Co.  u. Powell,  40  Ind. 
"  While  it  is  an  open  question  in  some  37;  Jeffersonville  &c.    R.  Co.  v.  Hen- 
jurisdictions  whether    or  not,  in  the  dricks,  41  Ind.  48. 
absence  of  a  statute,  the  debts  of  the  ^  Thompson  v.  Abbot,  61  Mo.  176. 
original  companies  follow  as  an  inci-  ^  Ibid.  (cas'J  of  school  district), 
dent  of  the  consolidation,  and  become 
284 


REMEDIES    AND   PROCEDURE.       [1  TllOllip.  Corp.    §  406. 

has  been  said  that,  "  while  the  action  might  have  been  maintained 
against"  the  old  company,  *'  by  service  of  process  on  the  presi- 
dent of"  the  new  company,  *'  it  might  also  have  been  necessary 
to  bring  a  suit  against  the  defendant  to  recover  the  assets.  The 
law  abhors  circuity  of  action,  and  there  is  no  good  reason  why 
the  defendant,  who  has  to  pay,  may  not  be  directly  sued."  ^ 

§  406.  How  Fact  of  Consolidation  Averred.  —  An  aver- 
ment in  a  complaint  that  certain  railroad  companies,  authorized 
by  law  to  consolidate,  did  consolidate  and  become  one  corpora- 
tion under  a  certain  name,  has  been  held  a  sufficient  averment  of 
the  consolidation,  without  setting  forth  in  detail  the  steps  taken 
by  the  different  companies  to  effect  the  consolidation.  The 
contrary  course  would  make  the  pleading  very  prolix,  and 
would  impose  a  great  burden  on  the  pleader,  who  is  presumed 
not  to  have  access  to  the  corporate  records  showing  the  various 
steps  which  were  taken. ^  Besides,  it  would  be  proving  facts 
which  it  is  not  even  necessary  to  prove. ^  But  where,  in  an 
action  to  foreclose  a  mortgage  alleged  to  have  been  given  by  the 
defendants  to  a  certain  corporation,  and  by  the  corporation  as- 
signed to  the  plaintiff,  there  was  a  paragraph  in  the  answer 
admitting  that  the  mortgagee  was  a  corporation  at  the  date  of  the 
mortgage,  but  averring  that,  under  the  laws  of  Ohio  and  Indiana, 
it  had  consolidated  with  an  Ohio  company  under  a  new  name, 
and  the  terms  of  the  consolidation  were  not  given,  nor  the  dates, 
nor  the  provisions  of  any  statutes  of  Indiana  or  Ohio,  —  it  was 
held  that  no  facts  were  set  forth  upon  which  any  legal  question 
could  be  raised,  and  that  so  much  of  the  answer  was  void  for  un- 
certainty.^ Where  an  action  is  brought  against  a  consolidated 
railway  company,  to  recover  damages  for  a  tort  alleged  to  have 
been  inflicted  by  one  of  the  precedent  companies,  the  complaint 
should  aver  the  fact  of  the  tort  having  been  inflicted  by  the  pre- 
cedent company,  and  it  should  also  aver  the  fact  of  consolida- 
tion.    But  where  the  suit  was  brought  against  the  united  com- 

1  Warren  v.   Mobile  &c.  R.  Co.,  49  ^  Ante,  §  306,  et  seq. 

Ala.  582,  580;    citing  Ready  u.  Tusca-  *  Hubbard  v.  Chappel,  14  Ind.  601; 

loosa,  6  Ala.  327.  citing  Wright  v.  Bundy,  11  Ind.  398. 

2  Collins  u.  Chicago  &c.  R.  Co.,  14 
Wis.  492. 

285 


1  Thomp.  Corp.  §  408.]     consolidation. 

pany  without  these  allegations  in  the  petition,  it  was  held  not  to 
entitle  the  company  to  a  reversal  of  a  judgment  against  it ;  for 
the  variance  could  have  been  cured  by  an  amendment  on  the 
trial,  and  was  hence  immaterial.^ 

§  407.  How  Averment  Replied  to.  —  In  quo  warranto 
against  a  company,  which  pleads  that  it  became  a  corporation  by 
a  contract  of  consolidation  under  a  statute,  a  reply  in  the  nature 
of  a  plea  of  mil  tiel  record  has  been  held  proper;  but  the  de- 
fendants should  have  leave  to  rejoin  that  there  is  such  a  record 
with  a  prout  patet  recordum?  If,  in  support  of  this  rejoinder, 
the  defendant  produce  the  agreement  and  act  of  consolida- 
tion, set  forth  in  answer  to  the  oyer  craved  by  the  attorney 
general,  with  evidence  that  the  same  was  deposited  with  the 
Secretary  of  State,  on  a  date  prior  to  the  commencement  of  the 
action,  judgment*will  be  given  for  the  defendants.^ 

§  408.  Proof  of  the  Consolidation.  —  Where  the  question  of 
the  fact  of  the  consolidation  is  put  in  issue,  it  will  ordinarily  be 
proved  by  the  same  evidence  which  may  be  invoked  to  prove  the 
existence  of  any  corporation,  —  by  proof  of  its  charter,  or  cer- 
tificate, or  articles  of  incorporation,  and  of  user  thereunder.* 
As  already  seen,  where  a  corporation  is  created  under  a  general 
law,  the  fact  of  the  executing  and  filing  in  the  proper  office  of 
an  instrument  of  incorporation  is  'prima  facie  evidence  of  the  ex- 
istence of  the  corporation.^  So,  in  an  action  against  a  corpora- 
tion which  has  been  created  by  the  consolidation  of  other  cor- 
porations, upon  an  application  of  one  of  the  original  companies, 
the  ordinary  evidence  of  the  consolidation  will  be  copies  of  the 
articles  of  consolidation  on  file  in  the  office  of  the  Secretary  of 
State,  duly  certified  by  that  officer  and  authenticated  by  his 
seal  of  office,  in  compliance  with  statutes  which  no  doubt  exist 
in  all  of  the  States,  making  certified  copies  of  such  public  acts 
original  evidence;*^  and  also    in  compliance    with    the  terms  of 

J  Indianapolis  &c.  R.  Co.  v.  Jones,  *  Ante^  §  220;  jjosf,  Ch.  184,  Art.  III. 

29  Ind.  4G5.  *  Ante,  §  220. 

2  Com.  VI.  Atlantic  &c.  R.  Co.,  53  ^  Columbus  &c.  R.  Co.  v.  Skidmore, 
Pa.  St.  9,  19.  69  lU.  566. 

3  Com.  V.  Atlantic  &c.   R.  Co.,    53 
Pa.  St.  9,  19. 

28<i 


REMEDIES    AND    PROCEDURE.       [1  Thomp.  Corp.    §   410. 

statutes  of  consolidation,  examples  of  which  have  been  given,* 
making  copies  of  the  instrument  of  consolidation  certiiSed  by 
the  Secretary  of  State,  evidence  of  the  fact  in  all  courts. 

§  409.  Effect  of  Dissolving  Consolidation  upon  Judgments 
against  Consolidated  Company.  —  A  case  in  Indiana  presents  the 
curious  question,  what  will  be  the  effect  of  a  judicial  decision  declaring 
an  attempted  consolidation  void  and  severing  the  two  companies,  upon 
judgments  recovered  against  them  by  their  consolidated  name  and  in 
their  united  character ;  and  it  is  held  that,  as  the  plaintiff  in  such  an 
action  is  not  a  party  to  the  action  dissolving  the  consolidation,  it  has  no 
effect  upon  his  rights,  but  that,  after  the  severance,  his  judgment  stands 
substantially  as  a  judgment  against  both  companies,  and  that  he  may 
have  an  execution  against  either.  ^ 

§  410.  Binding  Effect  of  Admission  of  One  of  the  Precedent 
Corporations.  —  It  has  been  held  that  an  admission  made  by  one  of  the 
precedent  corporations,  in  a  judicial  proceeding  to  which  it  was  a  party, 
is  binding  upon  the  consolidated  corporation.  It  was  objected  to  evi- 
dence of  such  an  admission  that  it  was  not  made  by  the  defendants  in  the 
case  at  bar,  but  by  the  Wilmington  and  Susquehanna  Railroad  Company, 
another  corporation.  "It  is  true,"  said  Mr.  Justice  Curtis,  answering 
the  objection,  "  the  action  in  the  trial  of  which  the  admission  was  made, 
being  brought  before  the  union  of  the  corporations,  was  necessarily  in 
the  name  of  the  original  corporation ;  but  as,  by  virtue  of  the  act  of 
union,  the  Wilmington  and  Susquehanna  Company,  the  Baltimore  and 
Port  Deposit  Company,  and  the  Philadelphia,  Wilmington  and  Balti- 
more Company,  were  merged  in  and  constituted  one  body  corporate, 
under  the  name  of  the  Philadelphia,  Wilmington  and  Baltimore  Railroad 
Company,  it  is  very  clear  that,  at  the  time  the  trial  took  place  in  Cecil 
County  Court,  all  acts  and  admissions  of  the  defendant  in  that  case, 
though  necessarily  in  the  name  of  the  Wilmington  and  Susquehannna 
Company,  were  done  and  made  by  the  same  corporation  which  now  de- 
fends this  action."  ^ 

'  Ante,  §  300,  e,t  seq.  »  Philadelphia  &c.  R.  Co.u.  Howard, 

-  Ketcham  v.  Madison  &c.  R.  Co.,      13  How.  (U.  S.)  307,  333. 
20  lud. 260. 

287 


1  Tiiouip.  Corp.  §  415.]     promotees. 


CHAPTER    X. 

PROMOTERS, 

Akt.     I.  Liability  ok  their  Contracts,  §§  415-437. 
II,  Liability  to  Subscribers,   §§  440-453. 
III.  Liability  to  the  Company,  §§  456-476, 
IV".  NoN- Liability    of    the   Company    for  Contracts  of  Pro- 
moters,  §§  480-490. 

Article  I.     Liability  on  their  Contracts. 


Section 

415    Meaning    of    the    term      *'  pro- 
moter." 

416.  Personal   liability  of  promoters 

on  contracts  made  for  a  pro- 
jected company, 

417.  But  promoters  personally  liable 

although     contract    made    in 
name  of  corporation. 

418.  Rule  applies  in  all  cases  to  man- 

agers. 

419.  Illustrations, 

420.  Theory  that  rule  not  applicable 

where  there  is  a  corporation  de 
facto. 

421.  English  view  that  promoters  not 

necessarily  liable  as  partners. 

422.  This  view  further  explained  and 

illustrated, 

423.  Character  in  which  liable  a  ques- 

tion of  fact. 

424.  Liable  when  signing  as  *'  agent," 

425.  Illustration  of  the  English  rule. 
42G.  Promoters  not,  as  such,  contrib- 

utories. 


Section 

427.  Further  of  the  English  rule. 

428.  The  English  doctrine  summed  up 

by  Sir  Nathaniel  Lindley, 

429.  No  action    at  law    by  one  pro- 

moter against  the  others. 

430.  Unless  under  exceptional  circum- 

stances. 

431.  Liability  of  committee-man  sub- 

sequently joining. 

432.  Members     of    provisional   com- 

mittee not  liable  for  contracts 
of  managing  committee. 

433.  Judgment       and        satisfaction 

against  one  may  be  pleaded  in 
abatement  by  another. 

434.  Evidence  to  charge  committee- 

men. 

435.  Illustrations. 

436.  Evidence  to  charge  the  associ- 

ates in  an  abortive    corpora- 
tion. 

437.  Liability  of   associates    for    ex- 

penses of  agents  appointed  to 
procure  charter. 


§  415.  Meaning  of  the  Term  <' Promoter."  —  The  word 
*'  promoter  "  is  used  in  England  to  designate  persons  who  exert 
themselves  in  the  formation  of  a  company.  "It  is  not  a  word 
of  art ;  it  must  be  understood  by  lawyers  as  it  would  by  lay- 

288 


THEIR    CONTRACT    LIABILITY.       [1  Thomp.   Coi'p.    §  416. 

men."  ^  The  meaning  of  the  word  has  come  in  England  to  be  so 
commonly  understood  that  it  was  held,  in  one  celebrated  case,  that 
a  judge  in  charging  a  jury,  was  not  bound  to  define  it  to  them.^ 
At  the  same  time,  it  was  said  that  the  word  has  no  very  definite 
meaning,  but  involves  the  idea  of  exertion  for  the  purpose  of 
floating  a  company,  and  also  the  idea  of  some  duty  towards  the 
company  imposed  by,  or  arising  out  of,  the  position  which  the 
so-called  promoter  assumes  towards  it.^  But,  to  brino-  a  per- 
son within  the  meaning  of  the  term,  it  is  not  sufficient  to  show 
that,  at  the  time  when  the  property  was  purchased,  it  was  con- 
templated that  a  company  should  be  formed  for  the  purpose  of 
acquiring  it.* 

§  416.  Personal  Liability  of  Promoters  on  Contracts  Made 
for  a  Projected  Company.  —  In  a  future  chapter  we  shall  have 
occasion  to  examine  the  rule  that  where  a  contract  is  signed  by  a 
person  professing  to  act  as  the  agent  of  another,  but  who  has  no 
principal  in  existence  at  the  time,  so  that  the  contract  will  be 
wholly  inoperative  unless  binding  upon  the  person  who  thus 
signed  it,  he  will  be  personally  liable  upon  it.^  The  rule  is 
the  same  whether  the  courts  proceed  upon  the  idea  of  a  breach 
of  warranty  of  agency,  or  upon  the  idea  that,  in  construing  such 
an  instrument,  such  meaning  ought  to  be  given  to  its  terras  as 
will  save  it  from  becoming  wholly  nugatory  and  inoperative  —  a 
thing  which  the  parties  could  not  be  supposed  to  have  intended. 
This  principle  applies  with  peculiar  force  to  contracts  made  by 
the  promoters  of  a  company  which  they  intended  to  organize, 
but  which  was  not  yet  in  existence  at  the  time  of  the  making  of 
the  contract.  Of  course,  if  the  contract  specifies  that  the  obligee 
will  not  look  to  the  promoters  for  payment  or  indemnity,  but 
will  take  his  chances  of  their  succeeding  in  organizing  the  pro- 
posed company,  and  of  the  company  ratifying  the  contract  thus 

'  Bramwell,    J.,     in    Twycross   v.  ^  ^naraa  Silver  Mining  Co.  v.  Lewis, 

Grant,  2  C.  P.    Div.  503.     The  learned  4  C.  P.  Div.  396. 

justice  also  held  that  the  word  is  not  ^  Tliid. 

limited  to   persons  acting  before  the  ^  Ladywell  Mining  Co.  v.  Brookes, 

company  is   formed,  but  might  apply  35  Ch.   Div.  400;  s.  c.  17Am.    &  Eng. 

to  those  actively  concerned  in  placing  Corp.  Cas.  22,  30. 

its  shares.     Ibid.  ^  Post,l29,b9.  et  seq. 

19  289 


1  Thomp.  Corp.  §  -tlT.]     promoters. 

made  by  them  for  it,  then  there  is  no  room  for  controversy.* 
It  must  be  confessed  that  even  the  English  authorities  on  these 
questions  are  in  confusion ;  but  it  is  thought  to  be  a  sound  course, 
in  most  of  these  cases,  to  put  the  question  to  the  jury  whether 
the  plaintiff  meant  to  contract  on  the  footing  of  the  personal 
liability  of  the  defendant,  either  alone  or  as  a  member  of  the 
acting  committee,  or  on  the  credit  of  the  funds. ^  Obviously,  the 
question  will  be  one  of  fact  for  the  jury,  except  where  it  involves 
the  construction  of  a  written  contract,  when  it  will  be  a  question 
of  law  for  the  court.  The  effort  of  the  courts  in  all  these  cases  will 
be  to  give  effect  to  the  intention  of  the  parties.  Accordingly,  if 
a  person  agrees  with  the  promoters  of  a  company  to  bear,  him- 
self, the  expense  of  promoting  it,  he  cannot  recover  such  expense 
from  the  company  when  organized,  although  the  act  organizing 
the  company  contains  the  usual  provision  that  the  company  shall 
pay  the  costs  of  the  passing  of  the  bill.  The  previous  agreement 
inures  to  the  benefit  of  the  company. "^  Even  if  the  company 
should  in  fact  come  into  existence,  it  would  not  be  l)ound  by 
such  a  contract,  though  it  is  supposed  a  court  of  equity  would 
not  suffer  it  to  retain  an  advantage  thus  acquired.  "  There 
must  be  two  parties  to  the  contract,  and  the  rights  and  obligations 
which  it  creates  can  not  be  transferred  by  one  of  them  to  another 
person,  who  was  not  in  a  condition  to  be  bound  by  it  at  the  time 
it  was  made."  * 

§  417.  But  Promoters  Personally  Liable  although  Contract 
Made  in  Name  of  Corporation. —  As  already  seen,^  the  pro- 
moters are  personally  liable  on  such  contracts,  although  they 
have  assumed  to  make  them  in  the  name  of  the  intended  cor- 
poration as  though  it  were  actually  in  existence.     In  such  cases 

1  Such  was  the  contract  in  Land-  '  Savin  v.  Hoylake  R.  Co.,  L.  R. 
man  u.  Entwistle,  7  Exch.  G32;  s.  c.  1  Exch.,  9;  s.  c.  4  Hurl.  &  Colt.  67; 
21  L.  J.  (Exch.)  208;  Higains  v.  Hop-  35  L.  J.  (Exch.)  52;  11  Jur.  (n.  s.) 
kins,  3  Exch.  163;  s.  c.  6  Ry.  Cas.  75;  934;  14  W.  R.  109;  13  L.  T.  (n.  s.) 
18     L.     J.      (Exch.)      113.     Compare  374. 

Thomas  v.    Edwards,  2   Mees.  &  W.  *  Erie,  C.  J.,  in  Kelner  v.  Baxter, 

215.  L.  R.   2C.  P.  174;     s,  c.  Thomp.    Off. 

2  Higgins  V.  Hopkins,  3  Exch.  163;      Corp.,  p.  117. 

«.  c.  6  Ry.   Cas.  75;    18   L.    J.  (Exch.)  ^  Ante,  §  218. 

113. 

290 


THEIR    CONTRACT    LIABILITY.       [1  Thonip.  Corp.    §   417. 

the  rule  which  estops  persons  who  contract  with  an  assumed  cor- 
poration from  subsequently  denying  its  corporate  character  does 
not  apply  ;  but  the  obligee  is  allowed  to  go  behind  the  assumed 
corporation  and  to  hold  the  individuals  responsible,  on  the  theory 
of  a  breach  of  warranfy  of  agency,  — that  is  to  say  for  the  rea- 
son that  they  have  held  out  to  the  obligee  a  contracting  party 
which  really  does  not  exist  and  which  is  unable  to  answer  to  him 
in  damages  for  the  non-performance  of  the  contract.^  The 
theor}'"  is  that  those  who  assume  to  make  contracts  for  a  corpora- 
tion impliedly  warrant  its  existence  as  a  body  capable  of  contract- 
ing.^  But  the  governing  principle  seems  to  be  wider;  for  the 
theory  of  breach  of  warranty  of  agency  would  only  charge  with 
liability  those  who  made  the  contract,  or  authorized  it,  or 
assented  to  it,  or  ratified  it,  in  some  more  direct  way  than  by 
purchasing  shares  in  the  supposed  companv  ;  and  in  nearly  all 
the  decisions  first  cited  the  defendants  were  charo;ed  because 
they  were  members,  and  not  merely  because  they  were  ^97*omo<er5, 
of  inchoate  or  abortive  corporations.  A  better  ground  is  that 
exemption  from  personal  liability  is  a  franchise  or  privilege, 
which  the  State  confers  on  adventurers  on  their  complying  with 
certain  conditions;  so  that,  if  they  organize  themselves  into  an 
association  and  elect  a  board  of  officers  to  manage  its  affairs, 
and  authorize  them  to  make  contracts  for  the  common  body,  be- 
fore they  have  complied  with  those  conditions,  they  stand  like 
the  members  of  any  other  merely  voluntary  association  in 
respect  of  personal  liability.  While  a  discussion  of  the  personal 
liability  of  stockholders,  as  such,  is  reserved  for  a  future  portion 
of  this  work,  it  may  be  observed  here,  that  the  shareholders  of 
an  abortive  or  inchoate  corporation  cannot  be  charged  with  per- 
sonal liability  for  its  obligations,  in  any  case,  or  on  any  theory, 
unless  the  nature  and  purposes  of  the  association  are  such  that 
they  would  be  liable  as  partners  if  there  were  no  pretense  of 

1  Johnson  w.  Corser,  34  Minn.  355;  v.  Werts,   4  Serg.    &  R.    (Pa.)     356; 

s.  c.   25  N.   W.    Rep.    799;    Field    v.  Eaton  v.    Walker,  7G   Mich.  579;  s.  c. 

Cooks,  16   La.    Ann.   153;    Abbott    v.  43  N.  W.  Rep.  638;   Hurt  w.  Salisbury, 

Omaha    Smelting    Co.,     4    Neb.  416;  5.5   Mo.  310;   Hill  v.  Beach,   12  N.  .1. 

Kaiser  v.   Lawrence    Sav.    Bank,    56  Eq.  31. 

Iowa,  104;  Garnett  v.  Richardson,  35  ^  Hurt    v.    Salisbury,    supra,    and 

Ark.  144;  Bigrlow  v.  Gregory,  73  111.  other  cases. 
197;  Pettisu.Alkins,  GO  111.  454;   Hess 

29i 


1  Thomp.  Corp.  §  418.  j     promoters. 

their  being  incorporated.  Thus,  where  the  purposes  of  the 
association  are  not  for  pecuniary  gain  and  profit,  but  merely  to 
secure  the  completion  of  a  public  work,  e.^.,  the  extension  and 
grading  of  a  public  street,  the  associates,  in  case  it  does  not  be- 
come incorporated,  are  not,  ipso  facto,  liable  as  partners, —  that 
is  to  say,  there  is  no  authority,  implied  from  their  relations,  in 
one  of  the  associates  to  bind  the  others  by  contracts  incurring 
liabilities.  In  such  a  case,  whether  the  associates  will  be  bound 
will  be  a  question  of  fact  for  a  jury,  or,  in  a  suit  in  equity,  for 
the  chancellor,  depending  upon  the  circumstances  of  the  case.^ 

§  418.  Rule  Applies  in  all  Cases  to  Managers. —  Some  courts 
have  exhibited  a  reluctance  to  apply  this  principle  so  as  to  charge 
the  \nwoQ,QvAj  stochlioldprs  as  parfnei^s,  where  the  managing  officers 
have  entered  upon  the  business  of  the  corporation  in  violation  of 
positive  law,  or  without  complying  with  some  condition  prec- 
edent enjoined  by  law;  but  no  such  reluctance  has  been  felt  as 
to  the  managers.  "  Where  the  entire  business,  carried  on  by 
persons  in  the  name  of  a  corporation,  is  such  as  the  corporation 
is  prohibited  by  law  from  doing,  they  cannot  interpose  the  cor- 
porate privileges  between  them  and  the  liabilities  which  the  law 
imposes  upon  individuals  in  the  transaction  of  similar  business 
without  the  use  of  the  corporate  name."  ^  In  such  a  case  the 
managers  may  be  held  liable,  on  a  theory  which  may  not  reach  or 
affect  the  stockholders.  That  theory  \s  the  breach  of  warranty 
of  agency.  By  professing  to  act  for  a  corporation  which  does 
not  exist,  they  put  themselves  in  the  position  of  a  person  who 
professes  to  act  as  the  agent  of  another  person  who  is  really 
non-existent.  Under  a  well  settled  rule,  they  are  therefore  per- 
sonally bound  to  make  good  any  undertaking  which  they  assume 
in  that  character.^  If  they  have  been  guilty  oi fraud  in  assuming 
to  act  for  a  non-existent  corporation,  they  may  become  personally 
liable  on  another  principle,  which  is  that  they  who  occasion  in- 
jury to  others  by  the  fraudulent  use  of  corporate  powers,  are 
personally  liable  in  damages  therefor.* 

1  Johnson  V.  Corser,  34  Minn.  355.      613;  Fay  v.  Noble,    7   Gush.    (Mass.) 

2  Medill  V.  Collier,  16  Ohio  St.  599,      188. 

613.  •*  Medill  v.  Collier,  16  Ohio  St.  599, 

8  Medill'u.  Collier,  16  Ohio  St.  599,      613;  Bartholomew  v.  Bentley,  15  Ohio. 
292 


THEIR    CONTRACT   LIABILITY.       [1  Thomp.  Coi[).   §   419. 

§  419.  Illustrations. — The  signers  of  the  following  promissory  note 
were  held  hable  on  this  principle :  — 

^l^OOO-  Salisbury,  Mo.,  Feb.  22,  1869. 

"  Twelve  months  after  date,  for  value  received,  the  undersigned,  as 
directors  of  the  North  Missouri  Central  District  Stock,  Agricultm-al  and 
Mechanical  Association,  promise  to  pay  Peyton  T.  Hurt,  or  order,  the 
sum  of  one  thousand  dollars,  negotiable  and  payable  without  defalcation 
or  discount,  and  with  interest  from  date  at  ten  per  cent,  per  annum. 

"Lucius  Salisbuey, 
"M.  M.  Hurt, 
"  EliWayland, 
"M.  B.  Williams, 

"J.  A.  JOHNSTOX, 

"  Directors, 
"James  "W.  Lewis, 

"  as  Directors." 

The  note  was  thus  signed  and  executed  before  the  articles  of  associ- 
ation were^?ecZmth  the  Secretary  of  State,  and  consequently  before  the 
corporation  had  acquired  a  legal  existence,  and  on  this  ground  they 
were  personally  charged.!  -  -  _  .  A  banking  corporation  com- 
menced business  before  complying  with  a  statute,  which  prohibited  such 
corporations  from  commencing  business  before  depositing  certain  securi- 
ties with  the  Auditor  of  the  State.  While  so  doing  business,  they  re- 
ceived a  deposit  from  the  plaintiff,  and  afterwards  made  an  assignment 
by  reason  of  insolvency.  It  was  held  that  the  plaintiff  could  maintain 
an  action  against  the  managers  to  recover  his  deposit,  and  that  they 
would  not  be  heard  to  set  up  the  defense  that  he  might  have  an  action 
against  the  corporation,  in  which  the  corporation  would  be  estopped  from 
pleading  its  want  of  compliance  with  the  statute.^  -  -  -  -  It  has  been 
held,  in  an  action  on  an  account  brought  against  certain  indi\iduals, 
charging  them  as  partners,  in  a  partnership  called  the  Register  Smelting 
and  Refining  Company,  in  which  they  answered  denying  the  partnership, 
but  alleging  that  the  company  was  a  corporation, —  that  the  burden  of 
proving  the  incorporation  rested  upon  the  defendants,  failing  to  estab- 
Hsh  which,  the  defendants  could  not  avoid  personal  liability. ^  The  ques- 
tion at  issue  was  said  to  be,  not  so  much  whether  the  defendants  held 

659;  Bartholomew  v.  Bentley,  1  Ohio  '  Hurt  v.  Salisbury,  55  Mo.  310. 

St.37;    Vose  v.  Grant,  15  Mass.  505,  -  Medillj;.  Collier,  16  Ohio   St. 599. 

519;  Trowbridge  V.  Scudder,  11  Cush.  ^  Abbott  v.    Omaha    Smelting  &c. 

(6»Ma8a.)  83.  Co.,  4  Neb.  416. 

293 


1  Thonip.  Corp.  §  421.]     promoters. 

themselves  out  as  partners,  but  whether  they  were  in  fact  members  of 
the  company'  which  assumed  to  act  as  a  corporation.  ^ 

§  420.  Theory  that  Rule  not  Applicable  where  there  is  a 
Corporation  de  Facto.  —  As  already  stated, ^  if  the  corporation 
never  comes  into  existence,  at  least  in  such  a  sense  as  to  be  regarded  in 
law  as  a  de  facto  corporation,  the  promoters  will  be  persoiiall}^  liable  for 
any  contracts  which  they  have  assumed  to  make  in  its  behalf ;  and  in 
applying  this  principle  it  has  been  held  that  the  managing  agents  of  a 
pretended  corporation  are  so  hable,  where  the  circumstances  are  such 
that  the  corporation  could  not  have  existed  at  all,  as  where  they  are  as- 
sociated together  under  a  void  law.^  On  the  other  hand,  the  imphcation 
is  that,  where  there  is  a  corporation  de  facto  — in  other  words,  where 
the  circumstances  are  such  that  a  corporation  might  exist*  —  and  where 
the  part}'^  seeking  to  charge  the  members  indi\idually  has  dealt  with 
them  as  a  corporation,  he  is  estopped  from  setting  up  the  fact  that  they 
are  not  a  corporation  de  jure,  in  order  to  charge  them  personally 
instead  of  charging  that  he  agreed  to  trust,  namely,  their  common 
fund.^ 

§  421.  English  View  that  Promoters  not  Necessarily  Liable 
as  Partners.  —  The  present  doctrine  of  the  courts  of  England  is 
that  persons  who  serve  on  provisional  committees,  appointed 
at  public  meetings  or  otherwise,  for  the  purpose  of  getting  up  a 
company,  are  not  ipso  facto  partners,  so  that  one  will  be  liable 
upon  contracts  made  by  the  others,  although  special  facts  may 
exist  which  will  make  them  liable  as  such.^     The  reason  of  the 

I  Ibid.  V.   Belcher,    12   Q.    B.   921;  Ex  parte 

*  Ante,  %  417.  Cottle,    2   Mac.    &   G.    185;  Robert's 
8  Eaton   V.  Walker,   76  Mich,  679;      Case,  2  Mac.  &  G.  192  (affirming  s.   c. 

a.  c.  43  N.  W.  Rep.  638.  3  DeG.  &  Sm.  205)  ;  Wood  v.  Argyll,  6 

*  Post,  §  505.  Man.  &  G.  928 ;  Norris  v.  Cottle,  2  H. 

*  Po«f,  §§  505,  2882,  L.   Cas.   647;  Buruside   v.   Dayrell,  3 
«  Reynell  v.  Lewis,  15  Mees.  &  W.  Exch.  224;  s.   c.  6  Ry.  Cas.  67;    19  L. 

617;  s.  c.  Thorap.  OfE.  Corp.,  p.    121;  J.  (Exch.)    46  (overruling  Barnett  ??. 

Bailey  V.  Macau'ay,  13  Q.  B.  814;  s.  c.  Lambert,  15   Mees.   &   W.   489).     See 

Thomp.  OfE.  Corp.,  p.  136;  Forrester  the   observations  of  Lord   Brougham 

V.   Bell,   10  Ir.  Law  Rep.  555;  Land-  in  Norris   v.  Cottle,  2  H.    L.  Cas.  G65. 

man  v.  Eutwistle,  7   Exch.  632;  s,  c.  The  cases  of  Holmes  v.    Higgins,   1 

21    L.   J.    (Exch.),   208;    Higgins   v.  Barn.  &  Cres.  74;  Lucas  v.  Beach,    1 

Hopliins,  3  Exch.   103;  s.  c.  6  Ry.  Cas.  Man.  &  G.  417,  and  Hutton  v.  Upfill,  2 

75;   18   L.  J.    (Exch.)  113;    Carrick's  H.  L.  Cas.  691,  are  overruled  on  this 

Case,    1  Simons  (n.  s.),  505;  Newton  point. 
294 


THEIR    CONTRACT    LIABILITY.        [1  Thomp.  Corp.    §   422. 

rule  is  said  to  be  that  a  partnership  is  not  created  by  an  agree- 
ment to  organize  a  future  partnership.* 

§  422.  This  View  Further  Explained  and  Illustrated.  —  The 

mere  fact  of  a  person  agreeing  to  become  a  member  of  the  pro- 
visional committee  of  an  intended  corporation  has  been  held,  in 
that  country,  to  amount  to  no  more  than  a  promise  that  he  will 
act  with  other  persons,  appointed  or  to  be  appointed,  for  the 
purpose  of  carrying  the  scheme  into  effect.  Therefore,  in  an 
action  against  a  provisional  committee-man  for  goods  supplied  on 
the  order  of  the  solicitor  of  the  company,  it  was  held  that  the 
law  would  not  imply,  from  the  mere  fact  of  his  agreeing  to  be  a 
member  of  the  committee,  an  authority  from  him  to  the  other 
members  of  it  to  make  contracts  by  himself  or  by  the  solicitor, 
nor  an  authority  to  the  solicitor  to  make  them  on  behalf  of  the 
committee,  such  as  would  make  each  committee-man  liable  as  a 
partner. 2  If  the  party  not  only  consents  to  be  a  provisional 
committee-man,  but  authorizes  his  name  to  be  inserted  and  pub- 
lished in  a  prospectus,  which  merely  states  the  names  of  the 
members  of  the  provisional  committee,  and  nothing  more,  that 
fact  does  not  alter  the  liability.  If  it  states  the  names  of  an 
acting  or  managing  committee  also,  it  is  a  question  for  a  jury 
whether  it  means  that  the  latter  are  to  take  upon  themselves  the 
whole  management  of  the  concern,  or  that  the  former  have  con- 
stituted the  latter  their  agents  to  manage  it  on  their  behalf,  — in 
which  case  the  former  would  be  liable  for  the  contracts  of  the 
latter.  Or,  if  the  solicitor's  name  were  mentioned  in  it,  the 
question  for  the  jury  would  be  whether  it  meant  that  he  was  to 
be  employed  by  those  of  the  committee  who  acted,  or  that  he 
was  alreidy  appointed  by  all  whose  names  were  mentioned,  as 
their  solicitor,  to  do  all  solicitor's  work  on  their  behalf;  and 
further,  what  was  the  business  then  usually  transacted  by  solici- 

'  Forrester  v.  Bell,  10  Ir.  Law  Rep.  tributory.     Tliere  ncverwasa  contract 

555;  1  Lindl.  Part.  1st.  ed.  31.     Sec  to  of   partnership   on  his  part,  but  only 

the  general  question.  Fox  v.  Clifton,  G  an  ajircenient  to   become  a  partner  in 

Binj^.  77G;  s.  c. 'JBinji.  115, and  Bourne  case  the   company  should  be   formed 

V.  Freeth,  9  Barn.  &  Ores.   032;  Fay  under  an  act  of  Parliament.     Hutton 

V.  Noble,  7Cush.  Mass.  188.    It  is  upon  v.  Thompson,  3  H.  L.  Cas.  161. 

this  ground  that  an  allottee  of  shares  ^  Keynell  v.  Lewis,  15  Mees.  &  W. 

in  an   abortive  company  is  not  a  con-  517;  s.  c.  Thomp.  Off.  Corp.  121. 

295 


i  Tliomp.  Corp.  §  423.]     promoters. 

tors  ill  such  undertakings,  on  behalf  of  the  company;  and  the 
same  as  to  the  secretary.^  Where  there  is  also  evidence  that 
the  defendant  li:is  acted  with  relation  to  the  proposed  scheme,  it 
is  a  question  for  the  jury  whether,  by  his  consent  and  acts,  he 
has  authorized  the  solicitor,  or  secretary,  or  any  member  of  the 
committee,  to  pledge  his  credit  for  the  necessary  and  ordinary 
expenses  to  be  incurred  in  forming  such  a  company ;  and  if  so, 
whether  the  work  was  done  and  the  credit  given  on  the  faith  of 
his  being  liable.  Such  an  intended  association  does  not  consti- 
tute a  partnership,  inasmuch  as  it  constitutes  no  agreement  to 
share  any  profit  or  loss.^ 

§  423.  Character  in  whicli  Liable  a  Question  of  Fact.  — 

The  English  doctrine,  then,  is  that  the  character  in  which  a  mem- 
ber of  a  provisional  committee  of  a  projected  corporation  is  liable, 
upon  contracts  for  work  and  labor,  etc.,  is  a  question  of  fact  for 
a  jury.^  Thus,  in  an  action  against  a  member  of  the  committee 
of  a  projected  railway  company  for  work  and  labor  done,  goods 
supplied  and  money  paid,  the  jury  are  to  consider  whether  the 
defendant,  by  taking  upon  him  the  character  of  a  committee-man 
and  afterwards  acting  in  the  affairs  of  the  company,  has  author- 
ized the  company's  solicitor  or  secretary,  or  any  member  of 
the  committee,  to  hold  him  out  to  the  world  as  personally  re- 
sponsible for  the  reasonable  and  necessary  expenses  incurred  in 
forming  such  a  company  on  its  behalf ;  and  then,  whether  the 
credit  was  given  on  the  faith  of  his  being  so  personally  responsi- 
ble.* Such  a  committee-man,  by  merely  allowing  his  name  to  ap- 
pear in  that  character,  in  the  ordinary  form  of  prospectus  issued 
by  English  railway  companies,  incurs  no  liability  to  a  tradesman 
who  supplies  goods  to  the  company  ;  but  the  consent  of  a  person 
to  his  name  so  appearing  might  be  a  fact  of  importance  on  a 
question  of  such  liability,  as  showing  that  he  took  an  interest  in 
the  proposed  concern:  whether  merely  as  a  patron  and  well- 
wisher,  or  as  co-operating  in  the  measures  preparatory  to  its 
formation.     It  became,  therefore,   material  to  know  what   the 

1  Ibid.  Bailey  v.  Macaulay,  13  Ad.  &  El.  (n. 

2  Ibid.  8.;  815;  s.  c.  Thomp.  Ofe.  Corp.  136. 

3  Reynell  v.  Lewis,  15  Mees.  &  W.  ^  Bailey  v.  Macaulay,  13  Ad.   &  El. 
517;    s.    c.    Thomp.    Off.   Corp.   121;  (n.;s.)  815;  s.c.  Thomp.  Off.  Corp.  136. 

296 


THEIR  CONTRACT  LIABILITY.      [1  Thomp.  Corp.  §  425. 

committee-man  was  doing  when  he  joined  it,  tfnd  whether  he  knew 
what  it  was  doing,  and  concurred  therein.  If  advertising,  print- 
ing and  stationery  were  necessary  to  the  working  of  llie  com- 
mittee, and  no  fund  liad  been  raised  to  pay  for  such  necessaries, 
the  tradesman  might  justly  suppose  that  all  who  acted  on  the 
committee  had  authorized  him  to  supply  them  on  their  credit, 
although  the  individual  committee-man  had  not  specifically  given 
such  authority,  and  although  the  tradesman  might  know  nothing 
more  of  the  committee-men  than  that  they  were  probably  men  of 
character  and  substance.  The  absence  of  the  committee-man's 
intention  to  pledge  his  credit  was  deemed  immaterial,  if  he  had 
given  the  authority  beforehand.^  If,  however,  the  tradesman 
looked  solely  to  the  deposits  on  shares  as  the  fund  from  which 
payment  was  to  be  made  to  him,  he  had  no  cause  of  action  against 
the  committee-man. 2  As  the  liability  of  the  committee-man  arose, 
not  from  his  filling  that  character,  but  from  his  authorizing  the 
orders  for  the  goods  or  services,  his  admission  of  general  liability 
might  be  evidence  of  his  having  authorized  such  orders  before 
his  name  appeared  on  the  committee.^  In  such  a  case  the  jury 
were  to  consider  whether  such  an  admission  was  made  because 
the  actual  liability  in  law  was  questionable,  and  for  the  purpose 
of  preventing  litigation,  or  whether  the  admission  was  referable 
to  his  conscientious  conviction  that  his  acts  had  made  him  per- 
sonally liable.  In  the  latter  case,  they  might  infer  his  general 
liability.* 

§  424.  Liable  when  Signing  as  "Agent."  —  But  even  under 
the  English  rule,  where  a  contract  is  signed  by  one  who  professes 
to  be  signing  "  as  agent,"  but  who  has  no  principal  existing  at  the 
time,  and  the  contract  would  be  wholly  inoperative  unless  bind- 
ing upon  the  person  who  signed  it,  he  is  personally  liable  on  it; 
a,nd  a  stranger  cannot,  by  a  subsequent  ratification,  relieve  him 
from  the  liability.^ 

§  425.  Illustrations  of  the  English  Rule.  —  In  an  English  case, 
one  J.,  acting  as  solicitor  and  secretary  of  a  projected  railway  com- 

'  Ibid.  6  Kelner  v.   Baxter,  L.  R.  2  C.   P. 

^  I^id.  ]74;    s.  c.  Thomp.   Off.    Corp.    106; 

•^  Ibid.  post,  Ch.  108. 

^  Ibid. 

297 


1  Thomp.  Corp.  §  426.]     tromoters. 

pail}',  by  the  authorify  of  the  promoters,  and  by  means  of  a  check 
signed  by  two  of  them,  obtained  from  the  plaintiff  an  advance  of  £500, 
to  be  applied  in  payment  of  the  parliamentary  fees  which  would  be 
necessary  to  get  an  act  passed  authorizing  the  proposed  railway.  This 
advance  was  obtained  upon  an  express  agreement  that  it  was  to  be  re- 
paid "  out  of  the  calls  on  shares."  An  act  authorizing  the  construction 
of  the  railway  was  passed,  the  promoters  being  named  therein  as  first  di- 
rectors. At  a  meeting  subsequently  held  the  directors  passed  a  resolu- 
tion that  the  acts  of  J.  should  be  adopted  and  confirmed.  No  shares  were 
allotted  or  calls  made,  and  the  undertaking  was  not  proceeded  with. 
It  was  held,  on  the  grounds  just  set  forth,  that  the  advance  was  made 
upon  the  responsibility  of  the  persons  who  signed  the  check,  and  that 
the  subsequent  adoption  of  their  acts  by  the  directors  did  not  alter 
their  position. i  -  -  -  -  In  a  still  earlier  case,  the  secretary  of  a 
local  committee  of  a  projected  railway  brought  an  action  for  his  salai-y 
against  a  member  of  the  committee  who  became  such  after  the  secretary 
was  appointed.  Alderson,  B.,  told  the  jury,  in  summing  up,  that  the 
members  of  the  committee  were  the  persons  to  whom  the  plaintiff  was 
entitled  to  look  for  the  payment  of  his  salary,  in  the  absence  of  an 
agreement  that  he  was  to  look  anywhere  else,  —  as,  for  instance,  to 
moneys  which  might  be  paid  in  as  deposits  or  installments  on  shares  ; 
and,  it  appearing  that  the  defendant  was  not  a  member  of  the  com- 
mittee at  the  time  the  plaintiff  was  first  engaged  as  secretary,  but  be- 
came so  while  the  plaintiff  continued  secretary,  it  was  held  a  question 
for  the  jury  whether  the  defendant  did  not  continue  to  employ  the 
plaintiff  upon  the  same  terms  as  those  upon  which  he  was  first  engaged. ^ 

§  426.  Promoters    not,    as  Such,   Contribiitories. — In    the 

windino-  up  of  an  English  joint  stock  company,  in  which  all  the 
members  are  liable  as  partners,  all  the  members  of  the  firm  or 
company  are  liable  to  be  placed  on  what  is  termed  the  list  of 
contributories,  that  is,  they  are  liable  to  contribute  to  raise  a 
fund  for  the  payment  of  its  debts.^     The  rule  that  promoters  or 

1  Scott  V.  Lord  Ebury,  L.  R.  2  C.  ^  In  the  winding  up  act,  1848,  uu- 
p.  254.  der  wliicli  the  decisions  here  quoted 

2  Kerridge  V.  Hesse,  9Car.  &  P.  200.  arose,  it  is  expressed  that  the  word 
What  if  the  services  rendered  to  the  "contributory"  shall  include  "every 
committee  by  an  engineer,  in  making  member  of  the  company,  and  also  ev- 
an  estimate  of  the  expense  of  the  en-  ery  other  person  liable  to  contribute 
terprise,  are  of  no  value,  or  only  of  to  the  payment  of  any  of  the  debts, 
partial  value.     Moneypenny  v.  Hart-  liabilities  or  losses  thereof." 

land,  2  Car.  &  P.  378;  s.  c.  1  Car.  &  P. 
352. 

298 


THEIR    CONTRACT   LIABILITY.       [1  Thomp.  Coip.    §   426. 

provisional  committee-men  are  not  partners,  necessarily  ex- 
cludes them  from  the  list  of  coiitributories,  unless  they  have 
agreed  to  be  personally  liable  for  the  expenses  of  the  concern. 
Where  one  has  joined  a  provisional  committee  of  a  projected 
compiiny,  with  the  express  stipulation  that  he  shall  not  be  liable 
for  such  expenses,  it  is  obvious  that  he  will  not,  on  winding  up 
the  concern,  be  a  contributory;  they  must  make  up  the  purse 
to  pay  the  debts  who  agree  to  be  liable  for  them,  not  he.'  If 
one  member  of  such  a  committee,  in  furtherance  of  the  common 
object,  incurs  liabilities,  he  must  pay  those  liabilities  himself, 
and  he  will  not  be  entitled  to  contribution  from  the  others.  In 
the  absence  of  special  circumstanees,^  such  a  committee-mnn 
would  not  be  liable  at  law  for  such  expenses,  not  directly  author- 
ized by  himself  or  his  agent;  and  when  called  upon  in  a  court  of 
equity  to  contribute  for  the  indemnity  of  a  co-committee-man  he 
is  held  exempt  from  liability  on  the  same  ground.  In  this  re- 
spect equity  follows  the  l:iw.^  The  parallel  between  the  rule  of 
equity  and  that  of  law  extends  further.  It  has  already  been 
shown  ^  that  the  question  whether  one  provisional  committee-man 
or  promoter  is  liable  upon  contracts  made  by  his  co-committee- 
men  or  promoters,  is  one  of  fact,  not  of  law.  The  same  rule  is 
applied  in  equity.  In  the  opinion  of  the  judges  to  the  lords  in 
the  leading  case  of  Bright  v.  Hutton,^  Mr.  Baron  Parke  said: 
"  All  the  questions  of  contributories  resolve  themselves  into  two 
simple  questions  of  fact :  1.  (by  far  the  most  frequent  in  occur- 
rence) Did  the  alleged  contributory  make,  or  authorize  to  be 
made,  the  contract  in  respect  of  which  he  is  called  upon  to  con- 
tribute, on  his  account  jointly  with  others?  or,  2.  If  any  one  or 
more  entered  into  the  contract  in  his  own,  or  their  behalf,  did  he 

*  Roberts'  Case,  3  DeG.  &  Sm.  205  name  was  so  inserted  and  advertised, 
(aflBrmed,  2  Mac.  &  G.  192).  but  wiio  did  not  expect  to  apply  for 
2  See  §  429,  pont.  shares,  or  attend  any  meeting  of  tiie 
8  Norris  u.  Cottle,  2  II.  L.  Cas.  647.  committee,  did  not  —  the  undertaking 
This  case  was  argued  before  and  de-  having  been  abandoned  —  become  lia- 
ciiled  by  Lord  Brougham,  the  only  law  blc  as  a  contributory  under  the  Wind- 
lord  in  town.     The  point  actually  de-  ing-Up  Acts  of  1848  and  1819;  but  the 
cided  was  that  one  who  had  consented  general  i)rlnciples  laid  down  fully  sus- 
to  have  his  name  inserted  in  the  list  tain  the  text. 
of     provisional   committee-men  of    a  *  Ante,  §  41G. 
proposed  railway  company  which  was  '  3  II.  L.  Cas.  341,  369. 
provisionally  registered,  and  whose 

299 


1  Thomp.  Corp.  §  427.]     promoters. 

agree  to  indemnify  the  person  or  persons  contracting  in  part  or 
in  all  against  the  consequences  of  that  contract?  "  This  view 
was  ad()[)ted  by  the  lords,  and  in  so  doing  they  were  obliged  to 
overrule  the  judgment  of  Lord  Brougham  in  Hutton  v.  UpfiU/ 
though  they  endeavored  to  avoid  doing  so  directly. 

§  427.  Further  of  the  English  Rule. —  There  is  still  another 
view  of  the  liability  of  this  class  of  promoters.  The  pro- 
visional committee  of  a  projected  company  is  one  thing,  and  the 
company  itself,  when  formed,  is  another.  Being  a  member  of 
a  provisional  committee  of  a  company  does  not  at  all  make  a 
person  a  member  of  the  company.  A  man  may  actively  inter- 
est himself  in  building  a  railway  in  his  neighborhood,  and  yet 
take  no  shares  in  the  company  and  not  be  liable  for  any  of  its 
debts.  On  the  other  hand,  he  may,  by  contract,  make  himself 
liable  for  the  expenses  incurred  in  floating  the  company.  But 
these  would  be  debts  of  the  committee,  or  of  individual  mem- 
bers of  it,  and  not  debts  of  the  company,  unless  the  company 


1  2  H.  L,  Cas.  674.  To  the  same 
effect  is  Carrick's  Case,  1  Simon  (n. 
8.)  505.  In  his  very  able  work  on 
Partnership  (4th  ed.  vol.  2,  p.  1375), 
Sir  Nathaniel  Lindley,  enumerates  the 
following  cases  as  being  overruled, 
directly  or  indirectly,  by  Bright  v. 
Hutton,  3  H.  L.  Cas.  341 :  "  Upfill's 
Case,  2  H.  L.  Cas.  674;  Ex  parte  Bes- 
ley,  2  Mac.  &  G.  176.  This  case  oc- 
curs three  times  in  the  books.  It  was 
first  decided  by  Vice -Chancellor 
Knight  Bruce  (3  DeG.  &  S.  224),  who 
held  that  Besley  was  not  a  contribu- 
tory. This  decision  was  appealed 
against  and  reversed  by  Lord  Cotten- 
ham  (2  Mac.  &  G.  176).  But  the  ap- 
peal was  reheard  by  Lord  Truro,  who 
affirmed  the  decision  of  the  Vice- 
Chancellor  (3  Mac.  &  G.  287).  The 
case  as  reported  in  3  DeG.  &  S.  224, 
and  3  Mac.  &  G.  287,  is  still  law. 
Bright's  Case,  1  Sim.  (n.  s.)  602.  This 
was  reversed  on  appeal  (3  H.  L,  Cas. 
341).  Ex  parte  Brittain,  1  Sim.  (n.  s.) 
284,  decided  reluctantly  on  the  author- 

300 


ity  of  Upfill's  Case.  Hole's  Case,  3 
DeG.  &  S.  241,  decided  on  the  author- 
ity of  Ex  parte  Besley,  2  Mac.  &  G. 
176.  Markwell's  Case,  5  DeG.  &  S. 
528,  decided  on  the  authority  of  Up- 
fill's Case,  but  after  the  decision  of 
Bright  V.  Hutton.  It  cannot,  how- 
ever, be  considered  law.  See  Ex  parte 
Capper,  1  Sim.  (n.  s.)  178,  and  Car- 
rick's Case,  1  Sim.  (n.  s.)  505.  Ex 
parte  Morrison,  15  Jur.  346,  and  20 
L.  J.  Ch.  296,  decided  on  the  authority 
of  Upfill's  Case,  and  in  effect  overruled 
by  Sharp  &  Jenner's  Case,  1  DeG.  M. 
&  G.  565.  Nicholay's  Case,  15  Jur. 
420,  decided  on  the  authority  of  Up- 
fill's Case.  Ex  parte  Sichell,  1  Sim. 
(n.  s.)  187,  decided  reluctantly  on  the 
authority  of  Upfill's  Case.  Ex  parte 
Studley,  14  Jur.  539.  This  case  was 
very  briefly  reported,  but  it  seems  in- 
consistent with  such  cases  as  Hall's 
(3  DeG.  &  S.  214),  Stocks  (22  L.J. 
(Ch.),  218),  and  Carrick's  (1  Sim.  (n. 
8.)  505." 


THEIR    CONTRACT    LIABILITY.       [1  Thomp.  Coip.   §  428. 

had,  by  ratification  (creditors  assenting)  made  itself  liable  for 
them.  Until  the  debt  is  so  assumed  by  the  company,  with 
assent  of  the  creditor,  it  remains  the  debt  of  the  committee,  or 
of  the  members  of  the  committee  who  contracted  it,  and  not  its 
debt.  For  this  reason  provisional  committee-men  do  not,  on  the 
winding  up  of  the  company,  go  on  the  list  of  its  contributories, 
although  they  might  well  be  contributories  on  the  winding  up  of 
the  committee.^ 

§  428.  The  Eng-lish  Doctrine  Summed  up  by  Sir  Nathaniel 
tiindley.  —  Sir  Nathaniel  Lindley,  whose  work  is  entitled  to  the 
very  highest  consideration,  thus  sums  up  the  doctrine  of  the 
English  courts  on  this  subject:^  *' Upon  the  principles  which 
are  now  settled  to  be  applicable  to  the  case  of  an  abortive  un- 
registered company,  it  may  be  taken  :  1.  That  a  mere  subscriber 
to  or  allottee  of  scrip  in  an  abortive  company  is  not,  by  virtue 
of  his  subscription,  or  acceptance  of  scrip,  a  contributory  on  the 
winding  up  of  the  company,  whether  he  has  paid  his  deposit^  or 
not.*  2.  That  such  a  person  does  not  become  a  contributory  by 
being  one  of  the  committee  from  which  the  scheme  emanates, 
and  by  which  it  is  encouraged;  or,  in  other  words  by  being 
what  is  commonly  called  a  promoter  of  the  company.^  This 
holds,  even  although  he  may  have  subscribed  something  towards 

»  Besley's  Case,  3  DeG.  &  S.  224.  17  Sim.  157;  Ex  parte  Beardshaw,  1 
Though  this  case  was  overruled  by  the  Drew.  226.  See,  too,  Ex  parte  Wal- 
Lord  Chancellor  (2  Mac.  &  G.  176),  stab,  20  L.  J.  (Ch.)  58,  where  the  de- 
nothing  was  said  impugning  in  any  posit  had  been  paid  and  recovered 
way  the  force  of  the  observations  of  back. 

Vice  Chancellor  Knight  Bruce,  which  *  As  in  Hutton  v.  Thompson,  and 

we  have  in  substance  embodied  in  the  Norris  v.  Cooper,  3  H.  L.   Cas.  161; 

text.     The    reversal    was    upon    tlie  Ex  parte  Capper,  1  Sim.  (n.  s.)  178; 

ground  that  Besley  had  recognized  his  Carrick's    ca-e,    lb.     505;    Ex    parte 

liability,  and  had,  without  compulsion  Hirschel,  15  Jur.  942. 
and  with  his  eyes  open,  made  a  pay-  ^  Bright  v.  Hutton,  3  H.  L.  Cas.  341, 

ment  towards  lifjuidating  the  expenses  reversing  Bright's  case,  1  Sim.  (n.  s.) 

of    the    company.     Besides  the  case  602;  Norris  u.  Cottle,  2  H.  L.  Cas.  647, 

was  reheard   by  Lord  Truro,  who  re-  affirming  Ex  parte  Cottle,  2  Mac.  &.  G. 

affirmed  the  judgment  of    the    Vice  185.     See,  too,  Maitland's  Case,  3  Giff. 

Chancellor.     2  Mac.  &  G.  287.  28;  Ex  parte  Roberts,  2  Mac.  &  G.  192 

2  2  Lindley  on  Partnership,  1376-7,  and  14  Jur.  539,  note;  Ex  parte  Clarke, 

4th  ed.  20  L.  J.  (Ch.)  14. 


3  As  in  Maudslay  and  Field's  case, 


301 


1  Thomp.  Corp.  §  439.]     tromoters. 

the  expenses,  if  he  do  so  under  the  erroneous  supposition  that 
he  was  liable  for  them,^  or  merely  for  the  sake  of  peace  ;  ^  so, 
although  he  may  have  concurred  in  the  appointment  of  persons, 
and  have  incurred  liability  by  so  doing,  if  all  liability  on  that 
score  is  at  an  end;  ^  so,  although  he  may  have  been  party  to  the 
appointment  of  a  managing  committee,  by  which  debts  still  un- 
paid have  been  incurred;  *  so,  although  his  name  may  have  been 
put  on  that  committee,  if  he  never  assented  to  join  it,  and  never 
acted  on  it.^  3.  That,  a  fortiori^  subscribers  to  and  promoters 
of  an  abortive  company  are  not,  as  such,  liable  to  be  made  con- 
tributories  on  its  winding  up,  if  they  never  have,  in  fact,  entered 
into  a  binding  agreement  to  take  shares.  Even  before  Upfill's 
Case  was  reversed,  this  pro[)osition  was  well  established.^  4. 
That  if  persons  are  actively  engaged  in  forming  a  company,  if 
they  act  as  a  body,  and  as  a  body  incur  debts  for  which  they 
are  all  liable,  if  not  directly,  at  all  events  as  between  each  other, 
then  they  form  a  company  or  association  which  may  be  wound 
up,  and  on  its  winding  up  they  will  be  contributories,  whether 
they  have  actually  subscribed  for  shares  or  not.'  5.  That  per- 
sons who,  without  being  actively  engaged  in  forming  a  company, 
agree  not  only  to  take  shares  in  it,  but  also  to  share  the  expenses 
incuri  ed  in  forming  the  company,  are,  on  its  winding  up,  liable 
to  be  made  contributories."  ^ 

§  420.  No  Action  at  Law  by  One  Promoter  against  the 
Others. —  It  is  familiar  law  that  one  partner  cannot  maintain  an 
action  at  Imo  agamst  one  or  more  or  all  of  his  co-partners  for 

1  Ex  parte  Besley,  3  Mac.  &  G.  287,  Compare  Spottiswoode's  Case,  6  DeG. 
affirming  Besley's  Case,  3  DeG.  &  S.      M.  &  G.  345. 

224;  Hall's  Case,  3  DeG.  &  S.  214.  «  See  Matthew's  Case,  3  DeG,  &  S. 

2  Ex  parte  Stocks,  22  L.J.  (Ch.)  234;  Carmichael's  Case,  17  Sim.  163; 
218;  Hall's  Case,  3  DeG.  &S.  214;  Car-  and  Ouious's  Case,  1  Sim.  (n.  s.)  394. 
rick's  Case,  1  Sim.  (x.  s.)  505;  Ex  '  Norbury's  Case,  5  DeG.  &S.  423; 
parte  Roberts,  1  Drew.  204;  Tanner's  Sharp  and  Jamas'  Case,  1  DeG.  M.  & 
Case,  5  DeG.  &  S.  182.  G.  565;  Pearson's  Executors'  Case,  3 

3  Carrick's  Case,  1  Sim.  (n.  s.)  DeG.  .M.  &  G.  241;  Sp  ittiswoode  and 
505;  Ex  parte  Hight,  1  Drew.  485.  Amsiuck's  Tase,  6  DeG.  M.  &  G.  345. 

■*  Tanner's  Case,  5  DeG.  &  S.  182.  See   also   Bowen  &  Martin's   case,  22 

^  Ex  parte  Roberts,  1  Drew.  204.  L.  J.  (Ch.)  856,  and  Ex  parte  Apps, 
See,  too,  Ex  parte  Osborne,  15  Jur.  72.      18  L.  J.  (Ch.)  409. 


*  See  the  last  note. 


302 


THEIR    CONTRACT    LIABILITY.        [1  Thomp.  Coip.   §  429. 

anything  due  him  on  account  of  the  partnership  business.  The 
remedy  is  in  equity.^  It  was  formerly  held  in  England  that  if  a 
number  of  persons  associate  themselves  together  for  the  pur- 
pose of  promoting  a  corporation  on  the  terms  that  each  is  to 
have  an  interest  in  it,  they  become  partners  in  the  enterprise; 
and  if  one  of  them  give  his  services  in  furtherance  of  the  com- 
mon object  and  the  others  fail  to  indemnify  him,  he  cannot 
maintain  an  action  at  law  against  one  of  them  —  for  instance, 
against  the  chairman  of  the  committee  —  for  such  indemnity. 
If,  however,  the  defendant  personally  undertook  to  pay  the 
plaintiff,  the  result  would,  of  course,  be  different. ^  Accordingly, 
where  a  solicitor  had  rendered  services  at  the  request  of  the 
committee  of  a  company  organized  for  building  a  bridge,  had 
taken  shares  in  the  company,  not  in  his  own  name,  but  in  the 
name  of  a  man  of  straw,  whom  he  had  procured  to  act  for  that 
purpose,  it  was  held  that  he  could  not  recover  at  law  in  an  action 
against  the  chairman  of  the  committee  for  the  value  of  his  serv- 
ices, for  the  reason  that  he  really  was  a  partner  in  the  concern.^ 
But  one  who  had  entered  into  a  contract  to  perform  work  and 
furnish  materials  with  a  committee  associated  together  for  the 
purpose  of  obtaining  an  act  of  Parliament  for  making  a  turn- 
pike road,  was  not  precluded  from  maintaining  such  an  action  by 
the  fact  that,  subsequently  to  such  contract,  he  became  a  share- 
holder in  the  company ;  though  it  would  prevent  him  from 
recovering  for  the  valne  of  any  services  rendered  subsequently 
to  the  time  when  he  became  a  shareholder.*  So,  if  a  person 
who  is  an  inventor  of  a  scheme,  gets  gentlemen  to  act  as  a  com- 
mittee, with  the  intention  of  forming  a  joint-stock  company  to 
carry  it  into  effect,  and  he  himself  acts  as  secretary  to  the  com- 
mittee, he  cannot  maintain  an  action  against  one  of  tlie  com- 
mittee  for  his  services  as  such  secretary,  or  for  his  trouble,  or 
for  journeys  which  he  undertakes  in  furtherance  of  the  execu- 
tion of  the  scheme,  unless  upon  express  evidence  that  the 
member  of  the  committee  whom  he  sues,  employed  him.'^     The 

1  Milburn  v.  Codd,  7  Barn.  &  Cres.  3  Tyrwh.  209 ;  s.  c.  I  Cromp.  &  Mees. 
419;  s.  c.  1  Man.  &  Ry.  238.  33;  Wii.son  v.  Curzon,  5  Ry.  Cas.  24. 

2  Holmes    v.    Higgins,    1    Barn.  &  ^  Goddard  v.  Hodges,  supra. 
Cres.    74;    s.    c.     (a  better  report;  2  *  Lucas  v.  Beach,  I  Man.  &  G.  417. 
Dow.  &  Ry.  10(J;  Goddard  v.  Hodges,  '''  Parkin  v.  Fry,  2  Car.  &  P.  311. 

303 


1  Thomp.  Corp.  §  430.]     promoters. 

reader  must  continually  beur  in  mind,  in  considering  these  earlier 
English  cases,  that  they  related,  not  to  full  corporations,  but  to 
joint-stock  companies,  which  wore  par-tnerships.  For  instance, 
the  doctrine  in  a  case  above  cited  ^  would  not  apply  to  an  Ameri- 
can corporation;  for  such  a  corporation  is  so  far  distinct  from 
each  of  its  stockholders  that  there  is  no  obstacle,  even  in  a  court  of 
law,  to  an  action  by  the  stockholder  against  the  corporation,  to  re- 
cover money  advanced  to,  or  the  value  of  services  rendered  for  it. 
The  retider  will  also  note  that  the  English  courts  subsequently 
settled  upon  the  rule  that  persons  do  not  make  themselves ^«r^/ie/s 
by  the  mere  act  of  joining  together  to  organize  a  corporation."^ 

§  430.  Unless    under  Exceptional  Circumstances.  —  From 

what  has  preceded,  it  is  obvious  that  special  circumstances  may 
exist  under  which  one  promoter  of  an  abortive  company  will  be 
entitled  to  maintain  an  action  against  the  others  for  contribution. 
Thus,  if  promoters  have,  by  special  agreements,  among  them- 
selves, rendered  themselves  jointly  liable,  and,  in  order  to  dis- 
charge this  liability  one  of  them  has  paid  the  whole  debt,  he  will 
be  entitled  to  contribution  from  the  others.^  Thus,  A.,  B.  and  C. 
hired  premises  of  D.,  for  the  purpose  of  a  company,  of  which  A., 
B.  andC.  were  the  contract  committee-men.  The  company  hav- 
ing suffered  the  rent  to  g-et  in  arrear,  D.  sued  and  recovered  it  of 
A.  It  was  held  that  A.  could  maintain  separate  actions  at  law 
against  B.  and  C.  for  contribution.*  Again,  twelve  provisional 
committee-men  became  jointly  liable  for  a  debt  contracted  in  re- 
spect of  the  scheme.  One  of  them  having  paid  the  whole  debt, 
it  was  held  that  he  was  entitled  to  maintain  actions  at  law  against 
the  others.  The  measure  of  his  recovery  against  each  was  an 
aliquot  part  of  the  sum  of  money  he  had  been  compelled  to  pay, 
in  respect  of  the  original  number  of  the  joint  undertakers,  with- 
out reference  to  the  number  of  them  liable  at  law  at  the  time  of 
payment.  Accordingly,  although  two  of  them  had  died,  he  could 
recover  against  each  of  the  survivors  but  one-twelfth,  and  not 
one-tenth,  of  the  sum  he  had  paid.^     Again,  where  a  party  had 

^  Lucas  V.  Beach,  supra.  ■*  Boulter  v.  Peplow,  9C.  B.  493. 

2  Ante,  §  421.  s  Batard  v.  Hawes,  2  El.  &  Bl.  287. 

3  2  Lindley    on    Partnership,  1022,  See  to  the  same  effect,  Edger  v.  Knapp, 
4th  ed.  7  Jur.  583. 

304 


THEIR   CONTRACT   LIABILITY.       [1  Thomp.  Corp.  §  431. 

incurred  and  paid  costs,  in  bringing  actions  against  committee- 
men to  recover  the  amount  of  his  claim,  at  the  request  of  another 
committee-man,  it  was  held  that  he  might  recover  such  cost  from 
the  committee-man  at  whose  instance  he  sued,  under  the  common 
count  for  money  paid.^  Of  course,  a  promoter  may  make  him- 
self liable  to  another  by  express  contract ;  and  such  contracts 
have  frequently  been  before  the  courts.  A  contract  for  the  pay- 
ment of  money  when  an  incorporated  company,  which  the  parties 
propose  to  form,  shall  be  organized,  requires  a  legal  incorpora- 
tion before  the  money  can  be  considered  due.  The  condition  is 
not  satisfied  by  any  proceedings  or  arrangements  preliminary  to 
filing  the  certificate  directed  by  the  statute;  nor  can  the  courts 
sustain  an  action  upon  such  agreement,  commenced  before  such 
filing,  upon  the  ground  that,  in  virtue  of  any  inchoate  arrange- 
ments, the  parties  are  to  be  deemed  a  corporation  de  facto,  as 
among  themselves.^ 

§  431.  Liability  of  Committee-inan  Subsequently  Join- 
ing.—  From  the  rule  that  provisional  committee-men  are  not 
liable  as  partners,  it  would  seem  to  follow,  as  a  matter  of  course, 
that  one  who  joins  such  a  committee  would  not  be  bound  by 
contracts  entered  into  by  its  members  before  his  joining,  al- 
though such  contracts  were  in  part  executed  subsequently  to  that 
time;  and  it  has  been  so  held.^  Even  an  incoming  partner 
would  not  be  so  bound,  unless  the  circumstances  were  such  as  to 
indicate  an  adoption  of  the  contract  made  by  the  prior  part- 
ners—  as  where  a  firm  of  carriers  enter  into  a  contract  for  the 
carriage  of  goods  which  is  in  part  executed  after  the  incoming 
of  another  partner,*  Accordingly,  where  it  appeared  that  the 
defendants  were  members  of  a  provisional  committee  which  had 
entered  into  a  certain  contract  with  the  plaintiff  for  the  supply 
of  certain  machinery  before  M.,  another  defendant,  had  joined 
the  committee  ;  that,  under  this  contract,  the  plaintiff  was  to  have 

1  Bailey  v.  Macaulay,  13  Ad.  &  El.  5  Ry.  Cas.  105;  11  Jur.  845;  IG  L.  J. 
(N.   8.)  815;  s.c.  Thomp.  Off.    Corp.       ((4.  B.)  410. 

136.  *  Helsby  v.  Mears,  5  Barn.  &  Ores. 

2  Childs  V.  Smith,  55  Barb.  (N.  Y.J  504.  Compare  Woods  v.  Russell,  5 
45,  53.  Barn.  &  Aid.  942;    Story  on  Part.,  § 

3  Beale  v.  Mouls,  10  Q.  B.  f)7G;  s.  c.  152. 

20  305 


1  Thomp.  Corp.  §  432.]     promoters. 

monthly  payments  on  account  of  the  work  while  in  progress, 
not  exceeding  the  price  of  the  work  done  and  materials  supplied 
for  the  time  being;  that,  after  M.  joined  the  committee,  several 
payments  were  made  on  account  of  the  work,  and  several  altera- 
tions were  made  in  the  work  with  his  sanction;  and  that  he 
took  an  active  part  in  superintending  the  workand  making  exper- 
iments with  it ; —  it  was  held  that  M.  was  not  liable  to  the  plaintiff, 
either  upon  the  special  contract,  or  upon  a  common  count  for 
goods  sold  and  delivered.  If  the  property,  in  the  successive 
portions  of  the  machinery,  passed  from  time  to  time  by  the  pay- 
ments on  account  while  the  work  was  in  progress,  it  passed 
according  to  the  terms  of  the  special  contract,  to  which  M.  was 
not  a  party. ^ 

§  432.  Members  of  Provisional  Committee  not  Liiable  for 
Contracts  of  Managing  Committee.  —  During  the  era  of  railway 
building  in  England,  the  business  of  promoting  or  organizing 
railway  companies,  assumed  a  somewhat  definite  form.  Without 
undertaking  to  state  in  detail  the  process  which  was  generally 
gone  through,  it  may  be  said  that  the  first  step  was  to  raise  a 
provisional  committee.  After  the  scheme  had  somewhat  crys- 
tallized, this  provisional  committee  appointed  what  was  termed  a 
managing  committee.  This  managing  committee  necessarily  in- 
curred expenses;  and  when  the  scheme  became  abortive,  and 
there  were  no  corporate  funds  out  of  which  these  expenses  could 
be  paid,  it  became  a  question  what  person  should  pay  them.  It 
was  held  that  the  provisional  committee  was  not,  ex  vi  termini, 
responsible  for  expenses  incurred  by  the  managing  committee.* 
The  managing  committee  were  not  the  agents  of  the  provisional 
committee,  but   of  the  future    company.''     In  actions  against  a 

^  Beale  u.  Mouls,  swpra.     Compare  carrying  on  the  scheme,  but  the  reso- 

Whitehead  v.  Barron,  2  Mood.  &  Hob.  lutiou  did  not  authorize  any  less  num- 

248;  Maudslay  V.  LeBlanc,  2  Car.  &  P.  ber  than  the  whole  of  the  committee 

409,   n;  Ex  parte   Peele,    6  Ves.  602;  to   act,  a  provisional  committee-man 

Ex  parte    Jackson,    1    Ves.    Jr.    131 ;  was  not  bound  by  a  contract  made  by 

Clarke  v.   Spence,  4  Ad.  &  El.  448.  six  of   such  managing  committee,   in 

2  Williams  v.  Piggott,  2  Exch.  201.  the  absence  of  proof  of  an  intention 

'  Where  the  provisional  committee  on  his  part  to  be  bound  by  a  less  num- 

appointed  a  managing    committee  of  ber  than  the   whole.     Brown  v.   An- 

eight  persons,  and   directed  them  to  drew,  13  Jur.  938;  s.  c.  18  L.  J.  (Q.  B.) 

take  the  most  energetic  measures  for  153. 

306 


THEIR    CONTRACT   LIABILITY.       [1  Thomp.  Corp.   §  434. 

member  of  the  provisional  committee,  on  a  contract  entered  into 
by  the  managing  committee,  it  was  a  question  of  fact  for  the 
jury,  whether  the  provisional  committee,  in  appointing  the  man- 
aging committee,  gave  them  power  to  pledge  the  credit  of  the 
members  of  the  provisional  committee.^ 

§  433.  Judgment  and  Satisfaction  against  One  may  be 
Pleaded  in  Abatement  by  Another.  —  If  judgments  are  obtained 
in  separate  actions  against  persons  who  are  jointly  liable,  for  the 
same  subject-matter,  a  satisfaction  of  one  judgment  is,  in  effect, 
a  satisfaction  of  both.^  If,  therefore,  separate  actions  are 
brought  against  several  committee-men  of  a  projected  corpora- 
tion upon  a  demand  for  which  they  are  jointly  liable,  and, 
pending  such  actions,  one  of  them  pays  the  whole  debt  and 
the  costs  in  the  suit  against  himself,  the  others  will  be  entitled 
to  have  the  proceedings  against  them  stayed,  without  payment 
of  costs. ^  "  A  plaintiff  who,  to  multiply  his  chances  of  success, 
brings  several  actions  for  a  joint  debt  against  the  co-contractors, 
has  no  reason  to  complain,  if  his  success  in  obtaining  payment 
of  the  debt  and  costs  in  one,  deprives  him  of  the  right  to  recover 
costs  in  the  other  actions."  *  Joint  contractors  are  entitled, 
under  this  rule,  to  be  discharged  without  payments  of  costs,  even 
after  verdict;  if  judgment  against  them  has  not  been  signed. 
Nor  does  it  make  any  difference  that  separate  evidence  may  be 
necessary  to  establish  the  joint  liability  of  each  of  the  committee- 
men separately  sued  ;  for  it  frequently  happens,  where  actions  on 
joint  contracts  are  brought  against  several,  that  it  is  necessary 
to  establish  the  case  against  each  by  separate  evidence.' 

§  434.  Evidence  to  Charge  Committee-men.  —  In  order  to 
charge  a  member  of  such  a  committee,  it  is,  therefore,  necessary 
to  show  that  the  contract  on  which  he  is  sought  to  be  charged 
was  his  personal  contract,  entered  into  by  him  in  person  or  by 

'  Williams  v.  Piggott,  2  Exch.  201;  ^  Newton  v.  Blunt,  3  C.  B.  675. 

s.  c.  5  Ry.  Cas.  544;  12  Jur.  313;   17  L.  *  Bailey  v.    Ilaynes,    15   Ad.   &   El. 

J.  (Exch.)  196.  (N.  s.)   533,    538,  per  Lord   Campbell, 

2  Turner  v.    Davies,    note    (1),    2  C.  J. 
Wms.    Saund.    148,     148a,     6th    ed.;  *  Bailey   v.  Haynes,    15  Ad.  &  El. 

Bailey  v.  Haynes,  15  Ad.  &  El.  (n.  s.)  (n.  s.)  533. 
333,  539. 

307 


1  Thomp.  Corp.  §  43+.]     promoters. 

some  one  thereto  authorized  by  him.  When  we  say  expressly 
authorized  by  him,  we  mean  that  the  term  shall  be  understood 
in  its  legal  sense,  merely  distinguishing  the  case  from  one  where 
the  law  arbitrarily  implies  the  party's  assent  to  the  contract, — 
as  that  a  husband  shall  pay  for  necessaries  purchased  by  his  wife, 
or  a  father  for  those  purchased  by  his  minor  child.  It  is  not  to 
be  inferred  from  the  expression  used  that,  in  order  to  charge  the 
defendant,  there  must  be  evidence  of  a  contract  in  writing,  or 
even  one  made  b}'  express  words.  A  man  may  speak  by  his 
conduct  as  effectively  as  by  words  or  writings.  Therefore,  the 
liability  of  a  committee-man  on  a  contract  made  by  some 
other  members  of  the  committee,  may  be  proved  by  his  acts 
alone.  A  wide  field  of  inquiry  is  thus  opened  up,  as  to  what  acts 
of  such  a  committee-man  will  constitute  evidential  facts  to  be 
considered  by  a  Jury  on  the  question  of  his  liability  on  contracts 
made  by  other  members  of  his  committee,  or  by  a  sub-committee 
appointed  by  the  committee  of  which  he  was  a  member;  and, 
further,  what  acts  will  be  sufficient  evidence,  as  matter  of  law,  to 
entitle  the  plaintiff  to  recover.  Upon  these  points  the  cases  of 
Reynell  v.  Lewis,^  and  Bailey  v.  Macaulay,^  are  very  instruct- 
ive. The  fact  that  such  a  committee-man  attended  a  meeting 
at  which  a  resolution  to  incur  certain  expenses  was  passed,  will 
obviously  be  sufficient  to  charge  him,  unless  it  appear  that  he 
dissented  from  the  resolution.  On  the  other  hand,  where  a 
member  of  such  acommittee  had  left  the  room,  before  the  passage 
by  such  committee  of  a  resolution  by  which  the  members  of 
the  committee  incurred  certain  liability,  it  was  held  that  he 
was  not  bound  to  contribute  towards  the  liquidation  of  such 
liability.^  A  member  of  such  a  committee,  who  takes  part  in 
its  affairs  so  as  to  make  himself  individually  liable  for  contracts 
on  a  given  day,  does  not  thereby  make  himself  liable  for 
services  rendered  after  that  time,  where  the  order  was  given 
before  it.* 

1  15  Mees.  &  W.   517;  s.  c.  Thomp.      Case,  3  DeG.  &   S.  224;  s.  c.  2  Mac.  &. 
OfE.  Corp.,  p.  121.  G.  176,  and  3  Mac.  &  G.  287. 

2  13  Ad,    &  El.    (N.    8.)  815;  s.   c.  ^  Newton  v.   Belcher,  12  Q.  B.  921 ; 
Thomp.  Off.  Corp.,  p.  136.  s.  c.  6  Ry.  Cas.   38;   13  Jur.  253;  18  L. 

3  Robert's  Case,   3  DeG.    &  S.  205  J.  (Q.  B.)  53. 
(affirmed,  2  Mac.  &  G.  192) ;  Besley's 

308 


THEIR    CONTRACT   LIABILITY.       [1  Thomp.  Coip.   §   435. 

§  435.  Illustrations.  —  In  Riley  v.  Packington,^  the  defendant  was 
associated  with  one  Whitehead  and  others  in  the  formation  of  a  public 
company.  At  a  meeting  of  the  projectors,  of  which  the  defendant  was 
chairman,  a  resolution  was  passed  that  the  prospectus  then  read  and 
marked  with  the  initials  of  the  defendant,  be  approved  and  printed  for 
private  circulation.  At  a  subsequent  meeting,  of  which  also  the  defend- 
ant was  chairman,  a  further  resolution  was  passed  "  that  the  prospectus, 
as  altered  and  marked  with  the  chairman's  initials,  be  approved  as  the 
prospectus  of  the  company,  and  that  the  same  be  printed  for  circulation 
and  advertised,  at  the  discretion  of  Mr.  Whitehead,  as  early  as  possible." 
The  plaintiffs  were  employed  by  Whitehead  to  print  the  prospectus,  who 
showed  them  the  initialed  copy,  saying  that  he  was  authorized  by  the 
defendant  to  get  it  printed.  The  printed  prospectus  was  deUvered  at  the 
office  of  the  company,  and  was  adopted  and  circulated  by  the  defendant. 
There  was  an  arrangement,  not  communicated  to  the  plaintiffs,  between 
the  defendant  and  Whitehead,  that  all  the  expenses  of  forming  the  com- 
pany, down  to  the  allotment  of  shares,  were  to  be  born  by  Whitehead. 
These  facts  were  held  to  be  some  evidence  from  which  a  jury  might  infer 
that  Whitehead  was  authorized  to  pledge  the  defendant's  credit  for  the 
printing.  -  -  -  -  In  a  case  decided  before  the  law  had  become  set- 
tled in  Reynell  v.  Lewis,^  it  appeared  that  a  prehminary  association  was 
formed  for  the  purpose  of  estabhshiug  a  joint-stock  company,  of  which 
A.  was  named  president,  and  B.  vice-president.  They  both  signed  an 
agreement  to  subscribe  for  a  certain  number  of  shares,  and  to  pay  a  de- 
posit of  £5  per  share  when  shares  to  the  amount  of  £50,000  should  have 
been  subscribed  for ;  and  they  attended  two  meetings  of  the  association. 
The  company  was  never  in  fact  formed.  At  the  request  of  the  secretary 
of  the  proposed  company,  C.  did  certain  work  for  it.  In  an  action  by  C. 
against  A.  and  B. ,  it  was  held  that  the  jmy  were  properly  told  to  con- 
sider (1),  whether  there  had  been  a  direct  contract  by  A.  and  B.  with 
C. ;  (2),  whether  A.  andB.  were  members  of  a  partnership  ;  (3),  whether 
they  had  held  themselves  out  as  such  to  C.^  -  -  -  -  Where  it  was 
proved  that  A.  had  contributed  to  the  funds  of  a  building  society,  had 
been  present  at  a  meeting  of  the  society,  and  a  party  to  a  resolution  that 
certain  houses  should  be  built,  it  was  held  that  this  made  him  liable  to  an 
action  for  work  done  in  building  these  houses,  without  proof  that  he  had 
any  actual  interest  in  them  or  in  the  soil  on  which  they  were 
built.*     .    ...     On  the  other  hand,  it  has  been  ruled  that  a  member 

1  L.  R.  2  C.  P.  536.  '  Wood  v.  Duke  of  Argyll,  6  Man. 

2  15  Mees.  &  W.  217;   8.  c.   Thomp.      &  G.  928. 

OfiE.  Corp.  121.  *  Braithwaite  v.   Skofleld,  9  Bam. 

&  Cres.  401. 

309 


1  Thornp.  Corp.  §  435.]     promoters. 

of  a  voluntary  association  formed  for  building  a  meeting-house,  who  is 
appointed  one  of  the  building  committee,  and  acts  as  such  in  making 
contracts  and  procuring  materials  for  building,  is  not  individually  liable 
to  pay  for  ser\nccs  for  which  he  thus  contracts  with  one  who  knows  his 
agency,  and  who  knows  that  the  contract  is  for  the  benefit  of  the  asso- 
ciation, and  that  it  is  entered  into  by  the  defendant  merely  as  such 
agent.'  -  -  -  -  A  company  was  projected  to  work  a  patent  for  the 
filtration  and  supply  of  water.  Whilst  the  bill  for  the  formation  of  the 
company  was  before  the  House  of  Commons,  the  engineer,  upon  the  sug- 
gestion of  counsel,  employed  a  builder  to  erect  a  cistern  for  testing  the 
process  of  filtration,  for  which  the  patent  had  been  granted.  The  de- 
fendant was  one  of  the  provisional  committee,  and  the  cistern  was,  with 
his  consent,  erected  on  land  in  his  occupation.  This  was  held  no  evi- 
dence to  warrant  the  jury  in  finding  that  the  order  for  the  work  was  given 
by  the  defendant's  authority,  or  that  the  work  was  done  upon  his 
credit. 2  The  fact  that  a  provisional  committee-man  has  admitted  his 
liability  to  pay  for  certain  services  rendered  for  the  company  is  not  con- 
clusive of  his  liability,  especially  where  it  appears  that  unfounded  opin- 
ions were  at  the  time  prevailing  respecting  the  liability  of  provisional 
committee-men, 3  On  like  grounds,  a  person  who  had  attended  a  meeting 
of  the  provisional  committee,  of  a  provisionally  registered  railway  com- 
pany, but  took  no  part  in  its  proceedings,  and  expressly  desired  that  his 
name  might  not  be  inserted  in  the  books  of  the  company,  was  not  a  con- 
tributory, although  he  had  paid  a  sum  of  money  under  protest,  upon  as- 
certaining that  his  name  would  be  given  to  the  creditors  of  the  company.* 
But  where  one  who  had  acted  as  a  member  of  a  provisional  committee, 
had,  in  ignorance  of  the  fact  that  his  application  to  have  his  name  with- 
drawn from  the  committee  had  been  acceded  to,  made  a  payment  towards 
liquidating  the  debts  of  the  company,  this  was  held  such  a  recognition  of 
his  liabihty  as  would  warrant  his  name  being  put  on  the  hst  of  contribu- 
tories.^  -  -  -  -  In  a  joint  action  by  engineers  for  work  done  by  them 
for  a  railway -company,  of  which  the  defendant  was  a  provisional  com- 
mittee-man, in  order  to  prove  the  joint  employment  of  the  plaintiffs  by 
the  defendant,  the  plaintiff  put  in  evidence  all  the  resolutions  of  the 
provisional  committee  at  meetings  at  which  the  defendant  was  present 
and  in  which  he  took  part.     The  defense  was  that  the  plaintiffs,  or  one 

1  Abbott  V.  Cobb,  17  Vt.  592;  post,  *  Hall's  Case,  3  De  G.  &  Sm.  214. 

§        .  *  Besley's   Case,  3    Mac.    &    G.  287 

2  Patricks.  Reynolds,  1  C.  B.   (n.  (reversing  s.  c.  2  Mac.  &  G.  176;   and 
8.)  727.  affirming   s.   c.   3  De   G.  &   Sm.  221). 

3  Newton  v.  Belcher,  12  Q.  B.  921;  Compare  Hole's  Case,  3  DeG.  &  Sm. 
8.  c.  C  Ry.  Gas.  38;  13  Jur.  253;   18  L.  241. 

J.  (Q.  B.)  58. 
.310 


THEIR    CONTRACT    LIABILITY.       [1  Thomp,   Corp.   §  437. 

of  them,  was  to  hold  the  defendant  harmless,  and  that  he  was  to  be  free 
from  all  personal  liabihty.  In  order  to  establish  this  defense,  the  de- 
fendant offered  in  e\ddence  a  resolution  to  the  effect  that  the  engineers 
were  to  be  emplo^^ed,  that  they  were  to  give  the  usual  bond  of  in- 
demnity to  the  members  of  the  provisional  committee,  and  that  such 
bond  should  be  immediately  ready  for  execution  so  as  to  free  them  from 
all  responsibiUty.  Neither  the  plaintiffs  nor  the  defendant  were  present 
at  the  meeting  at  which  this  resolution  was  passed,  and  the  plaintiffs 
had  no  notice  of  it.  It  was  held  that  it  was  properly  admitted  in  evi- 
dence against  the  plaintiff's  objection ;  since  it  would  not  appear  until 
the  conclusion  of  the  case,  whether  the  case  was  rested  upon  the  actual 
authority  given  by  the  defendant  to  the  other  members  of  the  provisional 
committee,  or  to  persons  acting  by  their  authority,  or  whether  the  de- 
fendant himself  had  personally  employed  the  plaintiffs.  That  being  so, 
the  defendant  had  a  perfect  right  to  show  that,  by  the  terms  under  which 
he  and  the  other  members  of  the  provisional  committee  had  entered  into 
the  undertaking,  they  were  not  to  incur  any  personal  responsibility,  and 
that  such  a  member  was  not  to  have  the  power  of  binding  the  rest.^ 

§  436.  Evidence  to  Charge  the  Associates  in  an  Abortive 
Corporation. —  Where  the  evidence  was  that  all  the  members  of 
an  association  which  failed  to  become  incorporated,  authorized 
the  prosecution  of  the  contemplated  work,  and  knew  that  it  was 
actually  being  carried  forward  under  the  direction  of  the 
appointed  agents  of  the  association ;  that  the  executive  com- 
mittee was  authorized  by  the  association  to  prosecute  the  work 
as  its  agent,  and  for  that  purpose  to  employ  laborers ;  that  the 
contract  which  was  the  subject  of  the  action  was  made  by  two 
members  of  .the  committee,  professedly  in  behalf  of  the  asso- 
ciation ;  and  that  the  whole  committee,  havine;  knowledire  of 
that  fact,  ratified  the  agreement,  by  making  payment  from  time 
to  time  in  accordance  with  it, —  it  was  held  that  there  was  evi- 
dence to  charge  them  all.^ 

§  437.  Liability  of  Associates  for  Expenses  of  Agents  Ap- 
pointed to  Procure  Cliarter.  —  Where  certain  persons  associated 
for  the  purpose  of  instituting  a  bank,  and  at  a  meeting  held  by  them,  at 
which  all  were  not  present,  appointed  an  agent  to  attend  the  legislature 
for  the  purpose  of  procuring  a  charter,  and  the  agent  attended  accord- 
ingly and  failed  to  obtain  the  charter,  it  was  held  that  all  the  associates 

'  Rennie  v.  Clarke,  5  Exch.  292.  ="  Johnson  v.  Corser,  34  Minn.  355. 

311 


1  Thomp.  Corp.  §  440]     promoters. 

were  jointly  liable  to  the  agent  for  his  services.  "  If  any  of  them  were 
not  present,  they  tacitly  agreed  to  be  bound  by  the  acts  and  doings  of 
those  who  attended ;  especially  as  they  did  not  afterwards  protest  or 
object  against  those  acts.  Properly  the  jury  might  well  infer  their  as- 
sent to  an  act  so  necessary  to  the  accomplishment  of  their  views,  as  the 
appointment  of  an  agent  to  sohcit  from  the  legislature  a  charter  of  in- 
corporation ;  and  from  such  assent  a  moral  obligation  arises  to  make  a 
reasonable  compensation  for  the  time  and  labors  of  the  agent  so  ap- 
pointed." ^ 

Article  II.  Liability  to  Subscribers. 

Section  Section 

4r40.  Liability  to  subscribers  for  their  447.  Release  by  contract  of  right  to 

deposits  where  the  undertaking  recover  deposits. 

proves  abortive.  448.  Construction  of  such  a  contract — 

441.  Grounds  of  recovery  at    law   in  agreement   to    execute    future 

such  cases.  agreement. 

442.  Illustration.  449.  "What  committee-men  are   liable. 

443.  Grounds  of  recovery  in  equity.  450.  Action  at  law  against  promoters 

444.  Remedy  in  equity  lost  by  laches.  for  deceit. 

445.  Equity  repels  actions  brought  for  451.  Measure  of  damages  in  such  ac- 

barratrous  purposes.  tions. 

446.  In  returning  deposits,  breach  of      452.  Remedy  in  equity,  of  sharetaker 

trust  to  prefer  particular  share-  against  promoters  for  fraud, 

holders.  453.  Measure  of  recovery  in  equity. 

§  440.  liiability  to  Subscribers  for  their  Deposits  where  the 
Undertaking  Proves  Abortive.  —  A  person  who  has  paid  his 
money  for  shares  in  a  company  which  never  comes  into  exist- 
ence, or  towards  a  scheme  which  is  abandoned  before  it  is  car- 
ried into  execution,  has  paid  it  on  a  consideration  which  has 
failed,  and  he  may  recover  it  back  in  an  action  at  law  as  so  much 
money  had  and  received  to  his  use,  unless  it  can  be  shown  that 
he  has  consented  to,  or  acquiesced  in  the  application  of  the 
money  which  the  directors  or  managers  of  the  enterprise  have 
made  ;  ^  and  he  may  maintain  a  bill  in  equity  for  the  same  pur- 
pose.^    There  is  sound  reason  in  placing  the  liability  for  the  ex- 

1  Sproat  V.  Porter,  9  Mass.  300,  82;  Ward  v.  Lord  Londesborough,  12 
303.  C.  B.  254;  Vollans  v.  Fletcher,  1  Exch. 

2  Nockelst?.  Crosby,  3 Barn.  &  Cres.  20;  Chaplin  v.  Clark,  4  Exch.  402. 
814;  s.  c.  Thomp.  OfE.  Corp.,  p.   148;  ^  Colt  v.    Woolaston,   2   P.    Wms. 
Ashpitel    V.  Sercombe,  5  Exch.    147;  153;  s.  c.   Thomp.  OfE.  Corp.,  p.  169; 
s.  c.  6  Ry.  Cas.  224;  19  L.  J.  (Exch.)  Green  v.  Barrett,  1  Simons,  45;  Will- 

312 


LIABILITY    TO    SUBSCRIBEKS.        [1  Thomp.  Coi'p.    §   441. 

penses  of  abortive  concerns  upon  the  promoters  of  them.  In  all 
such  projects,  some  expense  must  necessarily  be  incurred  before 
many  members  join  the  concern.  Obviously  this  expense  ought 
to  fall  on  those  who  enoi:aoje  and  undertake  to  float  the  concern, 
and  not  upon  those  who  advance  their  money  on  the  faith  of 
the  former  being  able  to  float  it.^ 

§  441.  Grounds  of  Recovery  at  Law  in  such  Cases. —  There 
are  two  grounds  of  such  a  recovery  at  law,  namely:  1.  The 
failure  of  the  project;  and  2.  The  want  of  acquiescence  in  the 
expenditure  of  the  money  paid  into  it.  These  are  both  ques- 
tions of  fact^  and,  in  such  an  action,  they  must  both  be  deter- 
mined for  the  plaintiff  to  enable  him  to  recover.  As  to  the  first 
ground  of  recovery,  that  the  undertaking  has  failed,  the  burden 


iams  V.  Page,  24  Beav.  654;  Grand 
Trunk  &c.  R.  Co.  v.  Brodie,  9  Hare, 
822;  Williams  v.  Salmond,  2  Kay  &  J. 
463  (where  the  principle  was  recog- 
nized, though  the  bill  was  dismissed). 
1  "  On  all  projects,"  said  Holroyd, 
J.,  "some  expense  must  be  incurred 
before  many  members  join  the  con- 
cern. Upon  whom  should  that  fall? 
Undoubtedly,  if  the  scheme  proves 
abortive,  it  should  fall  upon  the  orig- 
inal projectors,  and  not  upon  those 
who  advance  their  money  on  the  faith 
of  its  going  on."  Nockels  v.  Crosby, 
3  Barn.  &Cres.  814,  822.  To  the  same 
effect  were  the  views  of  Pollock,  C  B., 
in  Wallstab  v.  Spottiswoode,  15  Mees. 
&  "W.  501,  516.  On  similar  grounds, 
where  the  holdar  of  shares  (who  was 
not  an  original  allottee  of  them),  sold 
them  to  B.,  and  the  company  was 
afterwards  abandoned,  it  was  held 
that  the  vendee  could  recover  of  the 
vendor  the  money  advanced  on  them. 
The  decision  proceeded  on  the  prin- 
ciple that  since  the  shares  were  not 
salable  until  the  company  was  formed, 
the  vendor  sold  a  mere  nothing  —  an 
alleged  title  of  no  value.  "  If  he 
bought  of  another,"  said  Best,  C.  J., 
"he  may  sue  the  seller,  and  the  seller, 


the  party  from  whom  he  purchased,  till 
at  last  we  come  to  the  original  pro- 
jectors, and  in  getting  at  them  a  great 
service  will  be  done."  Kempson  v. 
Saunders,  4  Biug.  5;  s.  c.  12  Moore, 
44.  A  case  is  found  where  the  pro- 
visional directors  of  a  railway  com- 
pany covenanted  with  a  land  owner  to 
pay  him  £3,000  for  all  damages  which 
might  be  done  to  his  land  by  the  con- 
struction of  a  proposed  railway  (in 
case  an  act  of  Parliament  should  be 
passed  authorizing  it),  and  he  in  turn 
covenanted  to  convey  to  the  company 
the  land  which  they  might  require  for 
their  road,  at  a  given  price  per  acre. 
An  act  of  Parliament  was  passed,  but 
the  road  was  not  built,  and  conse- 
quently the  damages  for  which  the 
£3,000  were  to  be  paid  were  not  done 
to  the  land ;  but  yet  it  was  held  by 
Parke  and  Piatt,  BB.,  that  the  £3,000 
must  be  paid;  Pollock,  C.  B.,  on  the 
other  hand,  thought  that  the  building 
of  the  road  was  a  condition  precedent 
to  the  liability  for  the  damages.  Bland 
V.  Crowley,  6  Exch.  522.  Compare 
Webb  V.  Direct  London  and  Ports- 
mouth R.  Co.,  9  Hare,  129  (reversed 
on  appeal,  1  DeG.  Mac.  &  G.  521). 

313 


1  Thomp.  Corp.  §  4:43.]     promoters. 

of  proof  is  on  the  plaintiff;  as  to  the  second,  that  the  plaintiff 
has  not  consented  to,  or  acquiesced  in,  the  application  of  his 
money  which  has  been  made,  the  burden  is  on  the  defendant ; 
since,  in  the  absence  of  all  proof  on  this  point,  such  acquies- 
cence will  not  be  presumed.  On  familiar  grounds,  these  questions 
are  to  be  determined  by  the  jury,  unless  the  evidence  arises 
wholly  out  of  documents,  when  they  are  to  be  determined  by 
the  court.  If  a  case  arises  in  which  there  is  evidence  on  the 
first  ground  of  recovery,  namely,  that  the  undertaking  has 
proved  abortive,  and  no  evidence,  either  for  the  court  or  for  the 
jury,  that  the  defendant  has  acquiesced  in  the  use  of  his  money 
which  has  been  made,  then  it  is  not  a  misdirection  for  the  judge 
to  leave  out  of  view  the  second  ground  of  recovery,  namely, 
want  of  acquiescence,  and  to  tell  the  jury  that  if  the  project  has 
been  abandoned  as  abortive,  the  plaintiff  is  entitled  to  a  return 
of  his  deposit. 1  The  principle  of  these  cases  is  that  the  ex- 
penses of  an  abortive  company  are  to  fall  upon  the  promoters, 
and  not  upon  persons  who  subscribe  for  shares  therein.  There 
is  no  obstacle  to  the  recovery  of  moneys  so  paid  by  a  sub- 
scriber in  an  action  at  law  ;  for,  although  an  action  at  law  will 
not  lie  by  one  partner  against  another  in  respect  of  a  partnership 
demand,  as  already  pointed  out,^  yet  even  in  England,  where 
joint-stock  companies,  when  fully  formed,  were  deemed  no  more 
than  extensive  partnerships,  it  has  been  held  that  one  who  sub- 
scribes for  shares  in  a  proposed  company,  does  not,  so  long  as  it 
remains  a  mere  project,  become  a  partner,  or  even  a  quasi-part- 
ner  with  the  promoters  of  it.^  And  this  is  in  conformity  with 
the  rule  elsewhere  stated,  that  a  partnership  is  not  created  by  a 
mere  agreement  to  organize  a  partnership;*  and  the  same  prin- 
ciple  has  been  substantially  ruled  in  Massachusetts,  where  it  is 
held  that  the  stockholders  of  an  abortive  corporation  are  not 
partners,  and  not  liable  as  such  for  the  debts  of  the  company.'^ 

§  442.  Illustration.  —  Where  a  scheme  for  establishing  a  tontine. 
was  put  forth,  stating  that  the   money  subscribed  was  to  be  laid  out  at 

1  Ashpitel  V.  Sercombe,  5  Exch.  ^  Walstab  v.  Spottiswood,  15  Mees. 
147;  s.  c.  6  Ry,  Cas.  224;  19  L.  J.  &  W.  501;  s.  c.  15  L.  J.  (Exch.)  193. 
(Exch.)  82.  *  Ante,  §  421. 

2  Ante,  §  429.  '  Fayu.  Noble,  7  Cush.  188. 

314 


LIABILITY    TO    SUBSCRIBERS.        [1  TllOmp.  Corp.   §  44:4:. 

interest,  and,  after  some  subscriptions  had  been  paid  to  the  directors, 
in  whom  the  management  of  the  concern  was  vested,  but  before  any 
part  of  the  money  was  laid  out  at  interest,  the  directors  resolved  to 
abandon  the  project,  it  was  held  that  each  subscriber  might,  in  an  action 
for  money  had  and  received,  recover  the  whole  amount  of  the  money 
advanced  by  him,  without  the  deduction  of  any  part  towards  the  pay- 
ment of  the  expenses  incurred.^ 

§  443.  Grounds  of  Recovery  in  Equity. —  The  jurisdiction 
of  courts  of  equity  in  such  cases  is  sustainable  on  the  two  grounds 
ot  fraud  and  trust.  Where  the  undertaking  is  a  swindle  \n  its 
inception  —  a  bubble  —  courts  of  equity  will  sustain  a  bill  by  a 
shareholder  to  recover  back  moneys  which  he  has  paid  as  deposits 
on  his  shares,  on  the  ground  of  fraud. ^  But  where  this  is  not 
the  case  —  where  the  undertaking  is  bona  fide  in  its  inception, 
but  is  abandoned  on  account  of  the  intervention  of  obstacles 
which  render  it  impracticable  to  carry  it  out,  the  principle  holds 
that  the  managing  committee  are  not  the  mere  agents  of  the 
shareholders,  but  their  trustees,  and  liable  to  account  as  such.^ 

§  444.  Remedy  in  Equity  Lost  by  Liaches.  —  In  the  view  of 
Sir  John  Romilly,  the  nature  of  this  trust  is  such  that  while  time 

1  Nockels  V.  Crosby,  3  Barn.  &  C.  extracting  oil  from  English  radishes; 
814;  s.  c.  Thomp.  Off.  Corp.  148.  and  the  Master  of  the  Rolls  quaintly 

2  Colt  V.  WooUaston,  ^  P.  Wms.  said,  touching  the  promises  made  to 
154;  s.  c.  Thomp.  Off.  Corp.  169;  the  subscribers  and  the  performances 
Green  v.  Barrett,  1  Simons,  45.  Since  rendered,  —  "  It  is  giving  them  vioon- 
the  leading  case  of  Colt  u.  WooUaston  shine  instead  of  anything  real." 
(swpra),  it  has  not  been  doubted  that  ^  Williams  w.  Page,  24  Beav.  654, 
the  promoters  of  abortive  companies  661.  "  The  trust,"  said  Sir  John 
are  liable  in  equity  to  persons  who  Romilly,  in  giving  his  judgment  in  this 
have  been  induced  by  their  fraudulent  case,  "  no  doubt  is  a  peculiar  one; 
representations  or  advice  to  invest  such  as  it  is,  they  have  undertaken  to 
their  money  therein,  although  the  discharge  the  duties  of  it,  and  they 
equitable  action  proceeds  for  no  other  must  be  responsible  for  the  due  pcr- 
relief  except  the  establishment  of  a  formance  of  them.  In  my  opinion,  all 
mere  money  demand.  In  that  case  principle  and  authority  point  one  way 
the  simple  proposition  which  the  court  upon  this  subject,  and  I  should  con- 
ruled  was  that  a  bill  in  equity  lies  to  sider  myself  wasting  public  time  by 
recover  back  money  which  a  person  enunciating  and  enforcing  elementary 
has  been  induced,  through  fraud,  to  principles  which  are  familiar  to  every 
invest  in  a  "  bubble."  The  bubble  in  one  cognizant  of  legal  matters,  if  I 
question  consisted  of  a  scheme  for  were  to  enlarge  upon  this  subject." 

315 


1  Thomp.  Corp.  §  US.]     promoters. 

is  not  a  bar  to  a  suit  in  equity  for  an  account  by  the  mere  force 
of  the  statute  of  limitations,  yet  it  is  a  very  material  ingredient 
in  such  a  transaction,  which  courts  of  equity  will  not  fail 
to  consider,  in  view  of  the  discretion  which  they  have  al- 
ways exercised,  of  refusing  their  aid  in  the  enforcement  of  stale 
demands.  If  the  managing  committee  of  an  abortive  compan}^ 
have  three  or  four  years  before  the  filing  of  the  bill,  rendered 
their  accounts,  and  divided  the  money  in  their  hands,  without 
meeting  any  comment  or  remonstrance  on  the  part  of  share- 
holders, they  might  well  suppose  that  they  had  got  rid  of  the 
whole  matter,  and  might  have  lost  or  failed  to  preserve  vouchers 
and  evidence  on  the  subject  of  their  account.  In  such  cases,  all 
that  is  most  favorable,  ought  to  bo  presumed  in  their  favor. 
But,  on  the  other  hand,  if,  in  the  account  rendered  by  them, 
there  was  any  concealment  of  a  material  item,  or  if  they  sup- 
pressed any  important  circumstance  affecting  that  account,  it 
would  be  difficult  to  say  that  three  or  four,  or  even  more  years, 
of  acquiescence  in  an  account  so  rendered  would  bind  the  share- 
holders.^  Accordingly,  where,  although  there  was  no  direct 
concealment  by  the  managing  committee  of  an  abortive  railway 
company,  yet  there  was  no  publicity;  where  their  books  of  ac- 
count, though  open  to  the  inspection  of  shareholders,  were  not 
so,  in  all  cases,  without  difficulty  ;  and  where  there  had  been  an 
intervening  suit  agfainst  them  for  an  account  which  had  not  been 
disposed  of  until  two  and  a  half  years  before  the  bringing  of  the 
suit  in  judgment,  —  it  was  held  that  it  did  not  constitute  any  bar 
to  the  suit  in  equity  by  a  shareholder  for  an  account,  however 
justly  it  might  do  so  in  a  case  where  their  accounts  had  been 
rendered,  inspected,  not  objected  to,  and  no  error  or  defect  sub- 
sequently assigned  in  respect  of  them.^ 

§  445.  Equity  Repels  Actions  Brought  for  Barratrous 
Purposes. — It  has  been  held  that  a  court  of  equity  will  not 
lend  its  aid  to  the  undoing  of  such  a  scheme  of  fraud,  or  to  com- 
pel the  managers  of  an  abortive  company  to  account,  in  favor  of 
a  solicitor  who  has  instituted  the  suit  for  barratrous  'purposes,  if 

1  Williams  v.  Page,  24  Beav.  654,  language  of  Sir  John  Romilly  in  this 
662.    The  text  is  substantially  in  the      case. 

»  Ibid. 
316 


LIABILITY  TO  SUBSCRIBERS.     [1  Thomp.  Corp.  §  44:6. 

it  appears  that  the  nominal  plaintiff  ha?  been  indemnified  by  the 
solicitor  and  has  no  real  interest  in  its  prosecution.^  If,  how- 
ever, it  appears  that  the  plaintiff  has  an  interest  in  the  success  of 
the  suit,  although  small,  he  will  not  be  turned  out  of  court 
merely  because  it  is  being  prosecuted  under  a  barratrous  con- 
tract with  his  solicitor.^ 

§  446.  In  Returning  Deposits,  Breach  of  Trust  to  Prefer 
Particular  Shareholders. —  If  it  appears  that  the  managing 
committee  of  an  abortive  company,  in  restoring  to  the  share- 
holders what  remains  of  their  advances,  after  applying  what  is 
necessary  to  the  payment  of  those  expenses  which,  according  to 
the  scheme,  were  to  be  so  paid,  'prefer  certain  of  the  share- 
holders by  treating  their  advances  as  loans  and  paying  them  in 
full,  while  the  others  get  back  only  a  percentage  of  their  de- 
posits, the  transaction  will  be  undone  by  a  court  of  equity,  in  a 
bill  by  a  shareholder  for  an  account.^  Moreover,  if  it  appear 
that  such  deposits  were  paid  by  shareholders  who  advanced  them 
in  order  to  comply  with  the  standing  orders  of  the  House  of 
Lords,  which  required  a  certain  amount  to  be  paid  in  by  share- 
holders, before  a  bill  for  an  act  of  incorporation  would  be 
entertained,  this  would  make  the  transaction  still  worse ;  for  to 
treat  such  payments  as  a  loan  by  such  persons,  to  the  managers, 
under  color  of  a  subscription  to  the  stock  of  the  proposed  com- 
pany, would  be  to  sanction  a  fraud  upon  the  House  of  Lords.* 
The  governing  principle  of  these  cases  is  this ;  whoever  makes 
a  colorable  subscription  for  shares  in  a  company,  simply  for  the 
purpose  of  deceiving  others,  with  the  understanding  between 
himself  and  the  managers  that  he  is  not  to  be  held  to  the 
liabilities  of  a  subscriber,  will,  nevertheless,  beheld,  both  inlaw 
and  in  equity,  to  the  very  form  of  the  contract  he  has  made.^ 

1  Grand    Trunk     &c.    R.     Co.    v.  '  Williams  v.  Page,  24   Beav.  654, 

Brodie,  9  Hare,  822.  663. 

*  Williams  v.  Page,  24   Beav.  654,  *■  Ibid.;  Clement  v.  Bowes,  1  Drew. 

6G5.     As  to  the  necessary  parties  to  684,  688. 

such  a  bill,  see  this  case  and  also  *  Litchfield    Bank    v.    Church,    29 

Williams  v.  Salmond,  2  Kay  &  J.   4G3;  Conn.   137,   150;  Centre  Turnp.  Co.  v. 

Grand  Trunk  &c.    R.   Co.  v.  Brodie,  McConaby,  16   Serg.  &  R.  140;  Graff 

9   Hare,   822;    Clement    v.   Bowes,   1  v.   Pittsburgh  &c.  R.   Co.,  31  Pa.  St. 

Drew.  684.  489;  White  Mountains  R.  Co.  v.  East- 

317 


1  Thomp.  Corp.  §  447.]     promoters. 

And  if  the  managers  of  the  company  give  effect  to  the  fraudu- 
lent agreement,  by  restoring  moneys  which  the  Bubscriber  has 
advanced  in  pursuance  of  it,  they  will  be  subject  to  account  for 
the  same  in  equity  to  those  whose  rights  have  been  prejudiced 
by  the  transaction.^ 

§  447.  Release  by  Contract  of  Right  to  Recover  Deposits. — 

Applicants  for  shares  in  English  railway  companies,  disabled 
themselves,  in  the  absence  of  fraud ,2  for  recovering  back  their 
deposits  at  law  by  signing  what  was  termed  the  *'  subscribers 
agreement  and  parliamentary  contract,"  which,  it  is  supposed, 
contained  provisions  to  the  effect  that  the  moneys  advanced  might 
be  expended  in  defraying  the  costs  of  the  undertaking  ;  and  where 
a  subscriber  agreed  to  sign  the  "subscribers  agreement  and  par- 
liamentary contract,"  and  the  scrip  certificate  which  he  received 
recited  that  he  had  done  it,  this  cut  off  his  right  to  sue  for  a  de- 
posit, the  same  as  an  actual  signing.^  So,  where  the  letters  allotting 
shares  to  subscril)ers  in  projected  railway  companies  stated  that 
the  deposits  required  to  be  paid,  would  be  applied  by  the  direct- 
ors in  the  payment  of  preliminary  expenses,  the  fact  that  such 
moneys  were  so  paid  would  be  a  defense  to  actions  by  subscribers 
to  recover  them  back.*  Some  questions  have  been  made  as  to 
the  manner  of  proving  the  contract  in  such  cases.  It  has  been 
held  that  it  was  not  necessary  for  the  plaintiff  to  show  that  he 
had  sent  a  letter  of  application  for  the  shares,  because  a  letter  of 
allotment  to  him  and  his  payment  of  the  deposit  after  the  receipt 
of  such  letter,  constituted  a  contract.^ 

man,  34  N.  H.  134;  Custar  v.  Titus-  although  35,000  shares  had  been  allot - 

Tille  Gas  Co.,  63  Pa.  St.  381,  386.     See  ted,  and  tb is  fact  was  not  coramuni- 

also   Miller   v.  Hanover  Junction  R.  cated  to  hira,  did  not  constitute  such 

Co.,  87  Pa.  St.  95;  post,  §1578.  a  fraud  as  would  avoid  his  contract 

1  That  arrangements  releasing  par-  and  entitle  him  to  recover  back  his  de- 
ticular  shareholders  other  than  fcono  posits.  Vane.v.  Cobbold,  1  Exch.  798. 
Jide  forfeitures  for  non-payment  of  ^  Clements  v.  Todd,  1  Exch.  268. 
calls,  are  void,  see  Hall's  Case,  L  R.  *  Jones  v.  Harrison.  2  Exch.  52; 
5  Ch.  707;  s.  c.  39  L.  J.  (Ch.)  730;  18  Willey  v.  Parratt,  3  Exch.  209. 
Week.  Rep.  1050;  23  L.  T.  (n.  s.)  331;  *  Chaplin  v.  Clarke,  4  Exch.  402. 
post,  §1511.e«  seq.  As  to  acts  in  pais  which  were  held  in. 

2  Atkinson  V.  Pocock,  1  Exch.  798.  sufDcient  to  prove  that  the  defendant 
The  fact  that  at  the  time  when  the  sub-  was  a  director,  see  Drouet  v.  Taylor, 
Bcriber    executed    the  deed,   deposits  16  C.  B.  670. 

had  been  paid  upon  only  18,160  shares, 
318 


LIABILITY  TO  SUBSCRIBERS.     [1  Thomp.  Corp.  §  449. 

§  448.  Construction  of  such  a  Contract — Agreement  to 
Execute  Future  Agreement.  —  When  a  person  applies  in  writ- 
ing for  shares  in  a  projected  undertaking,  and  in  his  application 
agrees  to  execute  any  agreement,  or  deeds  which  may  be  tendered 
to  him  for  that  purpose,  and  a  proper  and  lawful  agreement 
such  as  was  contemplated  in  his  letter  is  tendered  him  for  exe- 
cution, and  he  fails  or  refuses  to  execute  it,  he  will,  it  seems,  be 
bound  by  its  provisions  the  same  as  though  he  had  executed  it ; 
and  if  it  appears  that  the  money  he  has  paid  on  account  of  his 
subscription  has  been  expended  as  therein  authorized,  he  will  in 
the  event  the  project  becomes  abortive,  be  estopped  from  main- 
taininsr  an  action  to  recover  back  what  he  has  paid.  But  if  the 
agreement  tendered  to  him  for  execution  contain  provisions  not 
authorized  by  law,  it  will  not  have  this  effect.^ 

§  449.  What  Committee-men  are  Liable.  —  From  the  doc- 
trine that  promoters  and  provisional  committeemen  are  not 
partners,^  it  follows  that  where  such  a  committee  have  issued  a 
prospectus  for  sub;*criptions  to  the  capital  stock  of  the  proposed 
company,  and  subscriptions  have  been  sent  in,  and  the  company 
has  afterwards  proved  abortive,  the  subscribers  can  only  recover 
the  deposits  which  they  have  made  on  account  of  their  subscrip- 
tions, from  those  committee-men  who  received  them,  or  to  whose 
use  they  were  received.  The  fact  that  the  name  of  the  commit- 
tee-man, with  his  consent,  appeared  upon  a  prospectus  soliciting 
subscriptions  to  the  stock  of  the  proposed  company,  does  not 
make  him  so  liable.  In  short,  it  must  be  shown  that  he  got  the 
money.  In  the  absence  of  such  proof,  a  member  of  such  a  com- 
mittee whose  name  had  been  so  pubhshed,  who  had  attended  but 
one  meeting  of  the  committee,  at  which,  he  had  presided  as 
chairman,  but  at  which  he  dissented  from  the  proceedings,  was 
not  liable  in  an  action  by  a  subscriber  for  the  repayment  of  his 
deposit  money. ^ 

1  Ashpitel  V.  Sercomb,  5  Exch.  14;  the  English    rule   which    holds  pro- 

s.  c.  6  Ry.   Cas.  224;    19  L.  J.  (Exch.)  moters  and    provisional    coininittee- 

82.  men  not  liable  as  partners  —  a  rule 

"  Ante,  §  421.  which  has  been  productive  of  frequent 

3  Burnside  «.   Dayrell,  3  Exch.  224;  injustice  —  we  may  venture  to  ques- 

s.  c.  6  Ry.  Cas.  07 ;   19  L.  J.  (Exch.)  4G.  tion  the  soundness  of  the  above  appli- 

Without  venturing  a  criticism  upon  cation  of  it.     It  undertakes  to  distin- 

3iy 


1  Thomp.  Corp.  §  451.]     promoters. 

§  450.  Action  at  Law  against  Promoters  for  Deceit.  —  Per- 
sons who  biive  been  induced,  either  by  the  fraudulent  representa- 
tions or  conceabuents  of  promoters,  to  .subscribe  for  shares  in  a 
comi)any  and  pay  deposits  thereon,  have  another  remedy  aii^ainst 
them  in  an  action  at  hiw  for  damages  for  the  deceit.  This  action 
differs  from  those  considered  in  the  previous  sections.  It  is  not 
an  action  ex  contixictu,  proceeding  on  the  fiction  of  an  implied 
assumpsit^  for  so  much  money  had  and  received  by  the  defendant 
to  the  use  of  the  plaintiff,  but  it  is  an  action  of  tori,  the  object  of 
which  is  to  recover  the  damages  which  the  plaintiff  has  sustained 
by  reason  of  the  deceit  which  the  defendant  has  practiced  upon 
him.  Unless  the  company  prove  abortive,  an  action  ex  contractu 
would  not  lie  against  promoters  as  such :  for,  at  least  under  the 
present  plan  of  organizing  companies  in  England,  shares  are  not 
issued  until  the  organization  of  the  company  has  been  so  far  per- 
fected that  a  board  of  directors  has  been  constituted;  it  is  with 
this  board  of  directors  that  contracts  to  take  shares  in  the  com- 
pany are  made,  and  not  with  the  promoters.  If  the  fraudulent 
prospectus  which  induced  the  subscriber  to  take  shares  in  the  com- 
pany was  issued  by  the  promoters,  although  this  might  afford 
a  ground  for  maintaining  an  action  against  the  company  for  a 
rescission  of  the  contract,  yet  an  action  for  damages  for  a  deceit 
can  only  be  maintained  against  the  persons  who  have  actually 
been  guilty  of  it,  namely,  the  promoters.  Privity  of  contract 
would  not  be  necessary  to  support  such  an  action.  This  distinc- 
tion is  well  brought  out  in  a  leading  case,^  and  as  we  shall  recur 
to  it  again  in  considering  the  liability  of  directors  for  similar 
frauds,^  it  will  not  be  necessary  to  dwell  on  it  further  here. 

§  451.  Measure  of  Damages  in  Such  Actions.  —  If,  in  such 
an  action,  it  would  appear  that  the  shares  subscribed  for  never 
had  any  real  value,  the  measure  of  damages  would  be  the  money 

guish    Walstab    v.  Spottiswoode,    15  for  money  had  and  received  to   per- 

Mecs.  &  W.    501,   but  in  the  writer's  sons  who  have  subscribed  for  shares 

opinion  it  cannot  be  reconciled  with  in  them,  for  the  money  advanced  on 

that  case  or  with  the  earlier  case  of  their  shares. 

Nocljels   V.  Crosby,   3  Barn.   &  Cres.  ^  Gerhard  u.  Bates,  2  El.  &  Bl.  47G; 

814 ;  s.  c.  Thomp.  Off.  Corp.  148,  which  s.  c.  20  Eng.  L.  &  Eq.  129 ;  Thomp.  Off. 

hold,  broadly,  that  promoters  of  abor-  Corp.  158. 
live  companies  are  liable  in  actions  ^  post,  §  4030,  et  seq. 

320 


LIABILITY    TO    SUBSCRIBERS.        [1  Thomp.  Coi'p.    §   452. 

which  the  fraud  of  the  defendant  had  induced  the  plaintiff  to  part 
with  —  that  is,  the  money  which  he  had  paid  on  account  of  his 
shares.^  But  there  seems  to  be  no  doubt  that  if  the  shares  were 
really  worth  anything  when  bought,  the  defendants  ought  to  have 
credit  for  what  they  were  really  worth.  But  this  must  be  under- 
stood as  referring  to  their  real  value,  and  not  to  the  fictitious  and 
delusive  value  which  they  might  have  acquired  by  reason  of  the 
very  fraudulent  representations  which  induced  the  plaintiff  to 
purchase  them;  since  the  plaintiff,  knowing  the  falsity  of  these 
representations,  could  not  sell  the  shares  in  order  to  save  himself 
from  loss,  without  being  himself  guilty  of  a  fraud  of  the  same  na- 
ture as  the  one  practiced  upon  him.  It  is  obvious  that  such  a 
value,  based  upon  such  a  foundation,  could  not  be  looked  to  for 
a  moment  by  a  court  of  justice.  For  this  reason,  the  fact  that 
shares  put  upon  the  market  by  means  of  false  representations, 
such  as  would  be  sufficient  to  sustain  an  action  for  deceit  against 
the  promoters,  were  quoted  at  a  premium  on  the  stock  exchange, 
would  not  be  conclusive  of  their  value,  since  it  would  not  show 
a  real,  but  only  fictitious  and  delusive  value. ^ 

§  452.  Remedy  in  Equity  of  Sharetaker  against  Promoters 
for  Fraud.  —  Where  the  promoter  of  a  company,  together  with 
the  directors,  puts  forth  a  fraudulent  prospectus,  on  the  faith  of 
which  a  person  is  induced  to  purchase  shares  of  the  company,  he 
may  bring  a  bill  in  equity  against  the  company,  the  directors, 
and  the  promoter,  and  under  it  he  will  be  entitled  to  a  rescission 
of  his  contract.  If,  in  the  meantime,  the  company  is  ordered  to 
be  wound  up,  he  will  be  entitled  to  have  his  name  removed  from 
the  list  of  contributories,  and  to  have  an  account  of  the  moneys 
he  has  paid  to  the  company,  and  of  the  sums  he  has  received  as 
dividends,  with  interest  on  both  sides,  and  to  have  a  decree 
against  all  the  defendants  for  payment  to  him  of  the  balance  so 
found  due  him,  and  also  an  injunction  against  any  further  action 
against  him  for  calls. ^     Where  a  bill  in  equity  is  brought  under 

1  T>/ycros8  v.  Grant,  2  C.  P.  Div.  Cockbum,  on  the  same  question,  iM(^., 
469.  pp.  542-546. 

2  Twycross  v.  Grant,  2  C.  P.  Div.  ^  Kt-nt  v.  Freehold  Land  &c,  Co.,  L. 
469,  489,  judgment  of  Lord  Coleridge,  K.  4  Eq.  588.  In  Henderson  v.  Lacon, 
C.  J.     See    aso    the    views  of   Lord  L.    11.   5  Eq.  249,  similar   relief    was 

■j\  321 


1  Thomp.  Corp.  §  453.]     promoters. 

the  English  judicature  act,  1875,  in  the  nature  of  an  action  for 
deceit,  by  a  shareholder  in  a  company  against  the  promoter  of 
it,  seeking  to  recover  of  such  promoter  the  amount  which  the 
plaintiff  has  lost  by  investing  in  the  shares  of  the  company, 
which  investment  is  alleged  to  have  been  induced  by  the  fraud 
and  deceit  of  the  promoter,  the  plaintiff,  in  order  to  succeed,  it 
has  been  held,  must  make  out  his  action  by  proof  similar  to  that 
which,  under  the  old  practice,  was  required  in  an  action  for  deceit. 
He  must  prove  a  guilty  scienter  on  the  part  of  the  promoter.  On 
this  ground,  where  a  person  purchased  a  colliery  for  £16,000 
odd,  and  then  promoted  a  company  to  purchase  it  of  him,  and 
sold  it  to  the  company  for  £23,000  odd,  in  which  company  he 
became  a  managing  director,  the  fact  that  he  concealed  from 
those  whom  he  induced  to  take  shares  in  the  company  (among 
whom  was  the  plaintiff)  the  amount  which  he  actually  gave  for 
the  property,  was  held  by  Vice  Chancellor  Bacon  not  to  be  such 
a  fraud  and  deceit  as  would  support  a  bill  in  equity  by  the  share- 
holder against  him,  for  the  recovery  back  of  the  money  which  he 
had  been  thus  induced  to  part  with.  In  fact,  the  learned  judge 
could  not  see  that  the  transaction  was  not  perfectly  fair  and 
honest.^  This,  it  seems  to  the  writer,  was  a  perfectly  clear  case 
of  a  promoter  of  a  company  speculating  on  the  confidence  of  those 
whom  he  induced  to  join  in  the  proposed  venture.  Unless  the 
writer  is  greatly  deceived,  the  conduct  of  the  defendant  was  en- 
tirely obnoxious  to  the  doctrine  of  the  House  of  Lords  in  the  sub- 
sequent case  of  Erlanger  v.  New  Sombrero  Phosphate  Co.,^  and 
the  conclusion  of  the  judge  who  tried  the  case  does  not  do  credit 
to  his  perception  of  justice.  We  must,  in  any  event,  regard  this 
case  as  overruled  by  the  Court  of  Appeal  in  Twycross  v.  Grant. ^ 

§  453.  Measure  of  Recovery  in  Equity. —  A   promoter    par- 
ticipating in  the  fraud  of  his  personal  representative  is  liable  to 

granted    against    directors  of  a  com-  no  obstacle  to  the  bringing  of  a  bill  by 

pany    under     similar    circumstances,  the  company  for  the  relief  prayed  for. 
though  the  promoters  were  not  parties  ^  Craig  v.  Phillips,  3   Ch.  Div.  722. 

to  the  suit.     Compare  Fossv.  Ilarbot-  ^  3  App.  Cas.  1218  (affirmiug  s.  c.  5 

tie,   2  Hare,  461,  where   a  bill  of  two  Ch.  Div.  73) ;  4  Cent.  L.J.  510;   infray 

shareholders,  filed  on  behalf  of  them-  §  459. 

selves  and  all  other  shareholders,  was  ^  2   C.  P.    Div.  469.     See   §  456. 

dimissed,  on  the  ground  that  it  showed 
322 


LIABILITY    TO    THE    COMPANY.       [1  Thomp.  Coip.    §   4:56. 

the  bona  fide  subscribers,  not  only  for  their  due  proportion  of 
the  profits  he  himself  has  realized,  but  also  for  their  due  propor- 
tion of  the  fund  which  he  has  received  as  trustee  and  misappro- 
priated by  paying  it  over  to  those  privately  interested  with  him.* 

Article  III.  Liability  to  the  Company. 

Section  Section 

456.  Promoters  bound  to  disclose  what      467.  Illustrations. 

they  are  to   get  for  their  serv-      468.  Immaterial  that  directors  of   the 
ices.  corporatiou  knew  of  the  fraud. 

457.  Cannot  make  secret  profits  out  of      469.  Liability  for  fraudulent  represen- 

the  corporation.  tafions. 

458.  Purchasing  and  then  selling  to      470.  Illustration. 

corporations  at  a  higher  price.       471.  No  defense  that  the  corporation 

459.  Illustrations.  raised  the  money  on  an  illegal 

460.  No  liability  when  the  transaction  issue  of  its  stock. 

is  fully  disclosed.  472.  Grounds  of  recovery  against  aid- 

461.  Company  may  affirm  promoters'  ers  and  abettors. 

contract  and  enforce  it  for  its      473.  Whether  liability    of    managing 
own  benefit.  committee-man  in    equity  for 

462.  Not    necessary    to    rescind    the  fraud  is  joint  or  several. 

whole  transaction.  474.  Who    may    bring    the  action  in 

463.  Deduction  for  promoting  com-  equity. 

pany.  475.  Great  latitude  allowed  in  admis- 

464.  Compromise  of  suit  against  ven-  sion  of  evidence. 

dors.  476.  When  the  fiduciary  relation  be- 

465.  Measure  of  recovery  in  equity.  tween  the  promoter    and    the 

466.  Liability  at  law  for  secret  profits.  company  commences. 

§  456.  Promoters  Bound  to  Disclose  what  They  are  to  get 
for  their  Services. —  Where  persons  undertake  the  promotion  of 
a  company  for  the  purpose  of  purchasing  certain  existing  prop- 
erty, under  an  agreement  with  the  owner  and  proposed  vendor 
of  such  property,  by  which  they  are  to  receive  a  certain  com- 
pensation for  promoting  the  company,  theyare  bound  to  disclose 
to  those  whom  they  induce  to  become  members  of  the  company, 
what  their  compensation  is  to  be.  The  concealment  of  such  an 
agreement  is  a  fraud  on  the  company.  It  amounts  to  an  airree- 
ment,  by  the  vendor,  with  an  agent  of  an  intended  purchaser,  to 
give  him  a  bribe  to  betray  the  interests  of  his  principal. ^     If  the 

1  Getty  V.  Devlin,  70N.  Y.  504;  s.  c.  2  Rg  Hereford  &c.  Co.,  2   Ch.  Div. 

onformer  appeal,  54  N.Y.  403.    Contra,      621. 
Bent  V.  Priest,  10  Mo.  App.  543,  Lewis, 
P.  J.,  dissenting. 

323 


1  Thomp,  Corp.  §  457.]     promoters. 

promoters  of  a  company  conceal  such  an  agreement  from  those 
whom  they  induce  to  join  it,  and  the  company  proves  abortive, 
they  will  not  bo  allowed,  in  the  winding  up  of  the  company,  com- 
pensation for  their  service,  either  before  or  after  the  formation 
of  the  company.  The  reason  is  that  labor  performed  by  them 
in  inducing  persons  to  become  members  of  a  company  by  fraud- 
ulently concealing  from  them  a  certain  material  fact,  is  in  the 
eye  of  a  court  of  equity,  deemed  to  have  been  of  no  value  to  the 
company."  ^ 

§  457.  Cannot  Make  Secret  Profits  out  of  the  Corporation. — 

Promoters  of  a  corporation  occupy  a  fiduciary  relation  to  it  and 
have  no  right  to  derive  any  advantage  over  other  stockholders, 
without  a  full  and  fair  disclosure  of  the  transaction  ;  and  any  secret 
profits  which  they  acquire  through  promoting  the  corporation  must 
be  refunded,  and  may  be  recovered  in  equity  by  the  corporation  or 
its  legal  representative,  and  in  many  cases  at  law.^  Persons  who 
organize  a  corporation  for  the  purpose  of  working  certain  prop- 
erty are  bound  to  disclose  to  persons,  who  may  be  by  them  in- 
duced to  join  them  in  the  company,  what  the  vendors  of  the 
property  actually  received  for  it;  and  if,  by  deceiving  the  mem- 
bers of  the  company  as  to  the  actual  price  paid  for  the  property, 
or  if,  by  collusion  with  the  vendors  they  are  permitted  to  retain 
for  themselves  a  portion  of  the  purchase  money,  they  must  ac- 
count to  the  company  for  the  same  in  equity ;  *  or  the  company 

1  Ibid.  Getty  v.  Devlin,  54  N.  Y.  403;  s.  c.  70 

2  Chandlers.  Bacon,  30  Fed.  Rep.  N.  Y.  504;  Hichens  v.  Congreve,  1 
538.  The  following  cases  support  the  Euss.  &  M.  150;  Fawcett  v.  White- 
principle  that  such  profits  are  recover-  house,  1  Russ.  &  M.  132;  Beck  v. 
able,  though  some  of  them  were  ac-  Kantorowicz,  3  Kay&  J.  230;  St.  Louis 
tions  at  law:  Bagnall  v.  Carlton,  6  Ch.  &c.  Mining  Co.  v.  Jackson,  5  Cent.  L. 
Div.  371 ;  Whaley  &c.  Co.  v.  Green,  5  J.  317.  The  principle  is  found  era- 
Q.  B.  Div.  109;  Charlton  v.  Hay,  31  bodied  incases  without  number:  Tyr- 
L.  T.  (n.  s.)  437;  s.  c.  23  W.  R.  129;  rell  v.  Bank,  10  H.  L.  Cas.  26;  Kimber 
New  Sombrero  Phosphate  Co.  v.  Er-  v.  Barber,  L.  R.  8  Ch.  5G;  Puzey  v. 
langer,  5  Ch.  Div.  73;  Emma  Silver  Senier,  9  Wis.  370;  Pickett  v.  School 
Mining  Co.  ».  Grant,  11  Ch.  Div.  918;  District,  25  Wis.  551;  Cook  v.  Mill 
Densmore  Oil  Co.  v.  Densmore,  64  Pa.  Co.,  43  Wis.  433;  Re  Orphan  Asylum, 
St.  43;  McElhcnny's  Appeal,  61  Pa.  St.  36  Wis.  534.  It  is  more  fully  consid- 
188;  Simons  v.  Vulcan  Oil  &c.  Co.,  61  ered  hereafter  in  its  relation  to  direct- 
Fa,.  St.    202;  s.  c.  Thomp.  Off.  Corp.  ors.     Post,  ^38d9.  et  seq. 

172;  Emery  v.  Parrott,  107  Mass.  95;  ^  Bank  of  London  v.  Tyrrell,  5  Jur. 

324 


LIABILITY  TO   THE   COMPANY.       [1  Thomp.  Coi'p.  §  457. 

may  maintain  an  action  of  assumpsit  against  them  for  the  moneys 
so  secretly  reserved  to  themselves,  as  so  much  money  had  and 
received  to  its  use.^     In  like  manner,  persons  who  purchase  prop- 
erty and  then  organize  a  company  to   purchase  it  from  them, 
stand  in  a  fiduciary  position  towards  such  company,  and  must 
faithfully  state  to  the  company  all  material  facts  relating  to  the 
property,  which  would  influence  the  company  in  deciding  on  the 
desirability  of  purchasing  it.^     In  such  cases  the  owners  of  prop- 
erty who  desire  to  create  a  company  for  the  purpose  of  pur- 
chasing it  from  them  are  bound,  if  they  wish  to  make  a  contract 
which  will  stand,  to  nominate  independent  directors,  and  to  dis- 
close to  them  the  actual  facts. ^     The  principle  upon  which  courts 
of  equity  proceed  in  these  cases  is  a  very  familiar  one.     The  pro- 
moter  of  a  company,  like  its  directors,  is  deemed   to   sustain 
towards  the  members  of  the  company  the  relation  of  a  trustee 
towards  his  cestui  que  trust.     This  being  so,  he  will  not  be  per- 
mitted to  speculate  out  of  that  relation,  or  to  derive  secret  ad- 
vantages from  it.     He  is   bound  to   disclose  to  them   fully  all 
material   facts    touching    his   relation   to   them,  including   the 
amount  which  he  is  to  get  for  his  services  as  promoter,  usually 
called   "  promotion    money."     But,  plain  as  this  principle  is, 
great  difficulty  sometimes  arises  in  applying    it,  for  it  is    not 
always  easy  to  determine  at  what  time  this  trust  relation  springs 
into  existence.     If  the  contract  is  made  with  the  company,  or 
with  persons  acting  for  it,  before  he  assumes  towards  it  the  re- 
lation of  promoter,  then  he  is  not  bound  to  disclose  what  he  gave 
for  the  property ;  the  case  stands  precisely  like  a  case  of  bar- 
gain and  sale  between  two  strangers ;  and  if,  without  fraud,  he 
gets  a  good  bargain  from   the  company,  it  is  so  much  good  for- 
tune for  him.* 

(n.  8.)  924;  Emma  Silver  Mining  Co.  ^  Erlanger  v.  New  Sombrero  Phos- 

V.  Grant,  11  Ch.  Div.   918;  Atwool  v.  phate  Co.,  3  App.  Cas.  1218  (affirming 

Merryweather,  L.  R.  5  Eq.   464,  note;  s.  c.  5  Cli.  Div.  103)  ;  4  Cent.  L.  J.  510. 

Lydney  &c.  Co.  v.  Bird,  33  Cli.   Div.  3  md,,  3  ^pp,  Cas.  1229,  per  Lord 

85;  s.  c.  24  Am.  &  Eng.  Corp.  Cas.  23.  Penzance. 

Compare  Cumberland  Coal  &c.  Co.  v.  *  Gover's    Case,    1   Ch.    Div,    182. 

Sherman,  30  Barb.  (N.  Y.)  553.  See  also  Erlanger  v.  New  Sombrero 

1  Simons  v.  Vulcan  Oil  &c.  Co.,  61  Phosphate     Co.,    3    App.    Cas.    1218 

Pa.  St.  202;  s.  c.  Thomp.  Off.  Corp.,  p.  (aflirming  s.  c.  5Ch.  Div.  103);  4  Cent. 

172;  Whaley  &c.  Co.  v.  Green,  6  Q.  B.  L.  J.  610,  and  reversing  the  decision 

Div.  109.  of  Vice  Cliancellor  Malins,  5  Ch.  Div. 

325 


1  Thomp.  Corp.  §  458.]     promoters. 

§  458.  Purchasing  and  then  Selling  to  Corporation  at  a 
Higher  Price.  —  It  has  been  well  said:  "A  trustee  or  agent 
cannot  purchase  on  his  own  account  what  he  sells  on  account  of 
another,  nor  purchase  on  account  of  another  what  he  sells  on  his 
own  account;  .  .  .  and  \f  he  does  bo,  the  cestui  qui  trust  or 
principal,  unless,  upon  the  fullest  knowledge  of  all  the  facts, 
he  elects  to  affirm  the  act  of  the  trustee  or  agent,  may  repudi- 
ate it,  or  he  may  charge  the  profits  made  by  the  trustee  or  agent 
with  an  implied  trust  for  his  benefit.^  This  principle  is  undoubt- 
edly applicable  to  promoters  of  a  corporation  not  yet  in  esse,'^ 
though  it  may  be  difficult  in  strict  logic  to  work  out  such  a  case 
upon  the  theory  that  they  are  trustees  for  a  body  which  is  not 
in  esse  and  which  they  are  proposing  to  create.  Perhaps  the 
conclusion  is  better  worked  out  upon  the  reasoning  of  a  recent 
writer  of  reputation;  "  Before  any  shares  had  issued,  the  exist- 
ence of  the  company  was  a  fiction.  The  shareholders  really 
formed  the  company,  each  one  becoming  a  member  when  he 
took  his  shares.  While  the  contract  for  the  purchase  of  the 
property  was  nominally  in  force  from  the  time  of  its  approval 
by  the  board  of  directors,  yet  it  really  took  effect  only  after  the 
shareholders  had  taken  their  shares.  It  then  became  binding  on 
all  the  shareholders  collectively,  or,  in  other  words,  on  the 
company.  The  fraud  really  consisted  in  inducing  the  share- 
holders to  enter  into  this  contract  in  their  collective  capacity, 
and  in  using  the  funds  belonging  to  the  shareholders  collectively 
in  paying  the  purchase  price.  It  is  evident  therefore  that  the 
injury  to  the  shareholders  was  not  an  injury  to  the  collective  or 
corporate  interests,  and  that  the  company  was  the  proper  com- 
plainant." ^  It  seems,  however,  that  the  case  cannot  rest  upon 
the  idea  of  two  parties   to  a  trade  dealing  with  each  other  at 

91,  which  proceeded  on  the  authority  Cook  v.  Berlin  &c.  Co.,  43   Wis.  433; 

of  Cover's  Case.  Re  Orphan  Asylum,  36  Wis.  534. 

1  Parker  v.   Nickerson,  137  Mass.  ^  Society  v.  Abbott,  2    Beav.    559; 

487;  Parker  v.   Nickerson,  112  Mass.  New  Sombrero  Phosphate  Co.  v.   Er- 

195.     Cases  affirming  this    principle:  langer,  5  Ch.  Div.  73;  St.  Louis  &c.  II- 

Tyrrell    v.   Bank,   10   II.    L.  Cas.   2G;  Co.  v.  Tiernan,  37  Kan.  606;  Ke  Paper 

Kimber  v.  Barber,  L.  R.  8  Ch.  BG ;  Sim-  Box  Co.,  17  Ch.  Div.  471. 
ons  V.  Vulcan  Oil   &c.   Co.,  61   Pa.  St.  ^  Mor.   Priv.  Corp.,  1st  ed.    §  279; 

202;  Puzey    v.    Senier,    9   Wis.    370;  commenting  on  Now  Sombrero   Phos- 

Pickett  V.  School  District,  25  Wis.  551 ;  phate  Co.  v.  Erlanger,  5  Ch.  Div.  73, 
326 


LIABILITY    TO    THE    COMPANY.       [1  Thomp.  Corp.    §  458. 

arm's  length.  While  the  promoters,  at  the  time  of  making  the 
offer,  are  not  in  a  relation  of  trust  and  confidence  with  those  to 
whom  they  make  it,  yet  by  the  offer  itself  they  propose  to  enter 
into  such  a  relation  with  them ;  and  this  circumstance  puts  them 
under  the  same  duty  of  making  full  and  fair  disclosures  to  them 
which  they  would  be  under  if  the  trust  relation  had  already  been 
established.  There  is  a  depth  of  turpitude  in  the  concealment  of 
material  facts  under  such  cases,  analogous  to  that  which  exists 
where  material  facts  are  concealed  by  persons  intending  to  enter 
into  the  marriage  relation  with  each  other.  The  very  suo-o-estion 
made  by  associates  to  intending  subscribers  to  tlie  corporate 
shares  —  "  We  are  going  to  be  your  co-adventurers  in  this  enter- 
prise to  be  founded  and  prosecuted  for  the  common  profit  of 
all," — implies  an  obligation  on  their  part  to  deal  openly  and 
with  the  same  fidelity  which  is  demanded  where  a  trust  relation 
has  been  established.  If,  under  such  circumstances,  they  pur- 
chase property  at  one  price  and  sell  it  to  the  corporation  at  a 
greater  price,  concealing  from  its  members  the  fact  that  they  are 
making  a  profit,  according  to  all  ordinary  conceptions  of  honesty, 
each  member  has  the  right  to  say  that  he  has  been  cheated. ^ 


^  Sir  Nathaniel  Lindley,  in  his  work 
on  partnership,  after  stating  the  rule 
that  neither  partners  nor  directors  of  a 
company  are  at  liberty  to  make  indi- 
vidual profits  out  of  the  business  of 
the  concern  witliout  the  knowledge 
and  consent  of  tlieir  associates,  says: 
"The  rule  under  consideration  is  pe- 
culiarly applicable  to  transactions 
which  precede  the  formation  of  a  com- 
pany or  partnership.  Judging  from 
recent  events  and  disclosures,  nothing 
seems  more  common  than  for  a  person 
engaged  in  getting  up  a  company,  to 
obtain  for  the  company  property  of 
which  it  is  in  want,  and  try  and  make 
the  company  pny  him  more  than  he 
gave  for  it.  .Such  a  transaction  can 
never  stand.  There  may  undoubtedly 
be  a  valid  sale  to  a  company  by  persons 
engaged  in  getting  It  up;  .  .  . 
but  once  let  it  be  shown  that  the  al- 
leged  vendor    obtained   the  property 


when  it  was  his  duty  to  obtain  it  for 
the  company,  and  it  immediately  fol- 
lows that  he  can  not,  without  the 
fullest  disclosure  on  his  part,  charge 
the  company  with  more  than  he  actu- 
ally gave."  Lind.  Part.  (1st  ed.)  497. 
To  the  .same  effect  is  the  opinion  by 
Sir  John  Romilly,  M.  R  ,  in  Bank  of 
London  v.  Tyrrell,  5  Jur.  (x.  s.)  924, 
distinguishing  Great  Luxembourg  R. 
Co.  V.  Maguay,  25  Beav.  58(;.  Quoting 
this  language,  it  has  been  said  in  the 
Supreme  Court  of  Pennsylvania  by 
Mr.  Chief  Justice  Thompson:  "The 
principle  is  undoubtedly  the  same 
where  parties  profess  to  have  acted 
for  a  company  and  their  purchases 
have  been  accepted  on  representations 
that  they  were  made  for  it.  In  one  or 
the  other  of  these  attitudes,  namely,  as 
agents  of  a  company  to  be  gotten  up, 
or  as  having  professed  so  to  have 
acted,  tlie  jury  must  have  found  they 
327 


1  Thomp.  Corp.  §  459.]     promoters. 

It  is  immaterial  that  the  company  gets  the  property  at  a  good  bar- 
gain.  This  does  not  relieve  the  promoter  from  liability ;  for  the 
company  has  a  right  to  the  best  bargain  which  those  acting  in  its 
interest  as  iiduciaries  can,  with  full  knowledge  of  the  facts,  give 
it.^  Nor  is  it  an  answer  to  such  an  action  that  the  company  is  a 
fluctuating  body,  and  that  it  may  be  that  no  person  who  was  a 
member  at  the  time  of  the  transactions  is  a  member  at  the  time 
of  the  bringing  of  the  suit;  but  in  such  a  case  the  court  is  bound 
to  consider  the  company  as  having  a  perpetual  existence,  and  is 
not  at  liberty  to  go  into  the  question  of  what  individuals  it  is 
composed  of  .^ 

§  459.  Illustrations. — A  leading  case  on  this  subject  is,  with- 
out doubt,  that  of  Erlanger  v.  New  Sombrero  Phosphate   Co.  ,3  which 
went  thi-ough  the  various  courts  of  equity  in  England  to  the  House  of 
Lords,  by  which  House  it  was  decided  in  the  year  1878.     The  facts  of 
it  were  as  follows:     A  "  syndicate"   (or  partnership)  of   persons,  of 
which  one  Erlanger  was  at  the  head,  purchased  from  the  official  liqui- 
dator of  an  insolvent  company,  an  island  said  to  coutain  valuable  mines 
of  phosphates.     Erlanger,  who  managed  the  business   of  this  purchase, 
prepared   to   get  up  a  company  to  purchase  the  island   and  work  the 
mines.     He  named  five  persons  as  directors.     Two  were  abroad.     Of 
the  three  others,  two  of  the  proposed  directors  were  persons  entirely 
under  his  control,  and  were  fm-nished  by  him  with  the   shares  which 
were   set   forth  in   the   memorandum   of   association   as  necessary   to 
quahfy  for  the  office  of  director.     One  of  these  two  persons  appears  to 
have  acted  as  a  business  agent  of  Erlanger ;  the  other  was  his  friend. 
The  sale  of  the  island  was  made,  nominally,  by  a  person  who  really  had 
no  interest  in  the  island,  and  was  made  to   the  director   who  was  the 
business  agent  of  Erlanger,  and  who  appeared  as  the  purchaser  of  the 
company.     The  two  directors,  with  whom,  through  Erlanger' s  arrange- 
ment, a  third  person,  D.  (one  entirely  uninformed  on  the  subject  of  the 
orio-inal  purchase,  and  the  subsequent  sale),  was  associated,  assuming 
to  act  as  directors  of  the  company,  accepted,  on  its  behalf,  the  pur- 
chase.    A  prospectus  was  issued  giving  a  very   favorable   account  of 
the  scheme.     Many  persons  took  shares.     At  the  first  meeting  of  the 

stood.     In  either,  it  seems  clear,  they  ^  Beck  v.  Kantorowicz,  3   Kay  &  J. 

could  not  legally  retain  the  advance  230. 

price  on  the  property  which  they  re-  ^  Phosphate    Sewage  Co.  v.  Hart- 

ceived."     Simons    v.   Vulcan  Oil  &c.  mout,  5  Ch.  Div.  394,  441. 

Co  ,  (Jl  Pa.  St.  202,  218;  s.  c.  Thomp.  ^  3  App.    Cas.  1218    (affirming  s.  c. 

Off.  Corp.  172, 192.  5  Ch.  Div.  103) ;  4  Cent.  L.  J.  510. 
328 


LIABILITY   TO    THE    COMPANY.       [1  Thomp.  Corp.   §   459. 

shareholders,  D.  took  the  chair  as  a  director.  Being  questioned  by  a 
shareholder  as  to  certain  rumors  relating  to  the  purchase  of  the  island 
and  its  price,  on  the  first  sale,  and  then  on  its  resale  to  the  company, 
D.  avowed  his  want  of  knowledge,  but  declared  his  belief,  in  the  good- 
ness of  the  scheme.  The  real  circumstances  of  the  sale  and  purchase 
were  not  disclosed  to  the  shareholders,  but  the  purchase  of  the  island  was 
adopted  bj'  the  shareholders  then  present.  This  was  in  February  1872. 
In  June  of  the  same  year  there  was  a  general  meeting  of  the  share- 
holders. The  rumors  before  referred  to  had  become  stronger,  and  a 
committee  of  investigation  was  appointed,  on  the  receipt  of  whose  re- 
port in  the  following  August,  the  original  director's  were,  at  a  public 
meeting,  removed,  and  a  new  set  of  directors  appointed,  with  power  to 
take  measures,  etc.,  for  the  good  of  the  company.  The  new  directors 
entered  into  a  correspondence  with  the  vendors  of  the  island,  which 
terminated  in  nothing;  and  in  December,  1872,  a  bill  was  filed  to 
rescind  the  contract.  It  was  held  that  the  contract  could  not  be  sus- 
tained. Upon  these  facts  the  only  substantial  disagreement  between  the 
equity  judges  and  the  law  lords,  appears  to  have  been  on  two  points :  1. 
Whether  the  syndicate  represented  by  Baron  Erlanger  were  really  pro- 
moters of  the  company  at  the  time  of  the  transaction  sought  to  be 
undone,  in  the  sense  that  a  fiduciary  relation  existed  between  them  and 
the  company.  It  was  upon  this  point  that  Vice  Chancellor  Malins,  who 
first  heard  the  case,  dismissed  the  bill.  2.  Whether  the  company  had 
been  guilty  of  laches  in  not  sooner  instituting  proceedings  for  a  rescis- 
sion. Upon  this  ground  Lord  Cairns,  in  the  House  of  Lords,  thought 
that  the  bill  could  not  be  sustained.  With  these  exceptions,  the 
judges  and  law  lords  seem  to  have  been  agreed  that  it  was  a 
case  for  equitable  relief,  and  it  was  so  finally  decided.  -  -  -  - 
By  an  agreement  between  the  vendors  of  a  mine  and  G. ,  a  financial 
agent,  the  vendors  agreed  to  sell  the  mine  to  a  company  to  be  formed 
by  G.  for  its  purchase  at  a  price  named,  and  that  G.  should  receive 
20  per  cent,  of  the  amount  of  the  allotted  capital  of  the  company.  By 
a  second  agreement  between  P.,  the  agent  of  the  vendors,  and  D.  (a 
nominee  of  G.),  described  as  agent  of  the  intended  company,  P. 
agreed  to  sell  the  mine  to  the  company  for  the  price  mentioned  in  the 
former  agreement,  but  no  reference  was  made  to  the  percentage  which 
G.  was  to  receive.  Shortly  afterwards  the  company  was  formed ;  the 
memorandum  of  association  and  prospectus  which  were  settled  by  G. , 
stated  that  its  object  was  to  carry  out  the  second  agreement  and  for  the 
purchase  and  working  of  the  mine,  but  they  contained  no  reference  to 
the  first  agreement,  under  which  G.  received  the  amount  therein  agreed 
upon.  G.  secured  the  services  of  the  first  directors,  provided  theu- 
qualifications,  and  launched  the  company.     In  an  action  by  the  com- 

329 


1  Thomp.  Corp.  §  459.]     promoters. 

pany  to  make  him  liable  for  what  he  had  received  without  the  knowledge 
of  the  company,  it  was  held  that  G.  was  liable  for  the  amount  of  the 
secret  profit  which  he  had  made ;  also  that,  in  estimating  the  amount  of 
such  profit  he  was  entitled  to  be  allowed  all  sums  bona  fide  expended  in 
securing  the  services  of  the  directors  and  providing  their  qualification, 
and  in  payments  to  the  brokers,  to  the  officers  of  the  company  and  to  the 
public  press  in  relation  to  the  company.^  -  -  -  -  In  another  case 
the  facts  Avere  that  the  defendant  applied  to  one  W.  to  assist  him  in 
disposing  of  certain  lead  mines  which  he  held  under  an  agreement  for  a 
lease  for  twenty-one  years,  and  which  he  had  discovered  to  be  of  no  value. 
The  defendant  proposed  to  dispose  of  his  interest  for  £4,000,  and  the 
scheme  concocted  between  himself  and  W.  was,  that  a  company  should 
be  formed  for  the  purpose  of  purchasing  and  working  the  mines,  which 
were  to  be  sold  to  such  company  for  £7,000.  Of  this  money  the  de- 
fendant was  to  receive  £4,000,  while  the  remaining  £3,000  was  to  be 
paid  to  W.  for  his  assistance  in  getting  up  the  company.  This  agree- 
ment was  concealed  from  the  other  directors,  who  were  induced  to 
believe  that  £7,000  was  bona  fide  to  be  paid  as  purchase  money.  Shares 
in  the  proposed  company  were  sold,  on  which  £3,940  was  received. 
This  money  was  paid  over  to  the  defendant  and  600  shares  were 
registered  in  his  name  as  paid  up,  in  part  payment  of  the  £7,000,  the 
alleged  price  of  the  mines.  The  plaintiff  filed  a  bill,  on  behalf  of  him- 
self and  all  the  other  shareholders  of  the  company,  for  the  purpose  of 
compelling  repayment  from  the  defendant  and  W.  of  the  £3,940,  and  a 
return  of  the  600  shares  allotted  to  the  defendant.  Sir  W.  Page  Wood, 
V.  C,  held  that  this  "  was  a  simple  fraud,  and  nothing  else  ;"  that  W. 
was  in  duty  bound  to  inform  the  company  at  what  price  he  had  bought 
the  mines  ;  and  he  accordingly  granted  the  prayer  of  the  bill.  2  _  _  _  _ 
B.  &  C,  as  promoters  of  a  projected  corpoi*ation,  negotiated  an  agree- 
ment between  the  owners  of  certain  patents  and  the  corporation  (to  be 
thereafter  created)  by  which  B.  &C.  were  to  receive  3,750  shares  of  the 
capital  stock  of  the  new  company,  less  625  shares  which  they  were  to 
assign  to  another.  B.  &  C.  offered  the  public  an  option  to  take  stock 
in  the  new  company,  disclosing  the  purchase  of  the  patents  and  also 
the  fact  that  a  portion  of  the  stock  was  to  be  issued  to  the  former  owners 
in  part  payment,  but  not  informing  purchasers  that  they  were  to  have 
stock  on  any  different  terms  or  conditions.  It  was  further  agreed  be- 
tween B.  &  C.  and  the  owners  of  the  patents  that  B.  should  be  the  presi- 
dent and  C.  the  treasurer  of  the  corporation.  They  were  so  elected, 
and  placed  a  large  amount  of  the  stock  at  seven  dollars  a  share,  obtain- 

^  Emma  Silver  Mining  Co.  U.Grant,  2  ^twool    v.   Merryweather,  L.    R. 

11  Ch.  Div.  918.  5  Eq.  464,  note. 

3.30 


LIABILITY    TO    THE    COMPANY.       [1  Thomp.  Corp.    §   460. 

ing  their  own  for  nothing.  It  was  held,  in  a  suit  in  equity  by  a  receiver 
of  the  corporation,  that  they  must  refund  the  secret  profits  so  obtained. 
It  was  further  held  that  the  corporation,  or  its  legal  representative,  had 
the  right  to  elect  (1)  whether  the  shares  should  be  transferred  back  to 
it;  or  (2)  if  the  shares  had  been  sold,  whether  the  entire  profits  accruing 
from  the  sale  should  be  turned  over  ;  or  (3)  whether  it  should  be  paid 
the  sum  lost  by  reason  of  being  deprived  of  the  right  to  place  the  shares 
with  other  persons  at  sevdn  dollars  per  share.  ^  The  company,  or  its 
legal  representative,  had  the  right  to  say:  "  Although  you  may  have 
derived  no  profit  by  selling  the  shares,  yet  you  deprived  us  of  placing 
them  with  other  persons,  and  you  must  therefore  pay  us  the  sum  we 
have  lost  by  reason  of  our  being  deprived  of  the  right  of  placing  these 
shares  with  other  persons."  ^ 

§  460.  No  Liability  where  the  Transaction  is  Fully  Dis- 
closed.—  It  is  only  where  the  profit  is  secret  &n^  undisclosed 
from  the  other  parties  in  interest,  that  an  action  lies  to  recover 
it.  There  is  no  rule  of  law  or  equity  which  prevents  the  owner 
of  property  from  organizing  a  corporation  and  selling  his  prop- 
erty to  that  corporation  at  a  higher  price  than  he  paid  for  it, 
provided  he  discloses  the  facts.  He  is  bound  to  put  the  di- 
rectors of  the  purchasing  company  in  possession  of  full  inf orma- 

1  Chandler  v.  Bacon,  30  Fed.  Rep.  shareholder  in  such  company  from 
538.  his    contract    of    subscription     that 

2  i7)id. ;  citing  Carling's  Case,  1  Ch.  H.  ha^  secretly  agreed  to  give 
Div.  115,  126,  127;  McKay's  Case,  2  to  certain  directors  paid-up  shares 
Ch.  Div.  1;  De  Ruvigne's  Case,  5  Ch.  in  consideration  of  his  consenting  to 
Div. 306;  Nant-y-Glo  &c.  Co.,  v.  Grave,  act  as  a  director;  nor  that  he  had  se- 
12  Ch.  Div.  738.  The  concealment  of  cretly  given  to  two  ocher  persons, 
a  sub-agreement  oetween  the  promot-  who  afterwards  became  directors,  a 
ers  of  a  company  and  four  of  its  di-  sumof  money  in  bills,  in  consideration 
rectorsby  whichapartof  asumwhich,  of  their  procuring  a  credit  company 
according  to  the  articles  of  associa-  to  bring  out  the  railway  company  in 
tion,  is  to  be  paid  to  the  promoters  question.  The  reason  assigned  by 
for  their  labor  and  expense  in  getting  Lord  Romilly,  M.  R.,  for  so  h  >lding 
up  the  concern,  is  in  fact  paid  to  such  was  that  these  transactions  were  not 
directors,  vitiates  the  whole  contract  such  as  materially  to  effect  the  sue- 
between  the  company  and  promoters.  cess  of  the  undertaking,  and  hence  the 
Ex  parte  Williams,  L.  R.  2  Eq.  214.  fact  that  tliey  had  been  concealed  from 
But  where  11.,  a  contractor,  obtained  the  shareliolders  would  not  entitle 
from  one  of  the  cantons  of  Switzer-  him  to  say  that  if  he  had  known  of 
land  a  concession  for  building  a  rail-  them,  he  would  not  have  taken  the 
road,  which  concession  he  transferred  sliares.  Heymann  v.  European  &c.  R. 
to  a  company  formed  for  that  purpose,  Co.,  L.  R.  7  Eq.  154. 


it  was  held  no  ground  for  relieving  a 


33  L 


1  Thomp.  Corp.  §  463.]     promoters. 

tion,  so  that  they  can  exercise  an  independent  judgment  touching 
all  matters  which  affect  the  interests  of  the  company.'  The 
mere  fact  that  he  sells  to  the  company  and  afterwards  becomes 
a  director  in  it,  does  not  make  him  liable  for  the  profits  which  he 
acquired,  if  he  acts  openly  and  honestly  and  as  an  independent 
vendor.^ 

§  461.  Company  may  Affirm  Promoters'  Contract  and  En- 
force it  for  its  own  Benefit.  —  It  is  not  at  all  necessary  to  the 
right  of  the  company,  as  against  its  prompters,  to  recover  what- 
ever secret  profits  they  have  made  in  violation  of  their  trust,  that 
there  should  be  a  rescission  of  the  contract  between  them  and 
the  strangers  from  whom  they  may  have  purchased  the  prop- 
erty which  they  have  conveyed  to  the  company  at  an  enhanced 
price. ^  On  the  contrary,  it  is  within  the  pleasure  of  the  com- 
pany to  elect  to  disaffirm  and  recover  specifically  what  it  has 
parted  with,  where  such  a  recovery  can  be  had,  or  to  affirm  and 
compel  its  promoters  to  account  for  their  profits ;  *  and  if  part  of 
the  "promotion  money,"  as  it  is  termed  in  the  English  books, 
remains  unpaid,  the  company  may  recover  in  an  action  at  law 
against  the  vendors,  as  money  belonging  to  the  company,  and  not 
to  its  promoters.^ 

§  462.  Not  Necessary  to  Rescind  tlie  Whole  Transaction. — 

It  is  not  necessary  for  the  company,  when  it  comes  into  exist- 
ence, to  rescind  the  whole  transaction.  It  may  affirm  the  trans- 
action in  so  far  as  it  is  honest,  and  disaffirm  it  in  so  far  as  it  is 
fraudulent  and  asainst  its  risfhts.^ 


1  Erlanger  v.  New  Sombrero  Phos-  ^  Whaley  &c.  Co.  v.  Green,  5  Q.  B. 

phate  Co.,3  App.  Cas.  1218.  Div.  109;  post,  §  467,  where  the  facts 

-  Densmore  Oil  Co.   v.  Densmore,  are  more  fully  stated. 
64  Pa.  St.  43;  Lungren  v.  Pennell,  10  ^  This  was  held  in  Lydney  &c.  Co. 

Weekl.  Note  of  Cas.  297;  Albion  Steel  v.  Bird,  33  Ch.  Div.  85;  s.  c.  24  Am.  & 

&  "Wire  Co.  v.  Martin,  1  Ch.  Div.  580.  Eng.  Corp.  Cas.   23.     It  is  illustrated 

*  Emma  Silver  Mining  Co.  V.  Lewis,  by  the  following  cases,  in  none  of 
4  C.  P.  Div.  396,  409.  Compare  Lady-  which  was  the  whole  transaction  set 
well  Mining  Co.  v.  Brookes,  35  Ch.  aside :  Beck  t?.  Kantorowicz,  3  Kay  &  J. 
Div.  400;  s.  c.  17  Am.  &  Eng.  Corp.  230;  Emma  Silver  Mining  Co.  v. 
Cas.  22.  Lewis,  4  C.  P.  Div.  396;    Bagnall  v. 

*  Chandler  v.  Bacon,  30  Fed.  Rep.  Carlton,  6  Ch.  Div.  371;  Whaley  &c. 
538.  Co.  V.  Green,  5  Q.  B.  Div.  109, 

332 


LIABILITY  TO   THE    COMPANY.       [1  Thomp.  Coi'p.   §  465. 

§  463.  Deductions    for   Promoting  Company.  —  In    one    of 

the  authoritative  English  cases  on  this  question,  while  the  pro- 
moter was  held  bound  to  account  for  secret  profits,  he  was  al- 
lowed all  sums  bona  fide  expended  in  securing  the  services  of  the 
directors,  and  providing  their  qualifications,  and  in  payments  to 
the  brokers  and  officers  of  the  company,  and  to  the  public  press 
in  relation  to  the  company.^  But  in  a  later  case  the  Court  of 
Appeal  of  that  country,  in  an  opinion  delivered  by  the  Lord 
Justice  Lindley,  refused  to  allow  a  fraudulent  promoter  the  pay- 
ments made  by  him  in  procuring  the  issue  of  shares,  saying: 
'*  It  appears  to  us  wholly  wrong  to  make  the  company  pay  for 
the  issue  of  its  own  shares.  No  part  of  the  capital  of  the  com- 
pany could  be  properly  so  applied."  On  the  other  hand,  it  was 
held  that  the  promoter  ought  to  be  allowed  legitimate  expenses 
incurred  by  him  in  forming  and  bringing  out  the  company,  and 
that  these  sums  would  include  six  hundred  pounds  charged  for  the 
report,  the  fees  paid  to  solicitors  and  brokers,  and  the  sums  paid 
for  advertising,  j^^^^nting,  etc.^  The  court  refused  to  allow  a  sum 
which  the  promoter  had  expended  in  obtaining  from  another  per- 
son a  guaranty  to  a  sharetaher  who  had  been  induced  to  sub- 
scribe for  some  of  the  shares.^ 

§  464.  Compromise  of  Suit  against  Vendors.  —  The  fact  that 
ihe  company  has  compromised  a  suit  against  the  vendors,  for  the 
rescission  of  the  contract  of  sale,  affords  no  defense,  in  an  action 
against  the  promoters,  to  compel  them  to  account  for  secret 
profits  ;  since  the  promoters  occupy  toward  the  company  a  posi- 
tion entirely  different  from  that  of  vendors,  who  are  strangers  to 
it.4 

§  465.  Measure  of  Recovery  in  Equity.  —  It  has  been  said 
that  in  such  cases  equity  does  not  give  damages,  but  decrees  a 
restoration  of  the  thing  wrongfully  taken,  that  is,  the  money  re- 
ceived, or  an  equal  sum,  with  interest.*  The  company  recovers 
from  the  promoter  the  amount  of   profit  which  he  has  made  out 

1  Emma  Silver  Mining  Co.  v.  Grant,  »  if)i^^ 

11  Ch   Dlv.  918.  ■•  Bagnall  v.  Carlton,  6  Ch.  Div.  371 . 

2  Lydney  &c.  Co.  v.  Bird,  33  Cli.  «  McElhenny's  Appeal,  Gl  Ta.  St. 
Div.  85.                             '                                188. 

333 


1  Thomp.  Corp.  §  466.]     ruOxMOTERS. 

of  the  secret  agreement.  This  is  not  necessarily  the  round  sum 
which  he  secrelly  received  from  the  vendor  of  the  property;  nor, 
where  the  transaction  has  taken  the  form  of  a  sale  of  the  pr(»perty 
by  the  vendor  to  him,  and  by  him  to  the  company,  is  it  necessarily 
the  round  difference  between  the  amount  which  he  received  from 
the  company  and  the  amount  which  he  paid  to  the  vendor;  but  it 
is  the  net  2)fofit  which  he  has  made  out  of  the  transaction  — what 
went  into  his  pocket  beyond  what  would  have  gone  there  if  no 
transaction  had  taken  place.  In  other  words,  he  must  surrender 
to  the  company  the  sura  he  received,  less  the  costs,  charges 
and  expenses  properly  incurred  by  him  in  the  promotion  of  the 
company. 1  In  taking  an  account  of  such  profit,  he  would  be 
credited  with  all  sums  bona  fide  expended  by  him  in  procuring 
the  services  of  directors  and  providing  their  qualification,  and  all 
bona  fide  payments  made  to  promoters  and  officers  of  the  com- 
pany, and  to  the  public  press  in  relation  to  the  company.^ 

§  466.  Liability  at  Law  for  Secret  Profits. —  Although  the 
right  to  relief  in  equity  has  not  been  doubted  in  any  recent  period, 
it  seems  to  have  become  the  settled  law  in  America  that  promoters 
are  liable  to  the  corporation,  when  it  comes  into  existence,  in  an 
action  of  assumpsit,  or  under  the  codes,  in  an  action  of  the  nature 
of  assumpsit,  for  any  secret  profits  which  they  have  made  in  the 
matter  of  promoting  the  corporation  and  bringing  it  into  exist- 
ence. The  leading  American  decision  on  the  subject  is  the 
Pennsylvania  case  of  Snuons  v.  Vulcan  Oil  and  Mining  Co.^ 
decided  in  18r>9.  It  was  there  held  that,  where  persons  pur- 
chase land  with  a  view  of  organizing  a  corporation  to  purchase 
it  of  them,  and  then  organize  such  a  corporation  and  sell  the 
land  to  it,  at  a  price  in  advance  of  what  they  gave  for  it, 
representing  that  the  price  paid  by  the  corporation  is  the  same 
price  which  they  have  paid  to  the  original  vendors,  they  are 
bound  to  restore  to  the  corporation  the  difference  between  the 
price  paid  by  them  for  the  land  and  the  price  at  which  they  sold 
it  to  the  corporation;  and  that,  for  this  difference,  the  corpora- 

'  BajrnaU  v.  Carlton,  6  Ch.  Div.  371;  ^  Emma  Silver  Mining  Co.  v.  Grant, 

Emma  Silver  Mining   Co.  v.  Grant,  11      supra,  per  Jessel,  M.  R. 
Ch.  Div.  918.  '  Gl  Pa.  St.  202;  Thomp.  Off.  Corp. 

172. 

334 


LIABILITY  TO  THE  COMPANY.     [1  Thomp.  Corp.  §  467. 

tion  may  maintain  an  action  of  assumpsit  against  them,  although 
the  gravamen  of  the  action  is,  fraud  and  deceit.^ 

§  467.  Illustrations. —  In  an  action  at  laio  it  appeared  that  two 
persons,  whom  we  will  call  A.  and  B.,  connived  together  to  make  a 
profit  through  the  promotion  of  a  company.  A.  had  purchased  certain 
calico  printing  works  for  the  sum  of  15,000  pounds.  He  then  asso- 
ciated B.  with  him  as  a  promoter  of  a  company  to  be  formed  for  the 
purchase  of  the  works  from  A.  ;  and,  for  the  purposes  of  the  negotia- 
tions for  the  purchase,  a  contract,  which  a  jury  found  to  be  a  sham,  was 
entered  into  between  A.  and  B. ,  pretending  to  sell  the  works  by  A.  to 
B.  for  20,000  pounds.  The  company  was  ultimately  formed,  its 
directors  being  nominees  of  A.  and  B.,  and  the  works  were  conveyed  by 
A.  and  B.  to  the  company  for  20,000  pounds.  There  was  a  secret 
agreement  between  A.  and  B.,  that  A.  should  pay  to  B.  the  sum  of 
3,000  pounds  out  of  the  purchase  money.  It  was  held  that  B. ,  as  a 
promoter  of  the  company,  was  not  entitled  to  this  3,000  pounds,  but 
that  the  company  were  entitled  to  affirm  the  agreement  made  between 
A.  and  B, ,  as  an  agreement  made  by  B.  with  A.  on  their  behalf,  and  to 
enforce  it  against  A.  ;  and  that  consequently  they  could  recover  the 
3,000  pounds  from  A.^  -  -  -  -  Secret  profits,  fraudulently  made 
by  a  promoter  of  a  company,  may  also  be  recovered  from  him,  under 
the  English  view,  by  an  action  at  law  proceeding  on  the  ground  of 
conspiracy.  This  was  held  by  the  English  Court  of  Appeal  in  the 
celebrated  case  of  the  Emma  Silver  Mining  Co.  v.  Lewis.-'  There 
the  defendants,  who  were  metal  brokers,  having  previously  sold  ore  of 
an  American  mine  on  a  commission  of  two  and  one-half  per  cent., 
arranged  with  one  of  the  proprietors  to  assist  in  selling  the  mine  to  a 
company  to  be  raised  by  him  in  England.  He  was  to  procure  the 
appointment  of  the  defendants  as  metal  brokers  of  the  company,  at  the 
usual  rate  of  Enghsh  commission,  namely,  one  per  cent.,  and  he  prom- 
ised that  the  defendants  should  be  liberally  remunerated,  to  an  extent 
at  least  of  500  pounds,  for  their  assistance,  and  to  compensate  for  the 
loss  of  the  higher  commission.  They  were,  as  he  knew,  acquainted 
with  the  facts  detrimental  to  the  reputation  of  the  mine,  and  he  prom- 
ised the  liberal  remuneration  to  insure  their  silence  respecting  those 

1  The   grounds  on  which  such  a  re-  submitted  to  him, —  which  charge  and 

covery  is    supported  were   stated   at  rulings  were  affirmed  by  the  Supreme 

large    by    Hare,    P.  J. —  a    very  able  Court. 

judge,  known  to  the  American  bar  as  ^  Whaley  &c.  Co.  v.  Green,  5  Q.  B, 

a  writer  upon  several  of  the  leading  Div.  109. 

titles  of  the   law, —  in  his  charge  to  3  4  C.  P.  Div.  396. 
the  jury  and  in  his  rulings  upon  points 

335 


1  Thomp.  Corp.  §  468.]     promoters. 

facts.  The  defendants  assisted  him  in  his  endeavors  to  sell  the  mine  to 
a  company  to  be  formed  for  the  purchase  of  it,  but  left  him  to  fix  the 
price,  get  up  the  company  and  manage  all  the  details  respecting  the 
sale.  He  procured  the  formation  of  the  company  and  procured  it  to 
purchase  the  mine  at  the  price  of  100,000  pounds,  half  to  be  paid  in 
cash  and  half  in  paid-up  shares.  The  defendants  were  appointed 
metal  brokers  of  the  company  at  one  per  cent,  commission;  allowed 
themselves  to  be  named  in  the  prospectus  as  being  ready  to  answer  any 
inquu-ies  relating  to  the  mine,  and  in  fact  answered  such  inquiries  ;  but 
kept  silence  with  respect  to  the  detrimental  facts  known  to  them.  Pay- 
ment ha^iug  been  made  for  the  mine  to  the  proprietor,  250  fully  paid- 
up  shares  out  of  those  received  from  the  company  were  transferred  by 
him  to  the  defendants,  and  were  subsequently  sold,  and  the  proceeds 
received  by  them.  This  transaction  was  not  disclosed  to  the  company. 
Thereafter  the  company  brought  an  action  against  the  defendants  to 
recover  the  proceeds,  as  secret  profits  made  by  them  as  promoters. 
The  judge  left  the  question  whether  they  were  promoters,  without  any 
definition,  to  the  jury,  and  it  was  held  that  this  was  no  error.  It  was 
further  held  that  the  defendants  were  in  a  fiduciary  relation  to  the  com- 
pany, and  therefore  liable  to  refund  the  secret  profits,  although  the 
contract  of  sale  was  not  rescinded.  The  jury  found  for  the  plaintiffs, 
judgment  was  entered  on  the  verdict,  and  a  rule  for  a  new  trial  was  dis- 
charged by  the  Court  of  Appeal.  ^ 

§  468.  Immaterial  that  Directors  of  the  Corporation  Knew 
of  the  Fraud.  — The  corporation  is  none  the  less  defrauded,  but 
the  crime  committed  against  its  innocent  stockholders  and  credit- 
ors is  aggravated,  by  the  fact  that  its  directors,  whose  duty  it  is 
to  protect  them  against  the  fraud,  have  knowledge  of  it,  and  con- 
cur in  it,  or,  what  is  worse,  participate  in  it.  The  knowledge  of 
the  directors  of  the  fraud  will  not,  therefore,  prevent  the  cor- 
poration from  maintaining  an  action  at  law  against  the  pro- 
moters.^ 

1  Emma  Silver  Mining  Co.  v.  Lewis,  common-law  action  for  deceit,    and 

supra.    Unsuccessful  action  for  dam-  that,  as  there  was  no  arrangement,  hut 

ages  by  a  shareholder  against  a  pro-  only  an  expectation  that  the  directors 

moter,  on  the    ground   that    he  had  would  receive  promotion  money  from 

received  promotion  money  not  stated  the  company,   the  prospectus  did  not 

in  the  prospectus :  Arkwright  •».  New-  contain  any   statement  on  which  such 

bold,  17  Ch.    Div.  301.    It  was  held  an  action  could  be  grounded, 
that,  although  the  action  was  brought  ^  Simons  v.  Vulcan  Oil   &c.  Co.,  61 

in  the  chancery  division,  it   must  be  Pa.  St.   202;  s.   c.  Thomp.    Off.  Corp. 

decided  on  principles  applicable  to  a  172. 

336 


LIABILITY    TO    THE    COMPANY.       [1  Thomp.  Coi'p.    §   469. 

§  469.  Liiability  for  Fraudulent  Representations.  —  While 
negative  concealment  is,  in  equity,  tantamount  to  positive  fraud 
where  there  is  a  duty  to  disclose  the  truth,  yet  the  case  which 
calls  for  the  application  of  the  foregoing  principles  is,  if  possi- 
ble, stronger,  where,  through  fraudulent  representations  and 
devices,  a  property  is  foisted  upon  a  company  by  its  promoters 
at  a  grossly  excessive  valuation.  In  such  a  case  the  company 
may  maintain  an  action  in  equity  against  them,  and  also  against 
its  directors  concurring  in  the  fraud,  to  recover  what  it  has  lost 
thereby.^  The  same  result  is  reached,  in  England,  in  the  event 
of  the  insolvency  of  the  company  and  its  winding  up  under  a 
statute,  by  placing  the  fraudulent  promoters  upon  the  list  of 
contrihidories.  Thus,  where  two  of  the  promoters  of  an  under- 
taking for  the  purchase  and  alteration  of  a  theater  issued  a  circu- 
lar, stating  that  "  the  remodelling,  redecorating  and  refurnishing 
will  cost  12,000  pounds,  and  of  this  sum  only  5,000  remains  for 
subscription," — it  was  held  that,  upon  the  winding  up  of  the  ven- 
ture, the  two  promoters  must  be  settled  upon  the  list  of  con- 
tributories  for  all  the  balance  of  the  unsubscribed  capital  'above 
12,000  pounds,  —  in  other  words,  that  they  must  make  good 
their  misrepresentation  out  of  their  pockets.^  But,  of  course, 
if  the  representations  are  made  in  good  faith,  with  an  honest 
belief  in  their  truth,  no  liability  attaches  to  the  promoters,  if 
they  should  turn  out  to  be  erroneous  in  fact,  —  in  other  words, 

1  The  ruling  principle  is  found  in  &c.  R.  Co,  v.  Tiernan,  37  Kan.  606;   15 

the  leading  case  of  Charitable  Cor-  Pac.  Rep.  544.     See  also  Joint  Stock 

poration  u.   Sutton,   2  Atk.  400;   s.  c.  Discount  Co.,  v.  Brown,  L.   R.  8  Eq. 

Thomp.  Off.  Corp.  226,  where   Lord  3S1;  Land  Credit  Co.  ^7.  Fermoy,   L. 

Hardwicke  held  that   a    corporation  R.  5  Ch.  763 ;  Panama  &c.  Tel.  Co.  v. 

can  maintain  an    action    against   its  India  Rubber  Co.,  L.  R.  10  Ch.   515. 

directors  to  recover  money  lost  through  As  to  the  like  liability  of  directors,  see 

their    gross   frauds    or  breaches    of  i^ost,  §  4034. 

trust.    The  following  cases  are  to  the  ^  Re  Roya/  Victoria  Palace  Syndi- 

same    effect:     Society    for   Practical  cate,  L.  R.  18  Eq.  6G1.     In  Rawlins  tJ. 

Knowledges.   Abbott,   2  Beav.    659;  Wickhara,  3  De  Gex  &  Jones,  304,  a 

McKay's  Case,  2  Ch.  Div.  1 ;  Overend  similar  course  was  taken  against  one 

&  Gurney  Co.   v.  Gibb,  L.  R.   5  H.  L.  who  had  induced  others  to  enter  into 

480;    Lindsay  Petroleum  Co.  ■».  Ilurd,  a  parfnersAip  with  him  by  fraudulently 

L.  R.  5  P.  C.  221;  Pho-^phate  Sewage  misrepresenting     the       assets     and 

Co.  V.  Hartraont,  5  Ch.  Div.  394,  441.  liabilities,  —  he  was  compelled  to  make 

Pittsburg  Mining  Co.  v.   Spooner,  24  good  his  word. 
Am.  &  Eng.  Corp.  Cas.   1 ;  St.   Louis 


22 


337 


1  Thorn  p.  Corp.  §  470.]     promoters. 

they  arc  not  guarantors^  in  the  fullest  sense,  of  the  absolute 
truth  of  their  representations.^  It  has  been  thought  by  some 
courts  that,  while  this  doctrine  is  sound  in  its  application  to 
the  fraudulent  misrepresentations  or  concealments  of  the 
agents  of  existing  corporationsj  it  does  not  apply  to  the 
same  acts  committed  by  commissioners  whose  office  it  is  to 
procure  subscriptions  to  a  future  corporation.''  But  this  con- 
clusion rests  on  the  fallacious  idea  that  one  cannot  be  agent  of 
something  not  in  being.  Such  a  person  acts  for  the  future  en- 
tity. As  soon  as  it  springs  into  existence,  it  derives  the  same 
advantages  from  the  acts  he  has  done  for  it  as  though  it  had 
been  in  existence  when  he  did  them.  The  conclusion  follows, 
almost  as  a  matter  of  necessity,  that,  as  soon  as  the  corporation 
is  organized,  he  becomes  its  agent  by  relation ;  and  this,  as  already 
seen,  is  the  conclusion  of  the  English  courts,  where  the  subject 
has  been  frequently  considered,  the  commissioner  there  being 
called  a  "  promoter."  Frauds  practiced  by  such  a  person,  to 
induce  persons  to  subscribe  for  shares  in  the  future  corporation 
will  avoid  the  subscription,  precisely  as  though  the  corporation 
had  been  in  existence  at  the  time  when  the  fraud  was  committed.-^ 

§  470.  Illustration.  —  Certain  persons  obtained  control  of  a  min- 
ing option  for  $20,000,  and  proceeded  to  form  a  corporation  to  complete 
the  purchase.  They  represented  to  the  persons  who  subscribed  for  the 
stock  that  it  would  cost  $90,000  to  purchase  the  option ;  the  sum  of 
$90,000  was  accordingly  paid  for  the  option,  of  which  $70,000  was  ap- 
propriated by  these  persons  to  their  own  use,  and  the  balance  only  was 
actually  paid.  It  was  held  that  an  action  might  be  maintained  in  the 
name  of  the  corporation  to  recover  the  amount  wrongfully  appropriated 
by  them  in  breach  of  their  duty.*  The  fact  that  the  promoters  formed 
a  corporation,  and  that  such  corporation  passed  a  resolution  to  permit 
one  of  their  number  to  subscribe  for  the  whole  of  the  capital  stock,  and 
to  pay  for  it  by  a  transfer  of  the  mining  option  to  the  corporation,  was 
regarded  as  no  defense  to  the  action  against  the  promoters;  since 
it  appeared  that,  before  this  was  done,  an  agreement  had  been  made 

1  Petrie  v.   Guelph  Lumber  Co.,  11  *  Ante,  §  443.     See  post,  §  1460. 
Can.  S.  C.  451 ;   s.  c.   15  Am.  &  Eng,  *  Pittsburg  Mining  Co.  v.  Spooner, 
Corp.  Cas.  487.  74  Wis.  307;    s.   c.  24  Am.   &  Eng. 

2  Smitli  V.  Heidecker,  39  Mo.  157;  Corp.  Cas.  1 ;  5  Rail.  &  Corp.  L.  J.  666 
Rutz  V.  Esler  &c.  Man.  Co.,  3  Bradw.  (Lyon,  J.,  dissenting). 

cm.)  83,  88. 

338 


LIABILITY    TO    THE    COMPANY.       [1  Thomp.   Corp.    §   471. 

with  other  persons  to  become  members  of  the  corporation,  and  that  the 
transfer  was  not  made  to  the  corporation  until  after  such  persons  had 
become  members  and  furnished  the  money  necessary  to  complete  the 
purchase.! 

§  471.  No  Defeuse  that  the  Corporation  Raised  the  Money 
on  an  Illegal  Issue  of  its  Stock.  —  In  such  a  case  the  promoters 
of  a  corporation,  who  are  instrumental  in  the  issue  of  the  stock, 
cannot  plead,  in  defense  of  an  action  against  them  for  the  breach 
of  trust,  that  the  issue  of  the  stock  was  illegal  and  in  violation 
of  a  statute.  Speaking  for  the  court  on  this  subject  it  was 
said:  '*  Having  changed  their  position  in  regard  to  this  money, 
by  receiving  it  from  the  corporation  as  payment  for  the  mining 
option  sold  to  the  company,  they  cannot  now  claim  to  hold 
it  as  money  received  by  them  as  the  agents  of  the  corpora- 
tion in  making  illegal  sales  of  the  stock  of  the  corporation. 
The  money  paid  to  the  corporation  on  such  an  illegal  issue  or 
sale  of  stock  was,  notwithstanding  such  illegal  sale,  the  money 
of  the  corporation,  as  against  all  the  world.  The  purchasers  of 
such  illegally  issued  stock  could  not  recover  back  the  money 
paid  by  them  to  the  corporation  upon  such  illegal  transaction ;  ^ 
and  if  they  cannot  recover  it  back  from  the  corporation,  no  one 
else  can.  The  corporation,  having  the  possession  of  the  money, 
is,  for  all  practical  purposes,  the  owner  of  it;  and,  if  these  de- 
fendants take  the  money  from  the  corporation  in  an  illegal  and 
fraudulent  way,  it  is  no  defense  to  such  illegal  act  that  the  cor- 
poration obtained  the  money  by  a  violation  of  the  statute  in 
selling  its  stock.  If  A.  obtains  the  title  and  possession  of  prop- 
erty from  B.  by  some  fraudulent  device,  and  C.  obtains  the  same 
property  of  A.  by  fraud,  and  A.  brings  an  action  against  C.  to 
recover  the  property  back  or  for  damages  for  fraud,  it  would  be 
no  defense  for  C.  that  A.  had  fraudulently  obtained  it  from  B. 
This  would  certainly  be  so,  unless  B.  made  a  claim  for  the 
property  against  C.  In  this  case  the  persons  vvhose  money  came 
to  the  possession  of  the  corporation  cannot  enforce  any  claim  to 
it  as  against  the  corporation,  and  consequently  they  could  not 
enforce  a  claim  to  it  as  against  the  persons  to  whom  the  corpora- 
tion transferred  it;   and  if  the  present  stockholders  were  instru- 

*  Ibid.  2  Citing  Clarke  v.  Lumber  Co.,  5!)  Wis.  G55,  6GI,665. 

33i) 


1  Thomp.  Corp.  §  47'2.]     riioMOTERS. 

mental  in  bringing  this  action  in  the  name  of  the  corporation,  as 
they  must  be  held  to  be,  by  bringing  it  in  the  name  of  the  cor- 
poration, they  affirm  the  right  of  the  corporation  to  the  money 
so  received  by  it.  By  what  rule  of  law  have  the  defendants  the 
right  to  challenge  the  title  of  the  corporation  to  the  money 
which  was  paid  to  them  upon  a  sale  of  the  mining  option  to  the 
corporation?  I  am  unable  to  perceive  such  right,  especially  in 
a  case  of  this  kind,  where  no  other  person  can  claim  the  money. 
Briefly,  the  foundation  of  the  claim  of  the  plaintiff  is  this : 
The  corporation  having  in  its  possession  the  $90,000,  the  de- 
fendants, as  agents  and  trustees  of  the  corporation,  sold  their 
mining  claim  to  the  corporation  for  $90,000,  and,  acting  for  the 
corporation,  they  bought  it  for  the  corporation,  and  paid  out  its 
money  to  complete  the  purchase;  and  that,  in  making  such  sale 
and  purchase,  they  so  conducted  themselves  that  they  were  not 
entitled  as  against  the  corporation,  to  retain  the  profits  made  on 
the  sale,  but  held  such  profits  in  trust  for  the  corporation. 
Under  such  circumstances,  it  appears  to  me  wholly  immaterial 
how  the  corporation  became  possessed  of  the  money  received  by 
the  defendants,  unless  they  can  show  that  some  other  person  or 
party  has  a  better  claim  to  such  money  than  the  corporation.^ 

§  472.  Grounds  of  Recovery  against  Aiders  and  Abet- 
tors. —  In  such  an  action,  where  there  is  more  than  one  de- 
fendant, in  order  to  sustain  a  joint  recovery  against  them,  it  is 
necessary  to  show  that  they  were  partners  in  the  fraudulent 
scheme,  or  else  that  they  participated  in  the  proceeds  of  the 
fraud.^  Thus,  in  the  celebrated  case  of  (Jolt  v.  WooUasfon,^  it 
was  held  just,  that  one  of  the  defendants  named  Arnold,  as  well 
as  the  principal  defendant  Woollaston,  should  be  charged;  "  for, 
as  Woollaston  was  the  first  projector  and  procurer  of  the  patent, 
and  purchaser  of  the  land,  so  Arnold  was  his  trustee,  accepted 
the  conveyance,  was  the  treasurer,  received  the  money  and  gave 
the  receipts,  was  partner  in  the  fraud,  and  plainly  particeps 
criminis.^* 

1  Pittsburg  Mining  Co.  ■».  Spooner,  Pa.  St.  202;  s.  c.  Thomp. Off.  Corp. 
74  Wis.  307,  325;  s.  c.  24  Am.  &  Eng.      172. 

Corp.  Cas.  1,  13;  42  N.  W.  Rep.  259;  ^2  P.  Wms.  154;  s.  c.  Thomp.  Off. 

opinion  by  Taylor,  J.  Corp.  169. 

2  Simon  v.  Vulcan  Oil  &c.  Co.,  61 

340 


LIABILITY    TO    THE    COMPANY.       [1  TllOmp.  Corp.    §   474. 

§  473.  Wlietlier  T^iability  of  3Ianagiiig-  Committee-man  In 
Equity  for  Fraud  is  Joint  or  Several.  —  lu  a  proceeding  in  equity, 
where  the  object  is  to  do  complete  justice  to  all,  all  the  members  of  a 
managing  committee  of  the  company  who  have  concurred  in  a  misap- 
phcation  of  the  funds  placed  in  their  hands  for  the  purpose  of  promot- 
ing the  company,  ought  to  be  charged  with  the  loss  which  the  bene- 
ficiaries have  sustained,  and  it  ought  not  to  be  thrown  entirely  upon 
the  sub-committee  who  disbursed  the  money  under  the  orders  of  the 
managing  committee.  Thus,  in  a  case  under  the  Enghsh  winding-up 
acts,  1848,  1849,  it  appeared  that  five  individuals,  with  several  others, 
were  members  of  the  managing  body  of  an  abortive  railway  company ; 
that  these  five  individuals  were  appointed  a  finance  committee,  and  that 
power  was  lodged  in  any  thi'ee  of  them  to  sign  checks,  which  were  to 
be  countersigned  by  the  secretary.  These  five  persons,  acting  by  di- 
rection of  the  managing  body,  had  employed  the  funds  of  the  company, 
to  a  large  amount,  in  buying  up  the  shares  of  the  company.  The  mas- 
ter charged  these  five  persons  with  the  moneys  which  they  were  thus  in- 
strumental in  applying  to  the  purchase  of  the  shares.  This  order  was 
discharged  by  Vice  Chancellor  Parker,  on  the  ground  that  it  did  im- 
perfect justice  between  the  persons  who  were  guilty  of  the  breach  of 
trust;  since,  for  the  money  paid,  according  to  the  master's  order,  the 
other  persons  who  had  directed  the  misapplication  of  it,  would  have  the 
benefit  of  its  being  brought  back.  Some  other  course,  he  thought, 
ought  to  be  adopted,  so  as  to  do  complete  justice  between  all  the 
parties.^  It  does  not  clearly  appear  from  the  report  of  this  ease 
whether  the  shares  in  question  were  bought  in  for  the  personal  benefit 
of  the  managing  committee,  or  to  be  held  by  them  in  trust  for  the  com- 
pany, for  its  supposed  benefit.  In  either  case  it  would  have  been  a 
breach  of  trust,  because  the  moneys  were  not  paid  in  for  such  a  pur- 
pose. In  the  former  case  it  would  be  a  breach  of  trust  in  the  nature  of 
embezzlement  or  larceny ;  and,  if  such  were  the  facts,  the  decision  is 
incapable  of  vindication ;  for  when  did  a  court  of  equity  sit  for  the  pur- 
pose of  enforcing  contribution  among  thieves? 

§  474.  Wlio  may  Bring  the  Action  in  Equity. —  Primarily, 
the  right  of  action  lies  in  the  defrauded  corporation,  as  already 
seen ;  but  if  the  directors  have  connived  with  or  participated  in 
the  fraud,  and,  being  in  control  of  the  machinery  of  the  corpora- 
tion, refuse  to  bring  the  action,  a  court  of  equity  will  open  its 
doors  to  an  action  by  a  defrauded  shareholder,  on  behalf  of  himself 

^  Carpenter's  and  Weiss'  Cases,  5  DeG.  &  Sm.  402. 

341 


1  Thomp.  Corp.  §  476.]     piiomoteks. 

and  the  other  shareholders  except  the  defendants,  upon  his  show- 
ing that  the  directors  have  refused  to  allow  the  action  to  be 
brought  in  the  name  of  the  company.  ^  In  New  York  it  is  held 
that  the  shareholders  in  a  company,  who  have  been  defrauded 
by  such  a  secret  arrangement  on  the  part  of  the  promoters;  are 
proper  plaintiffs  in  a  suit  in  equity  to  compel  the  fraudulent 
promoters  to  account  for  their  secret  profits. ^  That  such  an 
accounting  is  a  proper  subject  of  equitable  cognizance  has  never, 
it  is  conceived,  been  the  subject  of  doubt.  It  has  been  held  that 
in  such  a  suit  in  equity  every  person  interested  in  the  result, 
whether  as  being  liable  to  pay  or  entitled  to  participate  in  the 
profits  retained  by  the  promoters,  if  any  are  recovered,  is  a  proper 
•party ^  and  that  an  equitable  action  for  such  an  accounting  is 
properly  brought  by  two  or  more  6owa^cZe  subscribers,  claiming 
as  such,  and  also  as  assignors  of  other  subscribers,  against  the 
promoter  who  has  committed  the  fraud,  or  his  personal  represent- 
ative, making  all  the  other  subscribers  parties  defendant.^ 

§  475.  Great  Latitude  Allowed  in  Admission  of  Evidence.  — 

In  such  an  action  it  has  been  said  that  great  latitude  is  allowed  in 
the  admission  of  evidence.*  And  this  is  a  general  rule  in  the  law 
of  fraud,  for  fraud  is  so  subtle  and  evasive  that,  without  wide 
latitude  in  admitting  evidence  in  cases  involving  fraud,  it  would 
be  impossible  to  trace  its  vermiculations  through  the  slime.^  It 
has,  therefore,  been  held  competent  in  an  action  by  a  corporation 
to  recover  of  its  promoters  fraudulent  and  secret  profits  retained 
by  them,  and  to  give  in  evidence  false  and  fraudulent  i)rospec- 
tuses  published  by  them  to  induce  persons  to  subscribe  for  shares 
of  the  company ;  for,  although  the  action  is  in  form  ex  contractu ^ 
it  is  chiefly  supported  by  evidence  o^  fraud.^ 

§  476.  When  the  Fiduciary  Relation  hetween  the  Promoter 
and  the  Company   Commences  —  Gover's  Case.  —  It  is  obvious 


1  Atwool  V.  Merryweather,  37  L.  J.  '  Ibid. 

Ch.  35.    Compare  Beatty  v.   Neelon,  ■*  Simons  v.  Vulcan  Oil  &c.  Co.,  GI 

13  Sup.  Ct.  Can.    1;    s.  c.    19   Am.  &  Pa.  St.  202;  s.c.  Thomp.  Off,  Corp.  172. 

Eng.  Corp.  Cas.  236;  posi,  Ch.  89.  ^  Massey  v.  Young,  73  Mo.  260. 

2  Getty  V.  Devlin,  70  N.  Y.  504;  6  gimons  v.  Vulcan  Oil  &c.  Co.,  CI 
s.  c.  54  N.  Y.  403;  9  Hun  (N.  Y.),  Pa.  St.  202;  s.c.  Thomp.  Off.  Corp. 
603.  172. 

342 


LIABILITY    TO    THE    COMPANY.       [1  TllOIlip.   Corp.    §   476. 

that  if  a  man  has  ah-eady  purchased  certain  property  and  got  a  good 
bargain,  it  is  no  fraud  to  organize  a  company  and  sell  the  property  to  it 
at  an  advance.  This  is  not  at  all  what  the  rule  means.  It  means  that 
he  must  disclose  to  the  company  what  he  gave,  because  he  owes  it  to 
those  toward  whom  he  stands  in  a  fiduciary  relation  to  make  such  dis- 
closure. They  have  a  right  to  be  put  in  possession  of  all  the  material 
facts  concerning  it  which  he  possesses.  It  is  only  when  the  relation  of 
trust  between  him  and  the  company  does  not  exist,  and  when  he  is  deal- 
ing with  the  company  at  arm's  length  as  with  a  stranger,  that  he  is  en- 
titled to  conceal  such  facts  from  them.  Upon  this  point  Gover's  Case,i 
turned.  In  this  case  M.  agreed  with  the  owner  of  a  patent  to  purchase 
it  for  £Go,000,  to  be  paid  partly  in  cash,  and  partly  in  shares  of  a  com- 
pany which  he  agreed  to  form  for  that  purpose.  M,  then  proceeded,  in 
pursuance  of  the  agreement,  to  promote  the  company  which  was  to  pur- 
chase the  patent,  and,  three  months  afterwards,  he  was  enabled  to  enter 
into  a  contract  with  a  person  styling  himself  trustee  of  the  proposed 
company  to  sell  the  patent  to  such  trustee  for  £125,000,  to  be  paid  partly  in 
cash  and  partly  in  shares  of  the  company.  Shortly  afterwards  the  com- 
pany was  formed,  M.  being  a  director  in  it.  A  prospectus  was  issued 
which  did  not  mention  the  first  agreement  of  purchase,  and,  on  the  faith 
of  this  prospectus,  G.  purchased  shares  in  the  company.  It  was  held 
by  James  and  Mellish,  L.  JJ. ,  affirming  an  order  of  Vice  Chancellor 
Bacon,  that  G.  could  not  have  her  name  removed  from  the  list  of  share- 
holders. Brett,  J.,  dissented.  This  case  is  not  of  general  value  as 
authority,  because  it  turned  for  the  most  part  on  the  meaning  of  §  38  of 
the  English  Company's  Act,  1867,  which  reads  as  follows:  "Every 
prospectus  of  a  company,  and  every  notice  inviting  persons  to  subscribe 
for  shares  in  any  joint-stock  company,  shall  specify  the  dates  and  names 
of  the  parties  to  any  contract  entered  into  by  the  company,  or  the  pro- 
moters, directors  or  trustees  thereof,  before  the  issue  of  such  prospectus 
or  notice,  whether  subject  to  adoption  by  the  directors  or  the  company, 
or  otherwise ;  and  any  prospectus  or  notice,  not  specifying  the  same, 
shall  be  deemed  fraudulent  on  the  part  of  the  promoters,  directors  and 
officers  of  the  company,  knowingly  issuing  the  same,  as  regards  any  per- 
son taking  shares  in  the  company  on  the  faith  of  such  prospectus,  unless 
he  shall  have  had  notice  of  such  contract. ' '  ^ 


^  L.  R.  20  Eq.  114;  s.c.  (affirmed)  I  shareholder  could  not  be  retired  from 

Ch.  Div.  182.  the  list  of  contributories  ;  not  th:i'-  slio 

2  It  is   to   be    observed,   however,  could  not  maintain  an  action  uiuUt  the 

that  Gover's  Case  did  not  really  de-  statute  against  the  person  who  had 

cide    that    the  case  was  not  within  practiced  the  fraud  upon  her.     Upon 

the  above  statute.     It  held  that  the  this  ground    Lord  Cockburn  distiu- 

343 


1  Thomp.  Corp.  §  480.]     promoters. 


AbTICLE    IV.    NOX-LIABILITY     OF      THE       COMPANY     FOB      CONTRACTS     OF 

Promoters. 


Section 

480.  Contracts  of  promoters  not  bind- 

ing on  future  company. 

481.  Illustrations. 

482.  Engagement  with  promoters  is  a 

proposal  to  corporation. 

483.  Illustration. 

484.  Not  Liable  for  services  rendered 

in  promoting  it. 

485.  Illustration. 

486.  Limitations  of  rule  of  corporate 

liability. 


Section 

487.  Services  rendered  at  the  request 

of  all  the  corporators. 

488.  Rule  not  applicable  where  third 

persons  join  the    corporation. 

489.  Distinction  between  cases  where 

the  remedy  is  in  equity  and  at 
law. 

490.  Illustrative  cases  where  the  cor- 

poration was  held  liable  on  the 
theory  of  estoppel. 


§  480.  Contracts  of  Promoters  not  Binding  on  Future 
Company.  — The  corporation  must  have  a  full  and  complete  or- 
ganization and  existence  as  a  legal  entity,  before  it  can  enter 
into  any  kind  of  a  contract  or  transact  any  business.  Nor  have 
the  corporators  power  to  bind  it  by  contract  unless  authorized 
by  the  charter.^  The  American  doctrine  is  that  the  engagements 
of  promoters  do  not  bind  the  future  corporation,  unless  the  cor- 
poration expressly   or    impliedly    ratifies   them.''^     It   may,    of 


guished  Cover's  Case  in  his  judgment 
in  Twycross  v.  Grant.  2  C.  P.  Div. 
469, 536.  But  it  is  to  be  observed  that 
Craig  V.  Phillips,  3  Ch.  Div.  722,  cited 
in  a  preceding  section,  was  an  action 
against  the  promoter  for  an  alleged 
fraud,  and  it  was  there  held  by  Vice 
Chancellor  Bacon  that  the  case  was  not 
within  the  38th  section  of  Companies 
Act.  The  doctrine  of  this  case  was 
denied  by  Lord  Cockburn  in  his  judg- 
ment in  the  Court  of  Appeal  in  Twy- 
cross V.  Grant,  supra,  and  it  is  clear 
that  it  is  overruled  by  that  case,  and 
is  opposed  to  the  doctrine  of  the 
Queen's  Bench  in  Charlton  v.  Hay,  31 
L.  T.  (n.  s.)  437,  and  to  the  views 
expressed  by  Mr.  Justice  Honeyman 
in  Cornell  v.  Hay.  L.  R.  8  C.  P.  328. 
Independently  of  the  statute,  both 
Gover's  Case  and  Craig  v.  Phillips 
344 


seem  opposed  in  principle  to  the  later 
case  of  Erlanger  v.  New  Sombrero 
Phosphate  Co.,  3  App.  Cas.  1218  (af- 
firming s.  c.  5  Ch.  Div.  103)  ;  4  Cent.  L. 
J.  510;  ante,  §  459;  and  in  the  opinion 
of  the  writer,  neither  of  them  is  now 
entitled  to  be  considered  autliority. 

1  Gent  V.  Manufacturers  &c.  Ins. 
Co.,  107  111.  652,  affirming  s.  c.  13 
Bradw.  (111.)  308;  s.  c,  6  Am.  &  Eng. 
Corp.  Cas.  588;  Munson  v.  Syracuse 
&c.  R.  Co.,  103  N.  Y.  58;  s.  c.  29  Am. 
&  Eng.  R.  Cas.  377;  Joslin  v.  Stokes, 
38  N.  J.  Eq.  31;  s.  c.  5  Am.  &  Eng. 
Corp.  Cas.  98. 

2  Rockford  &c.  R.  Co.  v.  Sage,  65 
111.  328;  Safety  Deposit  Life  Ins.  Co. 
V.  Smith,  65  111.  309;  Western  Screw 
&c.  Co.  V.  Cousley,  72  111.  531 ;  Paxton 
©.Bacon  Mill  &c.  Co.,  2  Nev.  257;  Joy  v. 
Manion,  28  Mo.  App.  55,  60;  Hawkins 


NON-LIABILITY    OF    COMPANY.        [1  TIlOllip.   Corp.    §   481. 

course,  make  tliein  its  own  by  express  agreement.^  And  this 
it  may  do  precisely  as  it  might  make  similar  contracts  in  the 
first  instance.  If  the  nature  of  the  contract  is  such  that  formal 
action  of  its  board  of  directors  would  not  be  necessary  to  the 
making  of  it  in  the  first  instance,  its  adoption  when  made  for  it 
by  its  promoters  will  not  require  that  formality. ^  So,  it  may, 
of  course,  impliedly  ratify  such  engagements,  by  accepting  and 
retaining  any  benefits  which  accrue  to  it  therefrom,  in  which 
case  it  becomes  liable,  not  on  the  strict  theory  of  contract,  but  on 
the  principle  of  estoppel.^ 

§  481.  Illustrations. —  Accordingly,  the  agreement  of  parties,  in- 
tending to  form,  a  corporation  and  engaged  in  forming  it,  to  put  in  prop- 
erty as  stock,  but  which  stock  was  never  subscribed,  did  not  bind  the 
corporation,  nor  did  the  property  become  the  property  of  the  corpora- 
tion, although  it  was  used  by  it.'^  -  -  -  -  Until  a  mutual  fire 
insurance  company,  projected  under  the  laws  of  Ilhnois,  has  fully 
completed  its  organization,  by  fihug  the  certificate  of  the  auditor 
of  public  accounts  with  the  county  clerk,  that  the  corporators  have 
deposited  the  requisite  capital  stock,  the  transaction  of  business  in 
the  name  of  the  corporation  is  unauthorized.  The  corporators  or  pro- 
moters of  such  a  company  are  authorized  to  take  apphcations  for 
insurance,  and  premium  notes,  as  a  fund  or  capital  to  authoi'ize  the 
granting  of  the  charter,  and  enable  the  company  to  transact  its  business 
when  organized ;  but,  prior  to  its  organization,  the  maldng  of  an  apph- 
cation  and  the  giving  of  a  premium  note  is  only  a  proposition  to  insicre 
in  the  company,  and  to  receive  a  policy  when  the  company  shall  have 
become  capable  of  contracting  and  transacting  business. ^     .     .     -     . 

V.  Mansfield  Gold  Mining  Co.,  52  Cal.  &c.  Co.,  37  Minn.  89;  s.  c.   33  N.  W. 

513;  Munson  v.  Syracuse  &c.  R.  Co.,  Rep.  327. 

103  N.  Y.  58;  Morrison  v.  Gold  Mining  3  Edwards  v.  Railway  Co.,  1  Mylne 

Co.,  52  Cal.  306;  Carmody  v.  Powers,  &  C,  650;  Paxton  Cattle  Co.  v.  First 

60  Mich.  26;  s.  c.  26  N.  W.  Rep.  801.  Nat.  Bank,  21  Neb.  621 ;  s.  c.  33  N.  W. 

i  Rockford  &c.  R.  Co.  v.  Sage,  65111.  Rep.  271;  Low  v.  Railroad  Co.,  45  N. 

328;  Reichwald  v    Commercial  Hotel  H.  370  (leading  case) ;  Bell's  Gap.  B. 

Co.,  106  111.  439;  Wood  v.  Whalen,  93  Co.  v.  Christy,  79  Pa.  St.  54  (doctrine 

111.    153;  Bell's  Gap  Railroad  Co.   v.  recognized);  Rockford  &c.  R.  Co.,  v. 

Christy,   79  Pa  St.   54   (reasoning  of  Sage,  65  111.  328. 
the   court);  Low  v.  Railroad  Co.,  45  *  Stowe  v.  Flagg,  72  111.  397. 

N.  H.  370;  Paxton  Cattle  Co.  v.  First  ^  Gent  v.  Manufacturers'   &c.    Ins. 

Nat.  Bank,  21  Neb.  621;  s.  c.  33  N.  W.  Co.,    107    111.    652,    affirming  s.  c.   13 

Rep.  271.  Bradw.   (111.)  308;  ».c.  6  Am.    &  Eng. 

2  Battelle  v.  Northwestern  Cement  Corp.  Cas.  688. 

345 


1  Thonip.  Corp.  §  482.]     promoters. 

An  attempt  was  made  to  organize  a  corporation  nnder  the  general  law 
of  Illinois,  with  a  capital  stock  of  $100,000.  After  part  of  the  stock 
was  subscribed,  the  stockholders  held  a  meeting,  and  employed  a  super- 
intendent to  attend  to  work  being  done  for  the  proposed  corporation, 
Avhich  he  commenced  doing;  but  afterwards,  when  it  was  ascertained 
that  the  requisite  subscription  of  stock  could  not  be  obtained,  he  quit 
work.  Most  of  the  stockholders  afterwards  formed  another  company 
•with  a  capital  stock  of  $50,000,  for  the  same  purpose  as  the  first  one, 
and  completed  their  organization  and  incorporation.  It  was  held  that, 
even  if  the  first  company  had  completed  its  organization,  the  superin- 
tendent could  not  have  recovered  against  it  for  his  services,  much  less 
against  the  new  company,  i  -  -  -  -  The  proprietors  of  a  mine  con- 
tracted an  indebtedness  for  the  purpose  of  developing  it.  Afterwards, 
with  others,  they  formed  a  corporation  in  which  they  owned  three-fourths 
of  the  stock,  and  to  which  they  conveyed  the  property  for  a  valuable 
consideration.  It  was  held  that  the  corporation  was  not  hable  for  the 
indebtedness  without  a  promise  to  pay  it.-  -  -  -  -  An  agreement 
with  individuals  that,  when  they  become  incorporated  they  will  give  the 
other  contracting  party  a  certain  amount  of  the  paid-up  stock  of  the 
corporation,  is  not  a  dealing  with  the  corporation  itself,  nor  will  it  bind 
the  corporation  when  organized,  but  is  merely  the  personal  engagement 
of  the  promoters. 2  -  -  -  -  A  good  illustration  of  the  principle  un- 
der consideration  is  found  in  numerous  cases  which  hold  that,  in  an 
action  against  a  subscriber  by  the  corporation  upon  his  contract  of  sub- 
scription, evidence  that  certain  promoters  guaranteed  that  the  route  would 
pass  near  a  certain  tract  of  land,  and  that  it  did  not  pass  near  it,  will  not 
discharge  the  subscriber,  although  he  subscribed  in  reliance  upon  the 
statement,  in  the  absence  of  evidence  tending  to  show  a  fraudulent  in- 
tent ;  ^  since  such  a  guaranty  is  not  binding  on  the  company. 

§  482.  Engagement  with  Promoters  is  a  Proposal  to  Cor- 
poration.—  Again,  an  obligation  assumed  toward  an  intended 
corporation,  through  its  promoters,  may,  in  legal  effect,  stand  as 
a  proposition  for  a  contract,  and  may  become  such  when 
accepted  by  the  corporation  after  it  comes  into  being.  A  fre- 
quent illustration  of  this  is  found  in  cases  where  subscriptions 
are  made  to  the  capital  stock  of  an  intended  corporation  before 
it  is  organized.     In  such  cases  the  corporation,  when  organized, 

1  Western  Screw  &c.  Co.  v.  Cous-  ^  Carmody  «.  Powers,  60  Mich.  26. 
ley,  72  111.  531.  *  Braddock   v.  Philadelphia  &c.  R. 

2  Paxton  V.  Bacon  Mill  &c.  Co.,  2  Co.,  45  N.  J.  L.  363;  s.  c.  16  Am.  & 
Nev.  257.  Eng.  R.  Cas.  i36',  post,  §  1394. 

346 


NON-LIABILITY    OF    COMPANY.       [1  Thoilip.  Corp.    §   483. 

may  treat  the  subscription  as  a  proposal^  intended  to  be  made  to 
it,  and  may  accept  it  and  maintain  an  action  against  the  sub- 
scribers thereon. 1  But  it  has  been  held  that,  where  there  is  no 
formal  act  of  acceptance  on  the  part  of  the  corporation  when  it 
conies  into  existence,  prior  to  the  bringing  of  an  action,  it  can- 
not maintain  an  action  on  such  a  promise  made  prior  to  its 
organization  to  its  promoters  in  its  behalf.^ 

§  483.  Illustration. —  A  declaration^  in  an  action  by  a  corporation, 
alleging  the  following  facts,  was  held6ad  on  demurrer:  — That  certain 
persons  agreed  to  form  a  corporation  under  general  laws,  if  they  coidd 
obtain  certain  machinery  from  the  defendant,  and  to  build  a  factory  for 
the  manufacture  of  certain  goods ;  that  such  persons  informed  the  de- 
fendant of  the  premises,  and,  in  the  name  and  for  the  benefit  of  the 
proposed  corporation,  appUed  to  the  defendant,  who  was  a  manufacturer 
of  the  machinery  desired,  for  such  machinery,  and  informed  the  de- 
fendant that  the  proposed  corporation  would  proceed  with  its  organiza- 
tion, and  would  build  a  factory  only  in  case  a  contract  could  be  made 
with  the  defendant  for  the  machinery ;  that  thereupon  the  defendant 
made  two  contracts  in  writing,  one  of  which  was  under  seal,  to  furnish 
the  corporation  with  the  machinery  upon  certain  specified  terms  ;  that 
afterwards,  in  anticipation  of  the  defendant's  fulfilhnghis  agreement,  a 
factory  was  built  for  the  defendant ;  that  said  machinery  could  not  be 
procured  otherwise  than  from  the  defendant,  which  he  weU  knew ;  that 
the  persons  named,  in  behalf  of  the  proposed  corporation,  before  its 
organization  was  completed,  were  always  ready  to  receive  and  pay  for 
said  machinery,  and  frequently  demanded  the  same,  but  the  defendant 
neglected  and  refused  to  furnish  said  machinery  or  any  part  thereof ; 
and  that  said  corporation  was  duly  organized  and  existed  under  the 
general  laWs.^  The  court,  speaking  through  W,  Allen,  J.,  said:  "  The 
writings,  as  between  the  plaintiff  and  the  defendants,  show  no  more 
than  proposals  by  the  defendants,  revocable  at  any  time  before  accept- 
ance by  the  plaintiff  after  its  incorporation.  The  fact  that  one  is  under 
seal  is  immaterial  in  this  respect.  The  only  consideration  shown  for  the 
defendants'  promises  is  the  acceptance  of  them  by  the  plaintiff,  and  the 
promise  to  accept  and  pay  for  the  goods  implied  in  that;  and  the 
acceptance  must  be  by  some  act  or  assent  of  both  parties  which  wiU  fix 
the  rights  of  both,  and  is  as  essential  to  a  promise  under  seal  as  by 
parol.     The  defendants  could  not  be  bound,  until  such  acceptance  by 

1  Post,  §  1170.  ^  Penn  Match  Co.  v.  Hapgood,  141 

2  Penn  Match   Co.  v.  Hapgood,  141      Mass.  145. 
Mass.  145. 

347 


1  Thomp.  Corp.  §  48-t.]     promoters. 

the  plaintiff  as  would  give  them  a  right  of  action  against  it  for  refusal 
to  accept  and  pay  for  the  goods.  There  is  no  allegation  of  acceptance 
by  the  plaintit!f  after  its  incorporation.  The  demand  is  not  stated  as 
an  act  of  acceptance  perfecting  the  contract,  but,  in  connection  with 
the  refusal,  to  show  a  breach  of  an  existing  contract.  ...  A  cor- 
poration may  become  bound  to  fulfill  a  contract  made  in  its  name  and 
behalf  in  anticipation  of  its  existence,  by  afterwards  accepting  the 
benefits  of  the  contract,  as  it  may  acquire  a  right  to  enforce  such  a  con- 
tract against  the  other  party  by  his  acceptance  of  performance  by  the 
corporation.  1  ...  In  the  case  at  bar  the  formation  of  the  cor- 
poration and  procuring  a  bailding  were  no  part  of  the  contract,  or  of 
the  consideration  of  it.  There  was  no  agreement  to  do  the  acts,  and 
the  doing  of  them  was  not  made  by  the  parties  a  condition  upon  which 
the  contract  was  to  arise.  The  promise  or  proposals  of  the  defendants, 
though  a  motive  for  doing  the  acts  by  the  plaintiff,  are  not  alleged  to 
have  been  inducements  offered  by  the  defendants,  nor  are  the  acts 
alleged  to  have  been  done  at  their  request.  The  defendants  are  not  so 
connected  with  the  acts  to  be  done  by  the  plaintiff  that  they  would 
have  a  right  to  regard  the  doing  of  them  as  the  acceptance  of  the  pro- 
posals, so  that,  without  other  act  of  acceptance,  by  the  plaintiff,  they 
could  have  maintained  an  action  against  it  upon  refusal  to  accept  and 
pay  for  the  goods."  ^ 

§  484.  Not  liiable  for  Services  Rendered  in  Promoting  it. — 

A  claim  for  money  expended  and  time  employed  for  the  organiza- 
tion and  benefit  of  a  proposed  corporation,  cannot  ordinarily  be  re- 
garded and  enforced  as  a  debt  of  the  after-formed  corporation.^ 
In  an  action  against  a  railway  company  to  recover  the  value  of 
services  performed  before  its  incorporation,  in  procuring  its  char- 
ter, in  making  surveys,  it  has  been  held  that  there  can  be  no  re- 
covery, in  the  absence  of  proof  that  a  majority  of  the  corpora- 
tors or  promoters  of  the  corporation  authorized  the  rendition  of 
the  services.*  But  it  has  been  ruled  that  where,  after  the 
charter  and  before  the  organization  of  a  corporation,  services  are 
rendered  which  are  necessary  to  complete  the  organization,  and, 
after  it  has   been  perfected,  the  corporation   elects   to   take  the 

1  Citing  Low  v.  Connecticut  &c.  R.  Mass.  145,  149.     Compare  Dayton  &c. 
Co.,  45  N.  H.  370,  and  referring  to  the  Tump.  Co.  v.  Coy,  13  Oh.  St.  84. 
common  liabilities  of  subscribers  of  ^  Marchand    v.    Loan    and    Pledge 
stock.  Assoc,  26  La.  An.  389. 

2  Penn  Match  Co.  v.  Hapgood,  141  *  Bell's  Gap  Co.  v.  Christie,  79  Pa. 

St.  54;  s.  c.  21  Am.  Rep.  39. 

348 


NON-LIABILITY    OF    COMPANY.       [1  TllOllip.  Coi'p.   §   485. 

benefit  of  such  services,  knowing  that  they  were  rendered  with 
the  understanding  that  compensation  was  to  be  made,  —  it  will 
be  held  liable  to  pay  for  the  services,  upon  the  ground  that  it 
must  take  the  burden  with  the  benefit;  but  that,  "  no  promise  to 
pay  would  be  implied  from  the  fact  that  such  services  were  ren- 
dered at  the  request  of  any  number  of  the  corporators  less  than 
a  majority."  ^  The  principle  of  estoppel,  invoked  in  cases  al- 
ready alluded  to,^  has  a  just  and  undoubted  application,  where 
the  circumstances  are  such  that  the  corporation  is  at  liberty 
either  to  accept  or  reject  the  benefit  of  the  contract  which  the 
promoters  have  assumed  to  make  in  its  behalf.  A  more  inter- 
esting question  arises  where  the  services  are  of  such  a  nature 
that  the  corporation  cannot  reject  them,  —  as  in  the  case  of 
services  rendered  in  bringing  the  corporation  into  existence.  In 
such  a  case  there  is  judicial  authority  for  the  proposition  that 
the  corporation  will  be  bound.  The  court,  struggling  for  a 
principle  on  which  to  rest  its  liability,  placed  it  upon  the  theory 
of  implied  contract.  ^ 

§  485.  Illustration.  — In  a  leading  case  on  this  subject,  the  serv- 
ices were  rendered  by  the  plaintiff  at  the  request  of  certain  persons 
named  in  the  charter  of  the  corporation,  in  bringing  it  into  existence ; 
and  the  plaintiff,  to  enlist  the  services  of  a  tlurd  person,  agreed  to  give 
him  "  his  best  horse,"  when  the  contemplated  railroad  should  reach  a 
certain  town,  and  he  accordingly  did  give  him  such  horse.  The  plaintiff 
brought  an  action  of  assumjosit  against  it,  to  recover  for  the  value  of  the 
services  and  the  horse.  "  The  court  charged  the  jury  that,  by  the  char- 
ter, all  associates  are  corporators ;  that,  by  the  law  of  Vermont  [the 
State  creating  the  corporation] ,  each  corporator  is  charged  with  the  duty 
of  rendering  necessary  services  to  carry  out  the  provisions  of  the  char- 
ter and  to  effect  an  organization  ;  and  that,  if  any  one  performs  neces- 
sary labor,  and  expends  money  in  the  discharge  of  such  duty,  and  his 
action  is  assented  to  by  the  corporators,  or,  being  known  to  them,  is  not 
objected  to,  and  the  corporation  is  organized  and  enjoys  the  benefit  of 
such  services,  the  law  implies  a  promise  to  pay  for  them ;  that  every 
person  interested  in  the  objects  for  which  an  act  of  incorporation  is 
granted,  and  who,  with  the  knowledge    and  without   the  objection  of 

1  Low  V.    Connecticut  &c.    R.  Co.,  ^  ^,j;g^  §  4go. 

45  N.  II.  370,  375.     Compare  Preston  •''  Low«.  Conuecticut  &c.  R.  Co.,  45 

V.  Liverpool  &,c.  R.  Co.,  7  Eng.  L.  &  N.  U.  370. 
Eq.  124. 

349 


1  ThoQip.  Corp.  §  4:85.]     riiOMOTEus. 

the  corporators,  and  with  the  assent  and  at  the  request  of  some  of 
them,  shall  unite  in  assisting  in  the  organization  of  the  corporation,  with 
a  bona  fide  intention  of  becoming  a  member,  by  taking  stock,  and  shall, 
as  soon  as  the  books  are  opened,  take  stock,  by  subscribing  for  shares, 
is  to  be  deemed  an  associate  from  the  commencement  of  his  labors, 
\>'ithin  the  purview  of  the  act  of  incorporation  in  this  case,  so  far  as  the 
liability  of  the  corporation  for  his  services  is  concerned ;  that  in  this 
case,  if  some  few  of  the  corporators  mentioned  in  the  charter  requested 
the  plaintiff  to  perform  the  services  now  in  suit,  or  if  the  greater  num- 
ber of  those  who,  like  himself,  became  associates,  and  in  the  manner 
that  he  did,  —  by  subscribing  for  stock  in  the  road  and  becoming  mem- 
bers of  the  corporation, —  either  requested  the  plaintiff  to  render  such 
services  or  knew  of  them  and  assented  thereto,  he  will  be  deemed  to 
have  sufficient  authority  to  render  the  services,  and  the  law  will  raise  a 
promise  of  the  corporation  to  pay  for  said  services,  if  necessary  and 
reasonable."  To  this  instruction  the  defendant  excepted.  "  The  de- 
fendant requested  the  court  to  instruct  the  jury  that,  prior  to  the  or- 
ganization, no  person  or  persons  were  competent  to  bind  the  corpora- 
tion by  contract,  express  or  implied;  that,  prior  to  the  organization, 
it  would  require  the  concurrence  of  a  majority  of  the  corporators  named 
in  the  charter  to  bind  the  corporation  by  contract ;  that  no  subscription 
for  stock  could  make  the  subscribers  associates,  within  the  meaning  of 
the  charter,  before  organization;  that  no  intention  to  subscribe  for 
stock,  nor  any  of  the  acts  done  in  furtherance  of  the  objects  of  the  en- 
terprise could  have  that  effect ;  that  no  one  would  become  an  associate 
within  the  meaning  of  the  charter,  except  after  the  organization,  by 
being  a  subscriber  for  stock ;  that  the  corporation  could  be  bound  by 
no  implied  contract  arising  before  organization ;  that  the  plaintiff  is  not 
entitled  to  recover  anything  on  account  of  the  horse  delivered  by  him 
to  Addison  Gilmore,  nor  for  the  services  performed  at  Montpelier  in 
procuring  a  division  of  the  charter,  being  of  the  kind  called  '  log  roll- 
ing.' "  The  court  declined  to  give  this  instruction  and  the  defendant 
again  excepted.  "  But  the  court  did  instruct  the  jury  that  the  corpora- 
tion would  be  bound  to  pay  for  the  horse  dehvered  to  Gilmore,  if  they 
found,  upon  consideration  of  all  the  evidence,  and  the  nature  of  the 
employment,  that  Low  was  authorized  to  make  such  a  contract  in  be- 
half of  the  corporation,  and  did  so  make  it,  and  not  otherwise.  .  .  . 
The  jury  returned  a  verdict  for  the  plaintiff  .  .  ."  which  the  de- 
fendants moved  to  set  aside  by  reason  of  the  preceding  exceptions. 
The  Supreme  Court  refused  to  set  it  aside,  on  the  ground  named, 
but  set  it  aside  on  other  grounds.  In  its  opinion,  which  is  a  long 
one,  the  court,  among  other  things,  say:  "The  great  question  is, 
whether  the  plaintiff  is  entitled  to  recover  of  the  corporation,  in  any 
3.50 


NON-LiABiMTY  OF  COMPANY.      [1  Thomp.  Corp.  §  485. 

form,  for  services  rendered  by  him  antecedent  to  its  organization,  but 
which  were  necessary  to  enable  it  to  complete  that  organization ;  and 
if  so,  whether  the  action  of  assumpsit  can  be  maintained.  In  consider- 
ing the  first  question,  it  will  be  assumed  for  the  present  that  the  serv- 
ices were  necessary ;  that  they  were  rendered  at  the  request  of  one  or 
more  of  the  original  corporators,  or  of  those  who  were  associated  with 
them ;  and  that  the  corporation  accepted  those  services  after  its  organ- 
ization, and  enjoyed  the  benefit  of  them.  Under  such  circumstances 
we  are  inchned  to  the  opinion  that  it  would  become  the  duty  of  the  cor- 
poration to  pay  for  such  services,  and  that  in  some  form  this  debt  could 
be  enforced.  .  .  .  "  The  court  then  considered  the  decisions  in 
England  and  in  other  jurisdictions,  and,  after  pointing  out  that  in  En- 
gland resort  is  had  to  equity  to  enforce  the  liabiUty,  proceeded:  "  The 
question  then  is  whether  an  action  at  law  can  be  sustained  in  New 
Hampshire  to  enforce  such  claims,  or  whether  resort  can  be  had  to 
equity  alone.  The  objection  to  a  recovery  in  a  suit  at  law  is  purely 
technical,  but  it  must  nevertheless  prevail  if  it  be  well  founded.  We 
are  inchned  to  think,  however,  that  it  is  no  violation  of  settled  principles 
to  hold  that  a  suit  at  law  may  be  maintained  to  enforce  the  obligation 
to  pay  for  services  rendered  in  the  manner  described,  and  of  which  the 
corporation  after  its  full  organization  has  taken  the  benefit.  It  it  were 
true  that,  at  the  time  the  services  were  rendered,  the  corporation  had 
no  capacity  to  make  a  contrac1»,  —  which  is  by  no  means  clear  after  the 
charter  has  been  accepted,  —  still  if  the  services  were  rendered  for  the 
corporation  upon  the  promise  of  the  corporators  that  they  should  be 
paid  for  by  it  when  its  organization  was  perfected,  and  after  that  the  cor- 
poration had  adopted  the  contract  and  received  its  benefits,  we  think 
that,  upon  a  maxim  that  a  subsequent  ratification  is  equivalent  to  a  prior 
request,  it  may  well  be  held  that  a  promise  to  pay  will  be  implied. 
Upon  this  principle  a  person  may  sue  upon  a  contract  made  in  his  name 
by  one  assuming  to  have  authority,  but  having  none  in  fact.  So,  the 
title  of  an  administrator  will  relate  back  to  the  death  of  the  intestate, 
so  as  to  entitle  him  to  sue  for  the  price  of  goods  sold  by  one  as- 
suming to  act  for  the  administrator  whoever  might  be  afterwards  ap- 
pointed. .  .  .  And  still  at  the  time  of  such  sale  there  was  no  one 
in  existence  having  capacity  to  make  a  contract  as  administrator.  So, 
if  one  without  authority  buy  goods  for  another,  but  afterwards  the  other 
receives  them,  this  is  equivalent  to  a  previous  request.  ...  In 
such  cases  it  can  avail  nothing  by  way  of  defense,  to  show  that,  in  fact, 
the  party  had  no  capacity  to  make  such  antecedent  request,  or  to  bind 
himself  by  a  contract,  as  in  the  case  of  a  corporation  that  was  not  or- 
ganized at  all,  or  imperfectly,  any  more  than  to  show  that,  in  point  of 
fact,  there  was  no  such  request  or  no  contract  made.     But  the  promise 

351 


1  Tliomp.  Corp.  §  486.]     promoters. 

is  implied  by  law  from  the  fact  that  the  party,  when  it  had  capacity  to 
contract,  has  taken  its  beneQts,  and,  therefore,  must  be  deemed  to  have 
taken  its  burthens  at  the  same  time ;  and  he  is  estopped  to  controvert 
it  either  by  showing  a  want  of  capacity  to  make  a  contract,  or  that  none 
in  fact  was  made.  Upon  the  same  principle,  a  person  entering  into  a 
contract  with  a  corporation  in  their  corporate  name,  is  estopped  to  deny 
that  it  is  duly  constituted.  .  .  .  The  case  of  an  infant  is  in  point. 
He  has  not  capacity  to  bind  himself  by  a  contract  except  for  neces- 
saries, but  if,  after  he  arrives  at  full  age,  he  apply  the  goods  to  his  use, 
he  is  bound  to  pay  as  he  had  promised.  So  here,  if  the  corporation, 
after  its  organization,  has  elected  to  receive  the  benefit  of  services  ren- 
dered for  it  prior  to  such  organization,  the  law  may  well  imply  a 
promise  to  make  reasonable  compensation  for  them.  To  bind  the  cor- 
poration, however,  by  such  ratification,  it  would  be  essential  that  it  has 
previous  knowledge  or  notice  of  the  existence  of  such  claim,  or  of  the 
material  facts  upon  which  it  is  founded ;  or,  at  least,  that  it  was  put 
upon  inquiry  in  respect  to  it.  .  .  .  The  case  before  us  stands 
much  upon  the  same  ground  as  a  promise  to  a  corporation  before  it  is 
organized,  to  take  and  pay  for  shares  in  its  capital  stock,  which  may, 
when  adopted  after  organization,  be  enforced  in  a  suit  at  law.  Upon 
these  principles  the  instructions  to  the  jury  that,  if  a  corporator  perform 
necessary  labor  and  expend  money  in  carrying  out  the  provisions  of  the 
charter  and  to  effect  an  organization,  and  this  is  assented  to  by  the 
corporation,  or  being  known  to  them  is  not  objected  to,  and  the  cor- 
poration is  organized  and  enjoys  the  benefit  of  such  services,  the  law 
implies  a  promise  to  pay  for  them  are,  we  think,  substantially  correct. 
Indeed,  it  would  be  immaterial  whether  such  services  were  rendered  by 
a  corporator  or  another,  because  the  subsequent  ratification  is  equivalent 
to  an  antecedent  request ;  but  we  think  that,  without  such  ratification, 
either  express  or  implied  from  taldng  the  benefit  of  such  services,  the 
law  would  raise  no  such  promise  to  pay,  from  the  mere  fact  that  the 
plaintiff  was  requested  to  render  them  by  one  of  the  original  corpora- 
tors as  associates."  While,  as  above  stated,  the  court  expressed  no 
disapproval  of  the  rulings  of  the  ti'ial  court  on  the  instructions,  it  did 
order  a  new  trial,  but  on  grounds  which  related  to  the  admissibility  of 
evidence.^  It  is  to  be  regretted  that  the  court  did  not  advert  to  the 
impossibility  of  the  corporation  rejecting  the  benefits  accruing  fi-om  the 
services,  owing  to  their  natui'e.  It  could  not  reject  such  benefits  with- 
out uncreating  itself. 

§  486.  Ijimitations    of    Rule  of    Corporate    Hiiability A 

limitation  of  the  rule  which  makes  the  corporatioii  liable  in  such 

1  Low  V.  Connecticut  &c.  R.  Co.,  45  N.  H.  370. 
352 


NON-LIABILITY  OF  COMPANY.      [1  Thoinp.  Corp.  §  486. 

eases  is,  that  the  services  must  have  been  necessary  and  reason- 
able, and  must  have  been  performed  under  a  contract  with  the 
promoter  or  promoters  of  the  corporation  assuming  to  act  in  its 
behalf,  and  with  the  intention  and  expectation  that  they  shall  be 
paid  for  by  the  future  corporation,  and  not  as  mere  gratuities,^ 
nor  on  the  mere  credit  of  the  individuals  at  whose  immediate  re- 
quest they  are  rendered.  In  a  case  involving  this  question, 
which  was  before  it  on  a  second  appeal,  the  Supreme  Court  of 
Arkansas,  speaking  through  Eakin,  J.,  have  said  ;  "  It  was  there 
announced  [referring  to  the  opinion  delivered  on  the  former  ap- 
peal] that  the  doctrine  cannot  apply  to  cases  in  which  private 
persons,  contracting  exclusively  upon  their  individual  credit, 
afterwards  created  a  corporation  for  the  more  convenient  man- 
agement and  enjoyment  of  the  benefits  acquired  by  the  contract. 
This  is  obvious  from  the  consideration  that  the  enhanced  value 
of  the  property  so  benefited,  or  the  rights  so  acquired  by  indi- 
viduals, are  estimated  and  allowed  by  the  corporation  subse- 
quently taking  it,  and  shares  are  issued  accordingly.  It  would 
be  unjust  to  other  stockholders  to  require  the  corporate  body  to 
pay  again  for  the  labor  or  material  which  enhanced  this  value. 
That  obligation  should  still  rest  upon  the  original  contractors, 
upon  whose  credit  the  work  was  done  or  the  material  furnished. 
It  may  be  illustrated  by  supposing  that  the  proprietors  of  an 
eligible  site  for  a  manufactory  should  contract,  upon  their  indi- 
vidual responsibility,  for  the  erection  of  suitable  buildings,  the 
addition  of  the  necessary  appurtenances,  and  the  acquisition  of 
water  privileges  and  rights  of  way,  with  a  view  to  forming  a  cor- 
poration for  manufacturing;  and  should  afterwards  form  one 
with  others,  who  subscribe  for  shares  and  put  in  their  property 
for  shares  at  its  enhanced  value.  It  would  be  unjust,  in  the  ab- 
sence of  any  claim  of  lien,  to  hold  the  corporate  body  liable  for 
the  improvements.  The  services  performed  must  be  intended 
at  the  time  to  inure  to  the  benefit  of  the  future  corporation ; 
must  be  made  or  done  in  its  behalf,  and  with  the  expectation 

*  "Of  course,  to  entitle  the  plaintiff  the  understanding  and  expectation 
to  recover,  such  services  must  have  that  they  were  to  be  paid  for."  Bel- 
been  necessary  and  reasonable,  and  lows,  J.,  in  Low  v.  Connecticut  &c.  R. 
rendered  not  gratuitously,   but  with  Co.,  45  N.  H.  370,  378. 

23  353 


1  Thomp.  Corp.  §  -tSS.]     tromoters. 

and  confidence  that   the  company  will  be  bound,  and  not  the 
credit  of  the  individuals.^ 

§  487.  Services  Rendered  at  the  Request  of  all  the  Cor- 
porators.—  The  view  has  been  put  forward,  and  upon  ojrounds 
which  seem  just,  that  where  an  association  of  individuals  unite 
to  carry  on  a  certain  business,  and,  before  being  incor[)orated, 
contract  debts,  and  afterwards  become  incorporated  loithout  tak- 
ing in  any  outside  persons  or  outside  capital,  the  corporation 
may  be  liable  iyi  equity  for  the  payment  of  such  debts.  "  Under 
such  circumstances  the  property  of  no  one  but  those  who  con- 
tracted the  debts  and  were  originally  liable  would  be  taken  or 
subjected  to  the  payment  of  it.  The  same  persons  continue  the 
same  business,  with  the  same  property,  with  no  substantial 
change  except  in  name.  In  such  a  case  there  is  no  reason  why, 
in  equity,  the  corporation  should  not  be  primarily  liable  for  the 
debts,  as  it  has  succeeded  to  the  property  of  the  association."  ^ 

§  488.  Rule  not  Applicable  where  Third  Persons  Join  the 
Corporation.  —  But  it  has  been  pointed  out  that  this  rule  could 
have  no  just  application  where  a  corporation  is  formed  with  a 
capital  consisting  in  part  of  the  property  of  the  pre-existing  as- 
sociation, and  in  part  of  the  property  contributed  by  new  cor- 
porators,  who  had  no  connection  with  the  association.  Speak- 
ing with  reference  to  such  a  state  of  facts,  it  was  said  ;  "If  the 
rule  contended  for  by  counsel  for  appellant  be  the  law,  the 
property  of  a  stranger  to  the  contract  of  indebtedness,  who  may 
have  no  knowledge  of  its  existence,  or  even  the  means  of  ascer- 
taining it,  would  be  subjected  to  the  payment  of  the  liabilities 
of  individuals  with  whom  he  may  have  associated  himself  in  a 
common  enterprise  or  business.  The  injustice  of  such  a  rule  is 
so  apparent  that  no  subtlety  of  reason  can  well  disguise  it.  The 
general  rule  of  law  is  that  none  are  liable  upon  contract  except 
those  who  are  parties  to  it ;  but  here  it  is  sought  to  charge  an 
entire  stranger  to  the  contract  with  the  responsibility  of  discharg- 
ing it.     .     .      .     The  case  of  an  incoming  partner  is  analogous 

»  Perry  v.  Little  Rock  &c.  R.  Co.,  44      Nev.  257,  260,  opinion  by  Lewis,  C.  J. 
Ark.  383.  395.  Compare  ante,  §§  265,  875. 

2  Paxton  V.  Bacon   Mill  &c.  Co.,  2 
354 


NON-LIABILITY    OF    COMPANY.       [1  TIlOlup.  Coip.    §   490. 

to  this,  and  it  is  universally  held  that  he  is  not  chargeable  with 
the  liabilities  of  the  firm  contracted  before  he  became  a  member. 
If,  instead  of  incorporating,  the  proprietors  of  the  mill  and 
Racon  mining  ground  had  formed  a  partnership,  the  authorities 
are  uniform,  that,  without  a  promise  by  the  new  firm,  the  mill 
proprietors  would  not  be  holden  for  the  debts  of  the  old  firm."  ^ 
It  was  also  pointed  out  that  any  liens  upon  the  property  of  the 
associates  would  follow  it  into  the  hands  of  the  corporation ; 
and  further,  that  the  members  of  the  original  association  con- 
tinued personally  liable  as  if  no  incorporation  had  taken  place, 
and  that  their  interest  in  the  corporation  might  be  seized  and 
sold  on  execution. 2 

§  489.  Distinction  between  Cases  where  the  Remedy  is  in 
Equity  and  at  Law. — Where  the  contract  made  by  the  pro- 
moters is  intended  to  inure  to  the  benefit  of  the  future  corpora- 
tion when  organized,  the  other  contracting  party  may,  under  cir- 
cumstances, acquire  an  equity  to  have  the  contract  carried  into 
effect.  But  it  becomes  a  legal  right  only  where  the  corporation 
affirms  the  contract,  or  does  some  act  from  which  an  affirmance 
may  be  implied.  At  law  the  rule  obtains  that  corporations  can 
not  be  bound  merely  by  acts  done  or  promises  made  by  others  in 
their  behalf  before  they  come  into  existence,  and  this  on  the 
simple  conception  that  there  is  no  privity  of  contract.^ 

§  490.  Illustrative  Cases  where  the  Corporation  was  Held 
Liable  on  the  Theory  of  Estoppel.  —  It  may  be  useful  to  refer  to 
some  other  cases,  where  the  corporation  was  held  liable  on  the  theory 
of  implied  contract,  or  of  estoppel,  or  on  the  reason  that  it  could  not 

1  Paxton  V.  Bacon  Mill  &c.   Co.,  2  where  there  is  a  full  discussion  of  the 

Nev.  2G0,  opinion  by  Lewis,  C.  J.  subject.       It    was    there    announced 

^  Ibid.     See  Chicago  Coffin  Co  v.  that  the  doctrine  cannot  apply  to  cases 

Fritz,  U  Mo.  App.  389.  in  which  private  persons,  contracting 

3  This  principle  is  stated  in  Perry  exclusively  for  tlieir  individual  benefit, 

V.  Little  Rock  &c.  R.  Co.  44  Ark.,  383,  afterwards  create  a  corporation  for 

394.     It  was  the  ground  of  decision  in  the  more  convenient  management  and 

Bommer  v.  American  Spiral  &c.   Co.,  enjoyment  of  the  benefits  acquired  by 

81   N.  Y.  4G9,  where  an  action  in  the  the  contract.     The   same  doctrine  is 

nature  of  an  action  at  law  was   sus-  found  in  the  leading  case  of  Low  v. 

taincd  on  the  ground  of  a  ratification.  Connecticut  &c.  R.  Co.,  45  N.  H.  370; 

See  als(;  P(;rry  v.  Little  Rock   &c.  Co.  ante,  §  485. 
(on  a  former  appeal),  37   Ark.    1C4, 

355 


1  Thomp.  Corp.  §  4:90.]     promoters. 

accept  and  retain  the  benefit  and  at  the  same  time  deny  the  liability- 
After  articles  of  association  had  been  signed  by  the  promoters  of  a  caUle 
company,  but  before  they  were  recorded  or  filed,  the  promoters  elected 
a  president  of  the  corporation,  who,  in  their  presence  and  with  their  ap- 
proval, executed  and  delivered  to  A.  a  promissory  note  in  payment  of 
property,  which  A.  sold  and  dehvered  professedly  to  the  corporation. 
The  corporation  subsequently  used  the  property  in  its  business.  The 
note  having  passed  into  the  hands  of  a  bank  by  indorsement,  it  was 
held,  in  a  suit  by  the  bank  against  the  corporation  on  the  note,  that  the 
corporation  was  liable.^  _  _  _  .  On  like  grounds,  it  has  been  held 
that  an  agreement  among  pai'ties  owning  a  mine,  who  expect  to  become 
incorporated  but  have  not  become  so,  that  a  person  shall  be  entitled  to 
a  certain  number  of  shares  of  stock  of  the  proposed  company,  cannot 
be  enforced  against  the  corporation  after  its  organization  in  an  action 
for  damages  for  the  conversion  of  the  shares,  because  it  is  not  the 
contract  of  the  corporation. ^  -  -  -  -  A  hotel  company  was  organ- 
ized with  a  capital  of  $160,000,  which  was  all  subscribed  by  one  of  the 
corporators,  except  three  shares  of  $100  each,  none  of  which  were  ever 
paid.  At  the  time  of  the  organization  the  principal  stockholder,  who 
was  elected  president,  was  the  owner  of  a  large  amount  of  hotel  furni- 
ture, subject  to  a  chattel  mortgage  of  $115,000.  This  he  turned  over 
to  the  company  in  payment  of  his  subscription,  in  pursuance  of  an  ar- 
rangement made  prior  to  the  organization ;  and  the  company,  in  pursu- 
ance of  the  same  arrangement,  gave  its  notes,  secured  by  a  chattel 
mortgage  on  the  same  property,  to  release  it  from  the  prior  incumbrances ; 
and  such  property  constituted  the  sole  assets  of  the  company.  It  was 
held  that,  so  far  as  the  hotel  company  was  concerned,  it  had  received  a 
full  consideration  for  the  notes  and  mortgage  given,  and  that  they  were 
valid  obhgations.3 

1  Paxton    Cattle  Co.  v.  First  Nat.      Cal.  SOR;  Hawkins  v.  Mansfield  Gold 
Bank,  21  Neb.  621;  s.  c.  33  N.  W.  Kep.      Mining  Co.,  Id.  513. 

271.  3  Reichwald   o.  Commercial    Hotel 

2  Morrison  v.  Gold  Mining  Co.,  52      Co.,  106  111.  439. 

356 


IRREGULAR  CORPORATIONS.     [1  Thomp.  Corp.  §  496. 


CHAPTER    XL 

IRREGULAR  AND  DE  FACTO  CORPORATIONS. 

Art.  I.  De  Facto  Corporations,  §§  495-513. 
II.  Corporations  by  Estoppel,  §§  518-533. 


Article  I.  De  Facto  Corporations. 


Section 

495.  Divergence  of  views  on  the  sub- 

ject    of     de     facto     corpora- 
tions. 

496.  When  rightfulness  of  corporate 

existence  presumed. 

497.  Presumed  from  user  of  corporate 

powers. 

498.  Especially  where  rights  have  been 

acquired  thereunder. 

499.  Corporations  by  prescription  or 

user. 
What  necessary  to  give  rise  to 

this  presumption. 
Validity  of    corporate  existence 

not  litigated  collaterally. 
Limitations  of  this  doctrine. 
What  is    meant    by  existing    de 

facto . 
Rule      under      Califoruia      civil 

code. 


500. 


501. 


502. 
503. 


504. 


Section 

505.  Rule  applies  only  where  the  cor- 
poration might  exist. 

606.  Effect  of  this  doctrine  upon  the 
rights  of  shareholders  and 
creditors. 

507.  Validates    irregularities    in    or- 

ganization. 

508.  Except  where  the  thing    to    be 

done  is  a  condition  precedent. 

509.  Further  observations  and  illus- 

trations. 

510.  State  precluded  by  lapse  of  time 

from  questioning  regularity  of 
corporate  organization. 
611.  Corporation     suing    for    rights 
which  can  only  inhere  in  it  as  a 
corporation. 

512.  Corporations  by  legislative  recog- 

nition. 

513.  Illustrations. 


§  495.  Divergence  of  Views  on  the  Subject  of  de  Facto 
Corporations. —  It  is  impossible  to  formulate  a  rule  on  the  sub- 
ject of  de  facto  corporations,  which  will  be  applicable  in  all 
American  jurisdictions,  or  which  will  receive  uniform  support 
from  the  decisions  in  any  one  such  jurisdiction.  Those  decisions 
oscillate  between  two  extreme  views:  1.  That  where  a  body  of 
men  act  as  a  corporation  and  in  the  ostensible  possession  of  cor- 
porate powers,  it  will  be  conclusively  presumed,  in  all  cases 
except  in  a  direct  proceeding  against  them  by  the  State  to  vacate 
their  franchises,  that  they  arc  a  corporation.     2.  That  the  con- 

357 


1  Tlionip.  Corp.  §  407.]     irregular  corporations. 

dit'ions  named  in  statutes  authorizing  the  organization  of  corpo- 
rations are  conditions  precedent^  and  must  be  strictly  complied 
with  or  the  corporation  does  not  exist;  and  that  the  want  of 
compliance  with  any  one  condition  precedent  may  be  shown  by 
any  one,  in  a  private  litigation  with  the  pretended  corporation, 
unless  he  has  estopped  himself  by  his  conduct  from  challenging 
its  corporate  existence,  and  frequently  without  reference  to  the 
question  of  estoppel.  It  is  proposed  to  consider  this  subject 
now,  disconnecting  it,  as  far  as  possible,  from  mere  questions  of 
pleading  and  procedure,  which  are  reserved  for  a  future  chapter.^ 

§  496.  When  Rightfulness  of  Corporate  Existence  Pre- 
sumed.—  We  may  commence  this  discussion  with  the  most  atten- 
uated thread  of  legal  doctrine,  1\iq  presumption  of  right-acting. 
Men  are  presumed  to  do  rightly  what  they  do,  unless  the  contrary 
appears  on  the  very  face  of  their  proceedings.  In  apparent 
conformity''  with  this  principle,  we  find  it  sometimes  laid  down 
that  persons  acting  publicly  as  officers  of  a  corporation  are  pre- 
sumed rightfully  in  office,  and  that  all  necessary  steps  in  order 
to  enable  the  corporation  to  act  as  such,  are  presumed  to  have 
been  taken. ^  Another  expression  of  this  doctrine  is  that,  when 
it  is  shown  that  a  charter  has  been  granted,  then  those  in  posses- 
sion and  actually  exercising  the  corporate  rights,  shall  be 
considered  as  rightfully  there  against  wrong-doers,  and  all  those 
who  have  treated  or  acted  with  them  in  their  corporate  charac- 
ter. The  sovereign  alone  has  a  right  to  complain ;  for,  if  it  is 
an  usurpation,  it  is  upon  the  rights  of  the  sovereign,  and  his 
acquiescence  is  evidence  that  all  things  have  been  rightfully  per- 
formed.^ 

§  497.  Presumed  from  User  of  Corporate  Powers.  —  While 
the  regular  proof  of  incorporation  consists  of  proof  of  (  1 )  legis- 
lative authorization,  and  (2)  user  thereunder,*  —  yet  there  is  a 
rule  of  evidence  which  in  many  cases  dispenses  with  proof  of  the 

1  Post,  Ch.  184.  C.)  476;  s.   c.  45  Am.  Dec.  500;  Wil- 

2  Selraa  &c.  R.  Co.  v.  Tipton,  5  mington  &c.  R.  Co.  v.  Saunders,  3 
Ala.  787;  s.  c.  39  Am.  Dec.  344,  353.  Jones  L.    (N.  C.)  128;  Atlantic  &c.  JR. 

3  Tar  Elver  Nav.    Co.    v.    Neal,    3  Co.  tJ.  Johnston,  70  N.  C  348. 
Hawks  (N.    C),  .520;  Elizai)eth    City  *  Post,  ^  VJd. 

Academy    v.    Lindsey,    6    IreU.     (N. 
358 


DE  FACTO  CORPORATIONS.     [1  Thomp.  Corp.  §  4:99. 

former  element  and  holds  the  latter  sufficient.  Under  this  rule 
the  existence  of  a  charier  will  be  ])re»umed  from  the  long  exist- 
ence of  the  body  in  the  character  of  a  corporation,  and  from  a 
long  continued  user  of  privileges  which  belong  exclusively  to 
corporations,  acquiesced  in  by  the  State. ^  The  doctrine  was 
thus  expressed  by  Howk,  J.,  in  the  Supreme  Court  of  Indiana, 
in  speaking  of  an  assumed  religious  corporation:  "For  nearly 
twenty-five  years  the  '  Trustees  of  the  Methodist  Protestant 
Church,'  under  that  corporate  name,  have  assumed  to  act  and 
have  acted  as  a  corporation.  After  that  long  lapse  of  time,  no 
person  except  the  State  can  be  heard  to  call  in  question  the  legal 
corporate  existence  of  said  trustees,  or  their  rights,  powers  and 
franchises  as  said  corporation."  ^ 

§  498.  Especially  where  Rights  have  been  Acquired  There- 
under.—  Added  force  is  given  to  this  principle  in  cases  where 
rights  have  been  acquired  on  the  faith  of  the  assumed  corporation 
being  such  de  jure^  and  where  to  declare  it  not  possessed  of  cor- 
porate powers  would  operate  to  disturb  those  rights.  It  is 
therefore  merely  another  way  of  reaching  the  same  result,  to  say, 
as  some  of  the  courts  have  said,  that  the  legal  existence  of  the 
corporation  will  be  presumed  in  such  an  action,  where  it  has  gone 
into  operation  as  a  corporation,  and  where  rights  have  been  ac- 
quired on  the  faith  of  its  being  such.^ 

§499.  Corporations  by  Presumption  or  User. — This  leads 
us  to  a  principle  of  somewhat  infrequent  application  in  this  coun- 
try, but  of  frequent  application  in  England,  especially  in  respect 
of  ancient  boroughs  and  other  municipal  corporations, — which 
is,  that  a  corporation  may  exist  hj prescription,  although  it  can- 
not exhibit  a  charter.     The  principle  is  similar  to  that  which 

*  Greene  v.  Dennis,  6  Conn.  293;  that  the  corporation  was  duly  incor- 

«.  c.  16  Am.  Dec.  58;  Selraa&c.  R.  Co.  porated.     Sword    v.    Wickersham,   29 

V.  Tipton,  5  Ala.  787;  s.  c.  39  Am.  Dec.  Kan.  746. 

344,  353.     Where  corporators  sign  and  ^  White  v.  State,  G9  Ind.  273,  279, 

acknowlerlge  their  charter    as   "  citi-  ^  Hagerstown      Turnp.       Co.       v. 

zeus  of  G.  County,  State  of  Kansas,"  Creeger,  5  Harr.  &  J.  (Md.)  122;  s.  c. 

and  describe  themselves  in  the  body  9  Am.  Dec.  495.     Compare  Greene  v. 

of  the  charter  as  "  all  of  Salt  Springs,  Dennis,  6  Conn.  393;  s.  c.  16  Am.  Dec. 

G.  County,  Kansas,"  it  will  be  pre-  58;  Selma  &c.  R.  Co.  v.  Tipton,  5  Ala. 

sumed  that  they  were  citizens  of  Kan-  787;  s.  c.  39  Am.  Dec.  344. 
sas,  and,  all  else  appearing  regular, 

359 


1  Thomp.  Corp.  §  500.]     irregular  corporations. 

creates  title  to  real  property,  which  has  been  held  by  a  long  con- 
tinued exclusive  possession,  by  tlie  j^^'^sumption  of  a  grant} 
Stated  in  other  language,  wliere  there  has  been  a  corporate  bod}^, 
de  facto,  for  a  considerable  period  of  time,  claiming  at  least  to 
be  such,  and  holding  and  enjoying  property  as  a  corporation,  it 
will  be  presumed  that  all  merely  formal  requisites  to  the  due 
creation  of  a  corporation  have  been  complied  with.^  In  respect 
of  the  manner  in  which  the  prescriptive  right  to  be  a  corpora- 
tion is  pleaded  at  common  law,  we  find  it  ruled  in  an  old  case 
that,  in  a  proceeding  by  quo  warranto  against  persons  claiming 
to  exercise  corporate  franchises,  if  they  set  up  that  they  are  a 
corporation  by  prescription,  they  must  set  up  that  they  are  a 
corporation  known  by  such  a  name  time  out  of  mind;  for  a  pre- 
scription cannot  be  alleged  in  several  persons  unless  as  a  cor- 
poration.^ The  proof,  of  course,  follows  the  pleading.  There- 
fore, in  a  case  where  it  appeared  that  no  record  of  the  organiza- 
tion of  a  school  district  could  be  found,  and  that  the  trustees  and 
their  predecessors,  by  the  same  name  and  title,  had  exercised 
their  functions  as  trustees  of  the  village  district  dnrmg  forty 
years,  without  objection,  the  due  incorporation  and  organization 
of  the  district  was  presumed.*  The  effect  of  prescriptive  proof 
of  the  existence  of  a  corporation  of  a  particular  kind,  is  to  es- 
tablish the  conclusion  that  the  body  possesses  all  the  powers 
usually  giveu  by  law  to  such  corporations.^ 

§  500.  What  Necessary  to  give  Rise  to  this  Presumption.  — 

But  in  order  to  give  rise  to  this  presumption,  the  acts  done  must 
bear  the  impress  of  corporate  acts;  they  must  be  such  as  corpo- 
rations are  competent,  and  individuals  incompetent,  to  perform.® 
Thus,  the  fact  that  the  yearly  meetings  of  a  community  of  Quak- 
ers kept  records,  had  a  clerk  and  treasurer,  received  contribu- 
tions, exercised  general  supervision  over  the  spiritual  concerns 
of  Quakers,  celebrated  marriages,  and  admitted  and   discarded 

1  In  a  note  to  an  old  case  it  is  said  ^  Rgx  v.  Beardwell,  2  Keb.  52. 
that  a  corporation  can  liave  anything  *  Robie  v.  Sedgwick,  35  Barb.  (N. 
by  prescription,  and  also  by  charter,      Y.)  319. 

and  that  it  can  use  both  titles.    Black-  ^  Ibid. 

stonv.  Martin,  Latch.  112,  113.  ^  Kirkpatrick  v.  Keota  United  Pres- 

2  All    Saints  Church  v.   Lovett,    1  byterian  Church,  63  Iowa,  372. 
Hall(N.Y.),  191. 

360 


DE    FACTO    CORPORATIONS.       [1  ThoDip.  Coip.    §  501. 

members, — has  been  held  not  sufficient  to  prove  that  it  was  a 
corporation.^  And  similarly  no  presumption  of  incorporation 
arises  from  the  mere  fact  that  the  business  was  transacted  by  a 
president  and  secretary.^ 

§  501.  Validity  of  Corporate  Existence  not  Liitigated  Col- 
laterally. —  Another  step  brings  us  to  a  class  of  cases  where  we 
find  the  sweeping  declaration  that  the  rightfulness  of  an  assumed 
corporation  cannot  be  litigated  in  a  collateral  proceeding,  but 
can  only  be  litigated  in  a  direct  proceeding  instituted  by  the 
State  for  that  purpose;  ^  as,  for  instance,  in  an  action  by  a  cor- 
poration on  a  transferable  contract  in  which  it  claims  as  the 
equitable  assignee  ;  *  or  in  a  suit  in  equity  to  enjoin  it  from  con- 
structing its  works,  or  by  way  of  defense  to  its  proceedings  to 
acquire  land  ;  ^  or  on  a  bill  filed  by  stockholders  for  mismanage- 
ment.^ On  this  principle,  a  stranger  to  contracts  made  with 
stockholders  of  a  company  which  has  not  completed  its  organiza- 
tion as  a  corporation,  but  who  have  assumed  to  act  as  a  corporation, 
cannot  object  to  the  validity  of  the  contracts  because  the  corpo- 
ration is  not  organized ;  ^  and  for  equally  strong  reasons,  a  parti/ 
to  such  a  contract  cannot.^ 

1  Greene  v.  Dennis,  6  Conn.  293;  s.  Camp  River  Co.  v.  Woodman,  2  Me. 
c.  16  Am.  Dec.  58.  404;    Charles  River    Bridge  v.  War- 

2  Clark  U.Jones,  87  Ala.  474.  s.  c.  ren  Bridge,  7  Pick.  (Mass.)  371; 
6  Soutli.  Rep.  362.  Trustees  v.  Hills,  6  Cow.  (N.  Y.)  23; 

3  Toledo  &c.  R.  Co.  v.  Johnson,  49  s.  c.  16  Am.  Dec.  429;  Lehigh  Bridge 
Mich.  148;  Rondell  v.  Fay,  32  Cal.  354;  Co.  v.  Lehigh  Coal  Co.,  4  Rawle  (Pa.), 
Jersey  City  Gaslight  Co.  v.  Consum-  9;  s.  c.  26  Am.  Dec.  11;  Chester  Glass 
ers'  Gas  Co.,  40  N.  J.  Eq.  427;  Hacken-  Co.  v.  Dewey.  16  Mass.  94;  s.  c.  8  Am. 
sack  Water  Co.  w.  De  Kay,  36  N.  J.  Eq.  Dec.  128;  John  u.  Farmers'  Bank,  2 
548;  German  Ins.  Co.  v.  Strahl,  13  Blackf.(Ind.)  367;  s.c.  20  Am. Dec.  119; 
Phila.   (Pa.)  512;  Chicago  &c.  R.  Co.  Day  v.  Stetson,  8  Me.  372. 

V.   Stafford  County  Comm'rs,  36  Kan.  *  Toledo  &c.  R.  Co.  v.  Johnson,  55 

121 ;    Keene    v.    Van  Reuth,  48  Md.  Mich.  456. 

184;   Town  of  Searcy  v.  Yarnell,  IS.  ^  Aurora  &c.   R.   Co.  v.  Lawrence- 

W.   Rep.  319;  s.  c.  47  Ark.  269;  Selma  burgh,  56  Ind.  80;  Aurora  &c.  R.  Co. 

&c.  R.  Co.  V.  Tipton,  5  Ala.  787;    s.  c.  v.  Miller,  56  Ind.  88. 

39    Am.     Dec.  344,   353.    See  to  the  ^  Merchants'   &    Planters    Line    v. 

same     effect     Centre    &c.     Turnpike  Waganer,  71  Ala.  581. 

Co.    V.    McConaby,     16    Serg.     &  R.  '  New  Haven  Wire  Co.  Cases,  57 

(Pa.)    145;    State  v.   Carr,   5    N.   H.  Conn.  352;  s.  c.  5 Law.  Rep.  Ann.  300; 

371;    Tar  River   Nav.   Co.   v.   Neal,  3  16  Atl.  Rep.  393. 

Hawks  (N.    C),  520;  Grays  v.   Turn-  ^Post,^5l8. 

pike    Co.,   4    Rand.    (Va.)    578;  Bear 

361 


1  Thomp.  Corp.  §  502.]     irregular  corporations. 

§  502.  Liimitations  of  this  Doctrine.  —  But  it  is  apprehended 
that  the  rule  does  not  exist  in  any  American  jurisdiction  in  the 
naked  and  unqualified  form  which  the  above  language  would 
imply,  except  in  cases  where  the  party  questioning  the  existence 
of  the  corporation  has,  by  its  conduct,  estopped  himself  from 
making  the  issue.  We  must  not  get  too  far  away  from  the 
primal  proposition  that  the  legislature  alone  can  create  a  corpo- 
ration,^ and  that  a  collection  of  individuals  cannot  make  them- 
selves a  corporation  by  merely  resolving  to  be  such  or  calling 
themselves  such.  The  three  tailors  of  Tooley  Street  did  not 
make  themselves  the  people  of  England  by  passing  a  resolution 
in  which  they  styled  themselves  such.  There  must  be  some  basis 
for  the  operation  of  the  rule,  and  accordingly  we  find  a  better 
statement  of  it  in  the  proposition  that,  where  a  corporation 
exists  de  facto i  and  in  fact  exercises  corporate  powers,  the  ques- 
tion whether  it  exercises  such  powers  lawfully  cannot  be  liti- 
gated in  a  collateral  proceeding  between  private  parties  or 
between  a  private  party  and  the  corporation ;  the  question  can 
only  be  litigated  between  the  corporation  and  the  State.  ^  The 
term  "  collateral  proceeding,"  in  the  statement  of  this  principle, 
is  used  to  designate  cases  where  the  question  of  the  existence  of 
the  corporation  is  incidental  or  collateral  to  the  main  object  of 
the  suit;  ^  and  the  oft-repeated  reason  of  the  rule  is  the  incon- 
venience of  trying  the  question  of  the  right  of  an  assumed  cor- 
poration to  exist,  where  the  question  arises  as  a  mere  incident  to 
a  private  litigation,  and  where  the  State,  which  is  chiefly  inter- 
ested in  the  question,  is  willing  that  it  should  exist.  *'It  would," 
said  Brickell,  C.  J.,  *'  produce  only  disorder  and  confusion,  em- 
barrass and  endanger  the  rights  and  interests  of  all  dealing  with 
the  association,  if  the  legality  of  its  existence  could  be  drawn  in 

1  Ante,  §  35.  455;  s.  c.  6  Am.  Corp.  Cas.  155;  Chubb 

2  The  following  cases  are  to  this  gen-  v.  Upton,  95  U.  S.  665;  s.  c.  6  Am. 
eral  effect:  Smith  v.  Sheeley,  12  Wall,  Corp.  Cas.  23;  Eaton  v.  Aspinwall,  19 
(U.  S.)  358;  Clark  v.  Middleton,  19  N.  Y.  119;  Upton  v.  Hansborough,  3 
Mo.  53;  Gold  Mining  Co.  u.  National  Biss.  (U.  S.)  417;  Central  Ag.  &c. 
Bank,  96  U.  S.  640;  National  Bank  v.  Asso.  v.  Alabama  &c.  Co.,  70  Ala.  120, 
Matthews,  98  /d.  621;  National  Bank  133;  s.  c.  9  Am.  Corp.  Cas.  8,  13; 
V.  Whitney,  103  Id.  99;  Reynolds?;.  Cochran  v.  Arnold,  58  Pa.  St.  399;" 
Bank,  112  Id.  405;  Fortier  v.  Bank,  Tattison  v.  Albany  &c.  Assn.,  63  Ga. 
112  Id.  439;  Thorington  v.  Gould,  59  393;  North  v.  State,  107  lud.  356. 
Ala.  461;  Lehman  v   Warner,  61  Ala.  '  State  z7.Butler,15  Lea  (Tenn.), 104. 

362 


DE    FACTO    CORPORATIONS.       [1  Thomp.  Coip.    §   504. 

question  in  every  suit  to  which  it  was  a  party,  or  in  which  rights 
were  involved  springing  out  of  its  corporate  existence.  No 
judgment  could  be  rendered  which  would  settle  the  question 
finally.  But  when  the  government  intervenes  by  an  appropriate 
proceeding,  the  judgment  is  final  and  conclusive,  putting  an  end 
to  controversy."  ^ 

§  503.  What  is  Meant  by  Existing  De  Facto.  —  It  is  fre- 
quently said  that  in  controversies  between  citizens  generally  and 
a  corporation,  the  existence  of  the  latter,  when  put  in  issue,  is 
established  by  showing  a  corporation  de  facto?  By  this  it  is 
not  to  be  understood  that  evidence  of  user  alone  will  be  conclu- 
sive of  the  question  of  corporate  existence.  Otherwise,  as  just 
suggested,  corporations  might  spring  into  existence  without  any 
warrant  of  law.  "The  least  proof  which  has  been  held  suffi- 
cient," said  Savage,  C.  J.,  "  is  the  production  of  an  exemplifi- 
cation of  the  act  incorporating  the  plaintiffs,  and  evidence  of 
user  under  their  charter."  ^  It  has  been  said  by  an  eminent 
writer,  in  explanation  of  this  principle,  that  if  it  appear  to  be 
acting  under  color  of  law,  and  is  recognized  by  the  State  as 
such,  such  a  question  should  be  raised  by  the  State  itself,  by 
quo  warranto  or  other  direct  proceeding.  And  the  rule  w^ould 
not  be  different  if  the  consiitution  itself  prescribed  the  manner 
of  incorporation.  Even  in  such  a  case,  proof  that  the  corpora- 
tion was  acting:  as  such  under  leirislative  sanction  would  be  suf- 
ficient  evidence  of  right,  except  as  against  the  State;  and 
private  parties  could  not  enter  upon  any  question  of  irregu- 
larity.*    This  doctrine  has  met  with  frequent  judicial  approval.^ 

§  504.  Rule   Under  California  Civil  Code.  — The  Civil  Code 

of   California  declares  that  "  the  due  incorporation  of  any  company, 

1  Central  &c.  Asso.  v.  Alabama  &c.  dist  Epis.  Church  v.  Pickett,  19  N.  Y. 
Co.,  70  Ala.  120,  133;  s.  c.  9  Am.  Corp.  482;  Searsburgh  Turnp.  Co.  v.  Cutler, 
Cas.  8,  13.  6  Vt.   315,  323;  Heaston  u.  Cincinnati 

2  McAuley.w.  Chicago  &c.  R.  Co.,  83  &c.  R.  Co.,  KJ  Ind.  275,  279. 
111.   348;  Reisner  v.   Strong,   24  Kan.  ^  Cooley  Const.  Lira.  254. 

410;  Wilcox  v.  Toledo  &c.  R.   Co.,  43  *  gj,  Louis  v.  Sliields,  62  Mo.  247, 

Mich.  .'iSl;  Swartwout  17.  Michigan &c.  252.  Tlic  rule  applies  to  religious 
R.  Co.,  24  Midi.  38!).  societies     as    well      as      to     others. 

8  United  States  Banlc  v.  Stearns,  15  Trustees  v.  Hills,  6  Cow.  (N.  Y.)  23; 
Wend.  QN.  Y.)  314.     See  also  Metho-      s.  c.  16  Am.  Dec.  429. 

363 


1  Thoiiip.  Corp.  §  504.]     irregular  corporations. 

claimiug  in  good  faith  to  be  a  corporation,  and  doing  business  as  such, 
shall  not  be  inquired  into  collaterally,  in  any  private  suit  to  which  such 
de  facto  corporation  may  be  a  party."  ^    This  statute  has  been  the  sub- 
ject of  frequent  interpretations. 2     It  has  been  held  that  it  does  not  go 
to  the  extent  of  precluding  a  private  person  from  denying  the  existence, 
clejure  or  de  facto,  of  an  alleged  corporation.     The  mere  allegation  that 
a  party  is  a  corporation  cannot  put  the  question  whether  it  is  such  a 
corporation,  beyond  the  reach  of  inquiry  in  a  suit  with  private  persons. 
It  has  been  further  reasoned  that  the  allegation  that  the  plaintiffs  are  a 
corporation  is  an  indispensible  allegation  in  any  action  brought  by  them ; 
and  necessarily  the  adverse  party  may  deny  it.     The  statute  does  not 
contemplate    that    the  mere  allegation    that    the  company  has    been 
duly  organized  should  put  that  fact  beyond  dispute :  but  only  that  when 
the   evidence    establishes   that    the  company   claims  in  good   faith  to 
be  a  corporation,  and  is  actually  doing  business  as  such,  then  its  due 
incorporation  shall  not  be  inquired  into  collaterally.     Irregularities  or 
defects  in  the  mode  of  performing  the  acts  prescribed  by  law  as  consti- 
tuting a  corporation,  cannot  be  set  up  by  a  private  individual.     But  he 
may  show  that  those  acts  have  not  been  performed  at  all.     Hence  upon 
an  appHcation  for  a  mandamus  to  compel  county  authorities  to  complete 
their  subscription  to  the  stock  of  plaintiff's  raikoad  company,  the  de- 
fendants  may  deny  the  plaintiff's  incorporation;  and  may  deny  that 
they   have   compUed  with  the  provisions  of   the  law  prescribing  theii- 
organization,    or  are   doing    business  as   a  railroad  company.^    And 
where,   in  an  action  by  persons   suing  in  a  corporate  name,    against 
an  individual,  there  is   no   ground  to   doubt  that   the  plaintiffs    claim 
in    good  faith  to   be  a  corporation,  and   are   doing  business  as   such 
corporation,     neither    the     vahdity    of    the    incorporation,     nor    the 
right  to  exercise  corporate  powers   can  be  questioned  by  the  defend- 
ant.*    More  definitely  speaking,  where  it  appears  that  the  plaintiff  was 
recognized  in  the  community  as  a  corporation,  and  its  records  show  that 
it  was  acting  as  such,  that  in  all  its  deaUngs  it  was  so  styled,  and  that  it 
had  held  corporate  meetings,  and  pursued  corporate  forms  of   action, 
sufficient  is  shown  to  bring  it  within  the  statute. ^ 

1  Cal.  Civ.  Code,  §  358.    This  sec-  ^  Bakersfield  Town  Hall  Assoc,  v. 

tion    seems    to  be    the  same  as    the  Chester,  55  Cal.  98. 
California  statute  of   18G2,  p.  110,  §  6.  ^  Oroville  &c.   E.     C9.   v.    Plumas 

The  act  of  18G2  was  not  limited  to  cor-  County,  37  Cal.  354. 
porations  existing  at  the  time   of   its  ^  Ibid. 

passage,  but  extended  to  corporations  *  Lakeside  Ditch  Co.  v.  Crane,  80 

afterwards  created.    Pacific  Bank  v.  Cal.  181;  s.  c.  22  Pac.  Eep.  76. 
De  Ro,  37  Cal.  538. 
3G4 


DE   FACTO   CORPORATIONS.       [1  TllOmp.  Coi'p.   §  506. 

§  505.  Rule  Applies  only  where  the  Corporation  Might 
Exist.  —  A  limitation  of  the  doctrine  is  that  the  rule  under  dis- 
cussion extends  only  to  those  cases  where  there  is  a  law  under 
which  the  corporation  might  exist.  If  there  is  no  law  under 
which  it  might  exist,  its  non-existence  may  be  set  up  even  in  a 
collateral  proceeding;^  and  the  rule  is  the  same  where  there  is 
only  din  unconstitutional  law?  "  To  be  a  corporation  defacto^  it 
must  hQ possible  to  be  a  corporation  de  jure,  and  acts  done  in  the 
former  case  must  be  legally  authorized  to  be  done  in  the  latter, 
or  they  are  not  protected  or  sanctioned  by  the  law.  Such  acts 
must  have  an  apparent  right. ^^  ^  It  is  an  easy  step  from  this 
view  to  the  general  rule  that,  to  establish  the  existence  of  a  de 
facto  corporation,  a  charter  or  law  authorizing  the  existence  of  the 
corporation  must  be  shown,  and  user  under  such  authority.* 

§  506.  Effect  of  this  Doctrine  upon  the  Rights  of  Share- 
holders and  Creditors.  —  An  application  of  this  principle  is 
moreover  found  ^  in  a  class  of  cases  relating  to  the  banking  as- 
sociations  organized  under  an  unconstitutional  law  in  Michigan. 
They  were  not  de  facto  corporations  in  such  a  sense  as  enabled 
their  receivers  to  maintain  actions  to  collect  debts  due  to  them,® 
or  to  foreclose  mortgages  given  to  secure  such  debts. ^     Nor 

1  Heaston  V.  Cincinnati  &c.  R.  Co.,  tion,  is  necessary;  or,  if  the  law 
16  Ind.  275,  278;  Krutz  y.  Paola  Town  provides  that  a  corporation  may  be 
Co.,  20  Kan.  397;  Eaton  v.  Walker,  76  formed  upon  a  subsequent  compliance 
Mich.  579;  s.  c.  6  Law.  Rep,  Ann.  with  prescribed  regulations  and  forms, 
102;  43  N.  W.  Rep.  C38.  some  of  those  regulations  and  forms 

2  Eaton  V.  Walker,  supra;  Green  v.  must  have  been  observed,  although 
Graves,  1  Doug.  (Mich.)  351;  Hurlbut  others  have  been  omitted.  DeWitt  v. 
V.  Britain,  2  Doug.  (Mich.)  191;  State  Hastings,  40  N.  Y.  Superior  Ct.  463. 
V.  How,  1  Mich.  512;  Heaston  v.  Cin-  ^  Abbott  v.  Omaha  Smelting  Co.,  4 
cinnati  &c.  K.  Co.,  16  Ind.  275,  278;  Neb.  416;  Mianai  Powder  Co,  u.  Ilotch- 
Harriman  v.  Southam,  16  Ind.  192;  kiss,  17  111.  App.  622;  jpos«,  Ch.  134. 
Brown  V.  Killian,  11  Ind.  449;  Snyder  It  has  been  held  that  nul  tiel  corpora- 
V.  Studebakcr,  19  Ind.  462  (overrul-  tion  may  be  pleaded  in  an  action  by  a 
ing  on  this  point  Evansville&c.  R.  Co.,  corporation  wliere  the  incorporating 
V.  Evansville,  15  Ind.  395).  act  does  not  unconditionally  create  the 

3  Everson  v.  Elliugson,  67  Wis.  corporation.  Maliony  u.  Bank,  4  Ark. 
634,  opinion  by  Orton,  J.    To  establish  620. 

the  existence  of  a  corporation  de  facto,  ^  Compare  post,  Ch.  156. 

Ihe  more  acting  as  a  corporation,    for  '^  Green  v.  Graves,  1  Doug.  (Mich.) 

any  length  of  time,    is   not  sufficient.  351. 

A  charter,  or  law  which  of  itself  ere-  '  Hurlbut    v,  Britain,      2      Doug. 

ates,  upon  its  acceptance,   a  corpora-  (Mich.)  191. 

365 


1  Thomp.  Corp.  §  506.]     irregular  corporations. 

could  shareholders  in  a  banking  corporation  organized  under  an 
unconstitutional  banking  kiw,  bo  made  \iah\G  us  pai'tners  upon 
the  obligations  of  the  pretended  bank.^  But  these  decisions 
stumble  upon  technical  difficulties.  The  judges  who  rendered 
them  were  unable  to  find  a  way  by  which  an  obligation  which 
ouoht  in  good  conscience  to  be  enforced,  could  be  enforced 
when  there  was  technically  no  payee  or  obligee.  Neither  could 
they  understand  how  a  body  of  co-adventurers  who  hud  organized 
themselves  as  a  banking  corporation  under  an  unconstitutional 
law  could  be  made  liable  for  the  obligations  of  the  pretended 
bank,  when  the  very  issue  of  such  obligations  was  forbidden  by 
law.  They  therefore  allowed  the  adventures  to  escape  liability 
upon  their  obligations,  and  allowed  the  losses  to  fall  upon  the 
innocent  public,  — a  shameful  instance  of  the  sacrifice  of  justice  to 
mere  theories.  In  a  subsequent  case,  reviewing  these  decisions, 
it  was  suggested  by  Mr.  Justice  Cooley,  that  if  the  business  "  had 
not  been  illegal,  possibly  it  might  have  been  held  that  those  who 
assumed  to  carry  on  banking  business  in  the  name  of  an  associa- 
tion not  empowered  to  do  so,  were  personally  responsible  as 
joint  promisors  to  those  who  had  trusted  them." '^  The  court, 
in  the  last  cited  case,  further  concluded  that,  while  a  corpora- 
tion organized  under  a  void  law  cannot  enforce  obligations  made 
to  it,  yet  if  not  organized  for  unlawful  purposes,  a  receiver  of 
its  assets  can  demand  in  equity  an  accounting  for  the  debt  pur- 
ported to  be  secured  by  a  mortgage  made  to  it.^     It  is  a  strik- 

1  state  V.  How,  1  Mich.  512.  to  refuse   to  account  to  those    who 

2  Burton  v.  Schildbach,  45  Mich,  were  equitably  entitled.  There  is  an 
504,  511;  citing  Medill  v.  Collier,  16  injustice  in  such  conduct  which  equity 
Oh.  St.  599.  ought  to  be  able   to   correct.     If  the 

3  Ibid.  The  court,  in  struggling  money  has  been  obtained  in  good 
with  this  question,  said,  in  its  opinion  faith,  in  the  mistaken  belief  that  a 
by  Cooley,  J.:  "When  persons  in  corporation  existed,  it  ought  not  to  be 
good  faith  proceed  to  organize  what  retained  when  the  mistake  is  discov- 
they  intend  shall  be  a  corporation,  ered,  and  the  corporators,  who  cannot 
contemplating  a  lawful  business,  and  sue  at  law,  ought  to  be  at  liberty  to 
the  organization  proves  ineffectual,  come  into  equity  for  an  accounting, 
but  the  money  jointly  contribut  'd  by  We  know  of  no  principle  of  equity 
the  members  associated  finds  its  way  that  would  be  violated  by  giving  such 
into  the  hands  of  one  of  thi-ir  number,  redress;  and,  on  the  other  hand,  there 
or  of  some  third  person,  it  ought  not  is  ground  for  the  argument  that  it 
to  be  in  the  power  of  such  person  to  would  be  entirely  competent  for  the 
retain  what  he  has  thus  received,  and  legislature    retrospectively  to    affirm 

366 


DE  FACTO  CORPORATIONS.      [1  Tliomp.  Corp.  §  506. 

ins:  illustration  of  the  backward  state  of  the  law  that  we  still  find 
eminent  and  enlightened  judges  struggling  with  such  difiiculties. 
The  simple  and  true  view  is,  that  if  men  undertake  to  form  them- 
selves into  a  business  company  which  the  State  cannot  recognize 
as  a  corporation,  or  which  is  even  forbidden  by  the  State,  and  in 
that  character  contract  debts  which  would  be  valid  and  enforci- 
ble  if  contracted  by  individuals,  the  courts  of  justice  should 
hold  them  liable  as  partners.^  It  is  intolerable  that  A.  B.  &  C, 
by  merely  assuming  a  corporate  name  and  pretending  to  be  a 
corporation,  can  incur  with  innocent  members  of  the  public  ob- 
ligations which  would  be  valid  if  incurred  by  them  individually, 
and  then  escape  liability  because  the  law  forbids  them  to  act  as 
a  corporation  in  the  incurring  of  such  obligations.  A  simple 
rule,  and  one  which  should  apply  to  all  cases  is  that,  where  the 
obligations  of  a  pretended  corporation  are  neither  inequitable  nor 
immoral,  the  judicial  courts  should  enforce  them  against  the  cor- 
porations as  partners.^  So  to  do  would  be  strictly  consonant 
with  public  policy,  because  if  business  adventurers  learn  that, 
unless  their  corporate  organization  is  lawful  and  valid  they  are 
liable  as  partners,  this  will  deter  them  from  attempting  to  form 
illegal  or  prohibited  corporations.  The  Supreme  Court  of 
Michigan,  abandoning  its  early  conceptions,  has  recently  held 
that,  whilst  a  law  of  that  State  which  provides  for  the  organiza- 
tion of  corporations,  is  voidy  on  account  of  its  title  not  being 
within  the  constitutional  provision ;  whilst  an  association  under 
its  provisions,  each  member  sharing  in  the  profits  and  losses  of 
the  business  in  proportion  to  the  money  he  has  put  into  the  capi- 
tal stock,  will  not  constitute  the  parties  thereto  a  corporation  de 
facto;  and  whilst  their  carrying  on  business  in  the  corporate 
name  is  not  evidence  of  user  which  can  be  considered  in  aid  of 
their  legal  existence,  —  yet  they  are  liable  as  partners  for  debts 
contracted  by  them.^ 

and  validate  the  promise  to  repay,  so  Gratt.  (Va.)  1 ;  Thompson  v.  Morgan, 

that  a  suit  at  law  in  the  name  of  the  6  Minn.  292. 

association  might  be  broughtupon  it."  ^  Ante,  §  416. 

Ibid.;  citing  Lewis  v.   McElvain,    16  ^  ^g  ^y^s  done  in  Kill  v.  Beach,  12 

Oh.  347;  Savings   Bank   v.   Allen,  28  N.J.Eq.3l.    See  also  an«e,  §  417,  efse?. 

Conn.   97;  Parmelee  v.  Lawrence,  48  ^  Eaton  v.  Walker,   76  Mich.    579; 

111.  331 ;  Town  of  Danville  y.  Pace,  25  43  N.  W.  Rep.  638. 

367 


1  Thorn  p.  Corp.  §  507.]     irregular  corporations. 

§  507.  Validates  Irregularities  in  Organization. —  An  appli- 
cation of  tins  principle,  and  one  with  which  we  have  most 
concern  in  this  place,  is  that  it  operates  to  validate  irregularities 
in  the  organization  of  corporations.  Applying  this  principle, 
it  has  been  ruled  that  the  regularity  of  the  organization  of  a 
corporation  can  be  questioned  only  in  a  direct  proceeding  taken 
by  the  State,  as  by  quo  warranto,  and  that  no  private  person 
will  be  allowed  to  impeach  collaterally  the  validity  of  its  or- 
ganization.^ This  principle  has  the  freest  application  where 
certain  adventurers  have  assumed  to  organize  a  corporation 
under  a  law  under  which  they  might  have  organized  it,  and 
where  they  have  been  for  a  greater  or  less  length  of  time  in  the 
user  and  enjoyment  of  the  corporate  privileges  which  they  have 
assumed,  but  where  there  has  nevertheless  been  some  defect  or 
irregularity  in  the  mode  of  their  corporate  organization,^  —  such, 
for  instance,  as  the  failure  to  record  a  duplicate  of  the  certificate 
of  incorporation  in  the  county  where  the  operations  of  the  com- 
pany are  carried  on.^  In  short,  it  seems  clear  froin  an  examina- 
tion of  the  authorities,  that  a  bona  fide  attempt  to  organize  and 
a  substantial  compliance  with  the  provisions  of  the  law,  are  all 
that  is  necessary  to  establish,  as  between  the  corporation  and 
persons  other  than  the  State  under  which  it  claims  to  be  incor- 
porated, its  capacity  to  sue  and  to  be  sued,  and  to  perform  other 
acts  as  a  corporation.* 

1  East  Norway  &c.  Lutheran  Church  Although  articles  of  incorporation 
V.  Froislie,  37  Minn.  447;  35  N.  W.  were  not  adopted  until  after  the  stock 
Rep.  260;  Baker  v.  Backus,  32  111.  79;  was  subscribed  and  business  begun, 
Tarbell  v.  Page,  24  111.  46;  Ossipee  they  are  binding  upon  the  parties  and 
Man.  Co.  v.  Canney,  54  N.  H.  295;  Lord  fix  their  rights  as  among  themselves, 
V.  Essex  Bldg.  Asso.,  37  Md.  320.  See  at  least  from  the  time  of  their  adop- 
also  Childs  v.  Smith,  46  N.  Y.  34.  tion ;    and  although  the  articles  wore 

2  Tliompson  v.  Candor,  60  111.  244;  not  recorded  as  required  by  statute, 
Cincinnati  &c.  R.  Co.  v.  Danville  &c.  yet  where  all  the  other  steps  necessary 
R.  Co.,  75  111.  113;  De  Witt  v.  Hastings,  to  create  a  corporation  were  taken,  the 
40  N.  Y.  Super.  463  (irregularity  of  parties  are  stockholders  of  a  corpora- 
•fillng  certificate  of  incorporation);  tion,  as  among  themselves.  Heakl 
Tarbell  v.  Page,  24  111.  46;   Swartwout  v.  Owen,  70  Iowa,  23, 

V.  Michigan   &c.  R.  Co.,  24  Mich.  389;  ^  Methodist  Episcopal     Church    v. 

Baker  v.   Backus,  32  111.79;  Rondell  Pickett,  19N.  Y.  482;   Mokelurane  &c. 

V.  Fay,  32  Cal.  354;  Buffalo  &c.  R.  Co.  Co.  v.  Woodbury,  14  Cal.  424;  Marsh 

V.  Carey,  26  N.  Y.  75.  v.  Astoria  Lodge,  27  111.  421;  Spring 

3  Humplireys  v.  Mooney,  5 Col.  282.  Valley  Waterworks  v.  San  Francisco, 

368 


DE  FACTO  CORPORATIONS.     [1  Thomp.  Coip.  §  508. 

§  508.  Except  where  the  Thing  to  be  Done  is  a  Condition 
Precedent.  —  An  exception  to  the  operation  of  the  rule  in  this 
particular  is,  that  where  the  thing  to  be  done  is    made  by  the 
statute  a  condition  precedent  to  the  organization  of  the  corpora- 
tion, then  there  is  no    corporation  unless  this  condition  is  sub- 
stantially performed. 1     There    is    also    considerable   authority, 
some  of  it  discredited  by  time,  to  the  effect  that,  where  the  body 
does  not  become.entitled  to  corporate  powers,  until  certain  acts 
have  been  performed,  such  acts  must  be  shown  to  have  been  done 
to  establish  the  existence  of  the  corporation,  even  in  a  collateral 
proceeding.2     The  effect  of  this  doctrine  is  that,  if  the  charter 
requires  the  performance  of  certain  acts  as  conditions  precedent 
to  the  existence  of  a  corporation,  mere  general  evidence  of  user 
cannot  be  regarded  as  conclusive  that  such  conditions  have  been 
performed.^     In  pursuing  this  inquiry,  courts  usually  hold  that 
it  is  unnecessary  to  prove  that  the  body  have  complied  with  cer- 
tain statutory  requisitions,  which  are  not  in  terms,  or  by  neces- 
sary or  reasonable  implication,    conditions   precedent  to  their 
existence   or  capacity  to  do  particular  acts.*     The  decided  cases 
afford  no  satisfactory  test  of  what  may  be  considered  as  condi- 
tions precedent  to  the  corporate  existence,  the  performance  of 
which  must  be  shown.     Certain  it  is  that  many  irregularities  and 
omissions  which  might  affect  the  right  of  the  corporation  to  exist 
when  called  in  question  by  the  State,  in  a  direct  proceeding,  do 
not  impair  its  capacity  to  sue  and  be  sued  in  general.     *'  So  lono- 
as  the  State  does   not   interfere,"  said  Bronson,  C.  J.,  in  one 

22  Cal,  434;  Baker  v.  NefE,  73  Ind.  68;  137;  Mokelumne  &c.  Co.  v.  Woodbury, 

ante,  §  224.  14  Cal.  424. 

1  J««e,  §  22G ;  Lord  u.  Essex  Build-  ^  hong,  contiuued  user,  however, 
ing  A  sso . ,  37  Md.  320 ;  Boyce  v.  Trust-  has  great  weight  in  support  of  the  pre- 
ees,  46  Md.  359.  sumption    tliat  the    couditious    upon 

2  Fire  Department  v.  Kip,  10  Wend,  which  the  charter  was  granted  have 
(N.  Y.)  2G6;  Utica  Ins.  Co.  v.  Cad-  been  duly  performed.  All  Saints 
well,  3  Wend.  (N.  Y.),  296;  Utica  Church  v  Lovett,  1  Hall  (N.  Y.),  191; 
Ins.  Co.  V.  Tillman,  1  Wend.  (N.  Y.)  Dunning  v.  New  Albany  &c.  R.  Co.,  2 
555;  United  States  Bank  v.  Stearns,  15  Ind.  437. 

Wend.  (N.  Y.),  314;  Lucas  v.  Bank,  2  «  NarragansettBankw.  Atlantic  Silk 

Stew.  (Ala.)  147;  Wood  U.Jefferson  Co.  Co.,   3    Mete.   (Mass.)    282;   Bank  of 

Bank,  0   Cow.  (N.  Y.)  194;  Southbold  United  States  v.  Dandridge,  12  Wheat. 

V.  Horton,  6   Hill  (N.  Y.),   501;  Bank  (U.  S.)   64,  81;   Bank  v.  Allen,  11  Vt. 

of  Auburn  ».  Aikin,  18  Johns.  (N.  Y.)  302;  Eaton  v.  Aspinwall,  19  N.  Y.  119. 

24  369 


1  Thomp.  Corp.  §  509.]     irregular  corporations. 

case,  "  the  corapany  may  sue,  or  do  any  other  lawful  act,  what- 
ever sins  may  have  been  committed  in  bringing  the  body  into 
existence."  ^ 

§  509.  Further  Observations  and  Illustrations.  —  Where  a 
company,  having  taken  all  other  steps  to  become  incorporated  under  the 
general  law,  omits  to  file  the  certificate  of  incorporation  in  the  office  of 
the  Secretary  of  State,  such  a  non-compliance  with  the  statute  might  sus- 
tain a  quo  warranto  ov  scire  facias  on  behalf  of  the  people,  and  oust  the 
corporators  from  the  exercise  of  their  franchise ;  but  it  does  not  neces- 
sarily follow  that  it  is  not,  as  to  third  persons,  a  corporation. ^  So,  it 
has  been  reasoned  that  a  defect  in  the  organization  of  a  corporation, 
which  would  not  avail  a  defendant  in  an  action  by  the  corporation, 
upon  the  plea  of  nul  tiel  corporation,  cannot  be  shown  either  by  the  cor- 
poration itself  when  a  defendant,  or  by  a  stockholder  when  sued  for 
debts  of  the  corporation. ^  _  _  .  _  Similarly,  in  one  case,  where 
the  affidavit  annexed  to  the  articles  of  association  filed  under  a  general 
corporation  law,  did  not  contain  the  allegation  "that  it  is  intended  in 
good  faith  to  construct  or  maintain  and  operate  the  road  mentioned  in 
the  articles  of  association," — the  judge  delivering  the  opinion  of  the 
court  said:  "  I  am  of  the  opinion  that,  under  this  and  similar  general 
acts  for  the  formation  of  corporations,  if  the  papers  filed,  by  which  the 
corporation  is  sought  to  be  created,  are  colorable,  but  so  defective  that 
in  a  proceeding  on  the  part  of  the  State  against  it,  it  would  for  that 
reason  be  dissolved,  yet  by  acts  of  user  under  such  an  organization  it 
becomes  a  corporation  de  facto,  and  no  advantage  can  be  taken  of  such 
defect  in  its  constitution,  collaterally  by  any  person."*  -  -  _  _ 
Where  a  company  was  incorporated  for  the  purpose  of  removing  from  a 

1  McFarlan  v.  Trenton  Ins.   Co.,  4  the  county  clerk's  office,"  etc.,  is  but 

Den.    (N.  Y.)  392,  397;   Swartwout  v.  directory,  and  is  not  a  requisite  to  in- 

Michigan    &c.   R.  Co.,  24    Mich.  389.  corporation.    Upon  compliance  with 

That  there  are  irreconcilable  varia-  section  1  of  the  act,  the  incorporatiom 

tions  in  the  views  of  the  courts  as  to  became  complete.     Rose  Hill  &c.  Co. 

what  are    conditions    precedent  and  v.    People,    115    111.    133.     While,  as 

what  are  conditions  directory,  has  been  elsewhere  seen  {ante,  §  227),  the  de- 

already  shown.    Ante,   §  226.    Thus,  cisions  of  other  courts  would  make 

the  provisions  of  the  Illinois  act  of  this  a  condition  precedent. 
1859,  relating    to    corporations,   that  *  Baker  v.   Backus,  32  111.  79 ;  ante, 

•'  any  company  formed   under  this  act  §  240. 

shall    file    a    copy  of  their    by-laws,  3  Eaton  v.  Aspinwall,  19  N.  Y.  119, 

signed  by  the  president  and  secretary  122. 

of   such    corapany,  and  a   list  of  the  *  Buffalo   &c.  R.    Co.  v.  Cary,26N. 

stockholders  therein,  and  the  amount  Y.  75.     But  see  the  dissenting  opinion 

of  the  stock  signed,  as  aforesaid,  in  of  Allen,  J.,  in  this  case. 
370 


DE  FACTO  CORPORATIONS.     [1  Thomp.  Corp.  §  610. 

river  all  obstructions  to  the  free  passage  of  logs,  etc.,  and  were  author- 
ized to  demand  toll  from  the  owners  of  logs,  etc.,  freely  passing  down 
the  river,  it  was  held,  in  an  action  to  recover  tolls  for  logs  that  passed 
the  river  freely,  that  the  defendant  could  not  show  that  the  corporation 
had  not  removed  the  obstructions,  though  the  act  of  incorporation  was 
by  its  terms  to  be  void  if  they  would  not  be  removed  in  one  year, 
and  though  more  than  a  year  had  elapsed  before  the  action  was 
brought.^  -  -  -  -  In  an  action  upon  a  bond  issued  by  a  school 
board,  if  it  appear  that  such  a  school  board  had  a  de  facto  existence, 
acted  in  that  official  capacity,  was  recognized  as  such  by  the  county 
court,  it  cannot  be  set  up  as  a  defense  to  avoid  liability  on  the  bond,  that 
it  had  no  legal  existence.  "Such  a  board  must  be  regarded  as  one 
de  facto  whose  right  to  act  no  one  but  the  State  is  competent  to  ques- 
tion." 2  _  _  -  _  Where  a  corporation  instituted  a  suit  to  establish 
a  certain  paper  wi-iting  as  the  last  will  and  testament  of  a  deceased  per- 
son, which  paper  contained  a  bequest  to  a  legatee  having  the  name  of 
the  plaintiff,  to  wit,  "the  Catholic  Church  at  the  city  of  Lexington," 
the  principle  was  applied  that,  whether  a  corporation  exists  de  jure  or 
not,  its  existence  cannot  be  questioned  in  a  collateral  proceeding,  if  it 
appear  to  be  acting  under  color  of  law,  and  recognized  by  the  State  as 
such.  "  The  question  of  its  being  must  be  raised  by  the  State  itself,  on 
a  quo  warranto  or  other  direct  proceeding ;  and  this,  although  the  act 
incorporating  it,  or  authorizing  its  incorporation,  is  violative  of  the 
constitution  of  the  State."  3  .  .  .  _  In  replevin  by  one  claiming 
the  property  under  a  chattel  mortgage  executed  by  a  de  facto  corpo- 
ration, defendant  offered  evidence  to  show  the  non-existence  of  the 
corporation  de  jure  by  reason  of  the  articles  of  incorporation  being 
acknowledged.  The  articles  were  otherwise  regular,  and  showed  an 
attempt  in  good  faith  to  comply  with  the  statute,  and  there  had  been 
open  and  pubUc  exercise  of  corporate  powers  by  the  company  for  several 
months  prior  to  the  date  of  the  mortgage.  It  was  held  that  this  was 
sufficient  to  authorize  plaintiff  to  deal  with  the  company  as  a  corporation 
de  facto,  and  to  warrant  the  refusal  of  the  court  to  allow  defendant  to 
attack  its  existence  collaterally  by  introducing  the  evidence  offered.* 

§   510.   State  Precluded  by  Lapse  of  Time  from  Questioning 
Regularity  of  Corporate  Organization —  Although,  us  u  general 

1  Bear  Camp   River  Co.   v.  Wood-  -  Cath.  Church  v.  Tobbeia,  82  Mo. 
man,  2  Me.  404.  418,  424. 

2  Franklin    Avenue     &c.     Inst.    v.  M)uji;gan  v.  Colorado  Mortgage  &c. 
Board  of  Education,  75  Mo.  408.  Co.,  11  Col.  113;  20  Am.  &  Eng.  Corp. 

Ca.s.r>19;   I7Pac.  Rep.  105. 

371 


1  Thomp.  Corp.  §  511.]      irregular  corporations. 

rule,  the  statute  of  limitations  does  not  run  against  the  State, 
nor  can  laches  be  imputed  to  it, —  yet  this  rule  will  not  be  al- 
lowed to  apply  so  as  to  destroy  the  existence  of  a  corporation, 
where  many  private  rights  have  beeu  acquired  on  the  faith  of  it, 
and  where  the  vacation  of  its  franchises  would  lead  to  confusion 
and  injustice.  It  was  so  held  where  it  was  sought  by  an  infor- 
mation in  the  nature  of  quo  warranto ^  to  vacate  the  franchises  of 
a  railroad  company,  on  the  ground  that  its  articles  of  association 
were  defective  in  not  specifjang  its  terminus  with  sufficient  cer- 
tainty. As  between  eight  and  nine  years  had  elapsed  since  the 
filino-  of  the  articles  in  the  office  of  the  Secretary  of  State,  and  as 
such  filing  was  notice  to  the  State,  at  the  time,  of  the  manner  in 
which  the  organization  of  the  corporation  had  taken  place,  a 
judgment  of  ouster  was  refused.^ 

§  511.  Corporation  Suing  for  Rights  which  can  only  Inhere 
in  it  as  a  Corporation. —  It  is  believed,  however,  that  the 
exception  to  the  general  rule  obtains  where  the  corporation  is 
the  actor  in  the  litigation  and  is  therein  seeking  to  enforce  a  right 
which  inheres  in  it  as  a  corporation.  Thus,  if  a  corporation  has 
been  created  to  erect  a  bridge,  with  power  to  take  tolls  thereon 
for  the  period  of  twenty  years,  and  after  the  lapse  of  twenty 
years  it  sues  to  recover  such  tolls,  the  defendant  may  show  that 
the  twenty  years  have  expired  and  thereby  defeat  the  action.- 
It  is  also  assumed  that  where  a  corporation  proceeds  to  condemn 
the  lands  of  a  private  owner  for  public  uses,  it  must  show  ajjritna 
facie  right  to  exercise  this  extraordinary  power,  by  proving  that 
it  has  corporate  existence,  at  least  de  facto.  An  administrator 
cannot  maintain  an  action  in  his  representative  character  with- 
out pleading  and  proving  that  he  is  an  administrator,  because  it 
is  only  in  that  character  that  he  has  a  title  to  sue.  He  ordinarily 
proves  this  by  putting  in  evidence  his  letters  of  administration. 
It  should  seem,  upon  the  same  principle,  that  where  a  plaintiff, 
claiming  to  be  a  corporation,  brings  an  action  which,  from  its  very 
nature,  it  cannot  have  unless  it  is  a  body  corporate,  it  must  prove 

1  State  V.  Bailey,  19  Ind.   452.    As  2  Grand     Kapids     Bridge    Co.     v. 

to  the  period  of  limitation  for   an  in-      Prauge,  35  Mich.  400;    s.   c.     24   Am. 
formation  iu  the    nature  of   quo  ivar-      Eep.  585. 
ranto,  see  Aug.  &  A.  Corp.,  §  743. 
372 


DE  FACTO  CORPORATIONS.     [1  Thomp.  Corp,  §  512. 

its  corporate  existence,  at  least  by  putting  in  evidence  its  cer- 
tificate of  incorporation.^ 

§  512.  Corporations  by  Legislative  Recognition.  —  A  doc- 
trine frequently  admitted  ^  by  American  courts,  is  that,  where  a 
body  of  persons  act  as  a  corporation,  and  the  legislature  passes  an 
act  which  distinctly  recognizes  their  corporate  character,  they 
may  be  deemed  to  be  rightfully  a  corporation  in  consequence  of 
such  legislative  recognition.  It  has  been  frequently  ruled  that 
defects  in  the  organization  of  corporations,  which  have  been  or- 
ganized under  a  general  law,  may  be  cured  by  subsequent  legis- 
lative recognition  of  the  corporation."  The  rule  is  that,  although 
the  organization  of  a  corporation  may  be  irregular,  in  such  a 
sense  that  it  could  be  overthrown  in  a  direct  proceeding  by  the 
State,  yet  where  its  corporate  existence  has  been  recognized  by 
the  legislature,  this  will  make  it  a  good  corporation,  for  the  pur- 
poses of   collateral  proceedings.*     In  like  manner,  the  fact  that 


1  Thus,  the  owners  of  land  whom 
it  is  proposed  to  assess  for  the  benefit 
of  a  work  undertalsen  by  a  gravel  road 
company,  if  they  are  not  shareholders 
and  have  not  contracted  with  the 
company  as  a  corporation,  are  not  es- 
topped in  a  suit  to  enjoin  the  collection 
of  the  assessment,  from  denying  the 
corporate  existence  of  the  company. 
Piper  V.  Rhodes,  30  Ind.  309.  A  rail- 
road corporation  claiming  the  right  to 
occupy  with  its  traclis  the  streets  of  a 
town  or  city  must  be  a  corporation  de 
jure  and  not  merely  a  corporation  de 
facto.  New  York  Cable  Co.  v.  New 
York. 104  N.  Y.  43.  So  of  a  corpora- 
tion seeking  to  condemn  land  for  its 
uses.  Atlantic  &c.  R.  Co.  v.  Sullivant, 
5  Oh.  St.  276;  Atkinson  v.  Marietta  &c. 
K.  Co.,  15  Oh.  St.  21;  post,  Ch.  184. 

2  It  has  been  said  that  corporate 
powers  cannot  be  created  by  implica- 
tion, nor  extended  by  construction. 
Pennsylvania  R.  Co.  v.  Canal  Coraraia- 
sioners,  21  Pa.  St.  9.  In  an  earlier 
case  we  find  the  conclusion  that  indi- 
viduals acting  together  for  the  benefit 
of  a  society  are  not  to  be  considered 


as  a  corporation,  unless  they  ex- 
pressly show  their  corporate  capacity. 
Ernst  V.  Bartle,  1  Johns.  Cas.  (N.  Y.) 
319.  But  this  was  before  the  doctrine 
had  become  established  that  the  cor- 
poration may,  as  to  third  persons, 
exist  de  facto;  that  a  body  of  persons 
holding  themselves  out  as  a  corpora- 
tion are  thereby  estopped,  as  against 
third  persons,  to  deny  their  corporate 
character;  and  that  persons  entering 
into  contracts  with  supposed  corpora- 
tions are  thereby  estopped  in  actions 
to  enforce  a  contract  to  deny  their 
corporate  existence. 

3  Basshor  v.  Dressel,  34  Md.  503; 
People  V.  Perrin,  56  Cal.  345;  Atlantic 
&c.  R.  Co.  V.  St.  Louis,  66  Mo.  228. 

*  Atlantic  &c.  R.  Co.  v.  St.  Louis, 
supra;  Black  River  &c.  R.  Co.  v.  Bar- 
nard, 31  Barb.  (N.  Y.)  258.  The  the- 
ory of  the  last  case  is  that,  where  the 
organization  of  a  railway  company  is 
regular  on  its  face,  and  the  company, 
while  in  the  exercise  of  corporate 
functions,  is  recognized  as  a  corpora- 
tion by  the  legislature,  it  becomes,  by 
that  recognition,  a  legal  corporation, 
373 


1  Thomp.  Corp.  §  512.]     irrequlaii  corporations. 


two  railway  cotiipanies  have  become  blended  by  a  coyisolidation 
may,  it  has  been  held,  be  shown  by  a  legislative  recognition  in 
the  form  of  a  private  statute.^  But  there  is  much  force  in  tiie 
opposing  conclusion  that,  where  the  constilulion  of  the  State 
forbids  corporations  to  be  created  except  by  general  laws,  the 
mere  recognition  of  a  body  as  an  existing  corporation,  in  acts 
of  the  legislature,  cannot  operate  to  give  the  organization  valid- 
ity, for  this  would  be  tantamount  to  creating  it  by  a  special 
law.^  But  if  the  language  of  the  statute,  from  which  it  is  souoflit 
to  infer  a  legislative  recognition  of  the  particular  body  as  a  cor- 
poration, is  equally  consistent  with  the  conclusion  that  the  legis- 
lature did  not  intend  to  recognize  it  as  possessing  such  a 
character,  it  will  not  be  deemed  such  under  the  operation  of  this 
principle.  It  has  been  reasoned  that,  while  express  words  of 
incorporation  are  not  essential  to  create  a  corporation,  general 
language  in  a  statute  being  sufficient,  if  a  corporation  is  neces- 
sary to  accomplish  the  purpose  contemplated,  yet,  if  the 
necessity  for  a  corporation  does  not  exist,  it  will  not  be  deemed 
created  by  implication.^     On  a  similar  principle,  where  a  cor- 


and  that,  if  any  defect  exist  iu  its  or_ 
gauization  it  is  thereby  waived  by  the 
State  and  cured.  In  that  particular 
case  the  articles  of  association  were 
in  the  proper  form,  and  properly  au- 
thenticated, and  the  company  had 
built  part  of  its  road  and  had  been  do- 
ing business  five  years,  and  the  legis- 
lature had,  by  three  acts,  distinctly 
recognized  its  corporate  existence.  It 
was  held,  in  an  action  upon  stock  as- 
sessments against  one  who  had  acted 
as  director,  that  the  plaintiff  was  to  be 
deemed  a  legal  corporation  and  as 
such  authorized  to  sue.  In  like  man- 
ner it  has  been  held  that  the  require- 
ment for  the  formation  of  a  private 
corporation  that  an  application  be 
filed  with  the  Secretary  of  State  and 
acknowledged  before  a  proper  officer, 
may  be  waived  by  the  State,  by  a  sub- 
sequent statute  recognizing  the  ex- 
istence of  a  corporation  organized 
without  compliance  with  said  require- 
ment. Central  Agricultural  &c.  Asso. 
374 


V.  Alabama  Gold  Life  Ins.  Co.,  70  Ala. 
120. 

'  McAuley  v.  Columbus  &c.  R.  Co., 
83  111.  348;  ante,  §  318. 

-  Oroville  &c.  R.  Co.  v.  Super- 
visors, 37  Cal.  354;  post,  §  590.  As 
to  the  constitutionality  of  an  act  of  the 
legislature  relieving  the  creditors  of  a 
particular  company,  see  Potts  v.  Dele- 
ware  Water  Power  Co.,  9  N.  J.  Eq. 
592;  Corrigan  v.  Trenton  Delaware 
Falls  Co.,  7  N.  J.  Eq.  489. 

3  Walsh  V.  New  York  &  Brooklyn 
Bridge,  96  N.  Y.  427.  In  this  case  it 
was  held  that,  as  the  purpose  of  N.  Y. 
Acts  1875,  eh.  300,  in  relation  to  the 
New  York  and  Brooklyn  bridge,  was  to 
extinguish  the  then  existing  corpora- 
tion, and  vest  all  its  property  iu  the 
two  cities,  and  as  all  the  purposes  of 
the  act  could  be  carried  out  without 
the  creation  of  a  corporation,  the 
board  of  trustees,  for  whose  appoini- 
ment  the  act  provided,  were  not  to  be 
deemed    a  corporation,     but    merely 


DE    FACTO    CORPORATIONS.       [1  Thomp.  Coi'p.    §   513. 

poration  has  done  acts  in  excess  of  its  powers,  for  which  the 
State  might  proceed  to  forfeit  its  franchises,  it  is  a  sound  con- 
clusion that,  as  the  legislature  might  have  clothed  the  corpora- 
tion with  such  power,  so  it  may  ratify  and  confirm  the  illegal 
acts,  unless  there  is  something  in  the  constitution  of  the  State 
restraining  this  kind  of  legislative  action.^  The  original  statute, 
whether  a  special  charter  or  a  general  law,  and  the  subsequent 
curative  act  will,  in  so  far  as  they  are  consistent  with  each  other, 
unite  to  form  the  charter  of  the  company,  and  the  acceptance 
of  the  new  act  will  not  have  the  effect  of  destroying,  but 
merely  that  of  modifying  the  former  corporate  organization.^ 

§  513.  Illustrations.  —  A  special  act  of  the  legislature  changing 
the  name  of  a  corporation, ^  or  recognizing  it  by  name  and  extending 
and  continuing  its  corporate  rights  and  privileges,^  has  been  held  to 
validate  its  existence  for  the  purposes  of  a  collateral  proceed- 
ing. -  -  -  -  In  a  suit  between  a  railroad  and  a  municipal  corpora- 
tion, contesting  the  right  of  the  railroad  company  to  ojDerate  its  traclt 
upon  one  of  the  streets  of  the  city,  there  was  no  proof  of  the  corporate 
existence  of  the  railroad  company  thi'ough  which  the  plaintiff  company 
claimed  to  derive  its  franchises.  But  it  appeared  that  the  State, 
through  its  legislature,  had  sold  a  railroad  to  certain  individuals,  and 
required  them  to  form  themselves  into  a  corporation  for  the  purpose  of 
owning  and  operating  it,  and  that  the  legislature  had,  on  several  subse- 
quent occasions,  recognized  the  existence  of  these  vendees  as  a  corpora- 
tion.    It  was  held  that  the  existence  of  such  a  corporation  could  not  be 

agents  for  and  representatives  of  the  tions,"  it  has  been  said,  "are  created 

two    cities.     See    ante,  §   39.     As    to  for  tlae  public  good — are  demanded 

the  revival  of  a  dissolved  corporation  by  the  wants  of  the  community;   and 

by  a  subsequent  decree  distinctly  rec-  the  law,  after  long  continued  use  of 

ognizing  its  existence,    see    Lea    v.  corporate    powers,    and     the    public 

American  &c.   Canal  Co.,   3  Abb.  Pr.  acquiescence,  will  indulge     in    pre- 

(N.  s.)  (N.  Y.)  1.  sumptions  in    favor     of    their  legal 

1  Sliawv.  Norfolk  Railroad  &c.  Co.,  existence."  Jameson  v.  People,  1(5 
6  Gray  (.Mass.),  1G2,  179;  Richards  v.  111.  257,  259.  See  also  United  States 
Merrimac  &c.  R.  Co.,  44  N.  H.  127,  Bank  v.  Dandridgc,  12  Wheat.  (U.  S.) 
136.  G4;    Dunning   v.   New  Albany  &c.  R. 

2  Johnston  v.  Crawley,  25  Ga.  31G.  Co.,  2  Ind.  437;  Society  of  Middlesex 
The  rule  which  validates  de  facto  cor-  v.  Davis,  3  Mete.  (Mass.)  133;  People 
porations   by    legislative   recognition  v.  Farnham,  35  111.  562. 

and  public  acquiescence  in  their  long  ^  White  v.  Ross,  4  Abb.  App.  Dec. 

continued    existence,     applies    more      (N.  Y.)  589. 

properly  to  municipal  than  to  private  ■♦  Kanawha  Coal  Co.  v.  Kanawha  &c. 

corporations.      "  Municipal    corpora-      Coal  Co.,  7  Blatchf.,  (U.  S.)  391. 

375 


1  Thomp.  Corp.  §  513.]     irregulau  corporations. 

questioned  by  tliird  persons,  and  that  such  recognition  dispensed  witii 
other  eviilouce  of  the  fact.^  -  -  -  -  In  quo  warranto  against  the 
trustees  of  a  town  challenging  its  corporate  existence,  it  appeared  that, 
by  certain  public  statutes  the  legislature  had  authorized  the  president 
and  trustees  of  the  town,  as  a  corporation,  to  subscribe  stock  in  a 
certain  railway  company,  and  also  in  a  certain  plank  road  company, 
upon  conditions  named  in  the  acts ;  to  issue  and  negotiate  bonds  of  the 
corporation ;  to  provide  for  paying  interest  on  such  bonds,  and  to  levy 
and  collect  taxes  upon  property  within  the  corporation.  "  These  acts," 
said  Skinner,  J.,  "  recognizing  the  existence  of  the  corporation,  and 
empowering  it  to  act  as  a  body  corporate,  in  issuing  and  negotiating  ob- 
ligations of  the  town,  and  upon  the  faith  of  which,  individuals  may  have 
invested  their  money,  —  preclude  inquiry  into  the  question  of  the  orig- 
inal legal  organization  of  the  town,  and  are  conclusive  upon  the 
question  of  the  existence  of  the  corporation.  If  there  is  no  such  cor- 
poration, all  acts  done  under  the  supposed  corporate  powers  are  mere 
nulhties ;  and  no  liabihties  can  exist  by  reason  of  contracts  made  in  the 
corporate  name,  except,  perhaps,  against  individuals  who  never  con- 
templated themselves  incurring  personal  liabilities,  by  acts  performed 
in  an  official  capacity.  Were  we  to  hold,  after  this  acquiescence  of  the 
pubhc,  and  these  recognitions  of  the  legislature,  that  the  town  remains 
unincorporated,  on  account  of  some  defect  in  its  original  organization 
as  a  corporation,  what  confidence  could  individuals  have  in  the  validity 
of  securities  emanating  from  these  local  authorities  ?' '  ^ 


Article  II.  Corporations  by  Estoppel. 

Section  Section 

518.  Obligor  in  contract  with  corpo-  524.  View  that  incorporation  must  be 

ration  estopped  to  deny  corpo-  stated  in  tlie  contract. 

rate  existence.  525.  Except  where  party  is  induced  by 

519.  Illustrations  of  the  rule.  fraud  to  recognize    corporate 

520.  Various  statements  of  this  rule.  knowledge. 

521.  Corporate    existence    proved  by  526.  Party    dealing  with  corporation 

showing    that   the     objecting  permitted  to    show  corporate 

party  has  dealt  with  it  as  such.  existence. 

622.  Rule  restrained  to  cases  of    de  527.  Party  claiming  under  legislation 

facto  corporations.  creating  a  corporation  estopped 

523.  This  estoppel  not   raised  where  to  deny  its  existence. 

there  is  no  law  authorizing  the  528.  Stockholder    estopped    to     deny 

corporation.  corporate  existence. 

I  Atlantic  &c.  R.  Co.  v.  St.  Louis,  »  Jameson  v.  People,  16  HI.  257. 
66  Mo.  228. 
376 


CORPORATIONS    BY    ESTOPPEL.       [1  Thoilip.  Corp.    §   518. 


Section 

529.  Estoppel    to   set    up  fraudulent 

organization. 

530.  Exception  where  the  corporation 

has  expired  by  lapse  of  time. 

531.  Forfeiture  for  misuser  or  non- 

user  not  pleadable  collaterally. 


Section 

532.  Corporation    estopped     to   deny 

corporate  existence. 

533.  Coi'porations     for     illegal    pur- 

poses. 


§  518.  Obligor  in  Contract  with  Corporation  Estopped  to 
Deny  Corporate  Existence.  —  A  party  who  enters  into  a  writ- 
ten contract  with  a  body  purporting  to  be  a  corporation,  in 
which  it  is  described  by  its  corporate  name,  solemnly  admits  the 
existence  of  the  corporation  for  the  purposes  of  a  suit  brought 
to  enforce  the  obligation,  and  in  such  an  action  he  will  not  be 
permitted  to  plead  nul  del  corporation,  or  otherwise  to  deny  the 
corporate  existence  of  the  plaintiff.^ 


1  state  V.  Carr,  5  N.  H.  367;  Presi- 
dent &c.  V.  Thompson,  20  111.  200; 
Hamilton  v.  Carthage,  24  111.  22;  Kay- 
ser  w.  Bremer,  16  Mo.  88;  St.  Louis  v. 
Shields,  62  Mo.  247,  251 ;  National  Ins. 
Co.  V.  Bowman,  60  Mo.  252;  Farmers 
&c.  Ins.  Co.  V.  Needles,  52  Mo.  17; 
Ohio  &c.  R.  Co,  V.  McPherson,  35  Mo. 
13,  26;  s.  c.  86  Am,  Dec.  128;  Hub- 
bard v.  Chappel,  14  Ind.  601;  Stu de- 
bater Man.  Co.  v.  Montgomery,  74 
Mo.  101 ;  Real  Estate  Savings  Institu- 
tion V.  Fisher,  9  Mo.  App.  593;  Jones 
V.  Koliomo  Building  Association,  77 
Ind.  340;  Platte  Valley  Bank  v.  Hard- 
ing, 1  Neb.  461 ;  Fresno  Canal  &c.  Co. 
V.  Warner,  72  Cal.  379;  s.  c.  14  Pac. 
Rep.  37;  2  RaiL  &  Corp.  L.  J.  86; 
McCord  &c.  Mercantile  Co.  v.  Glen 
(Utah),  21  Pac.  Rep.  600;  School  Dis- 
trict No.  61  V.  Collins  (Dak.),  41  N. 
W.  Rep.  466;  Cravens  v.  Eagle  Cotton 
Mills  Co.,  120  Ind.  6;  s.  c.  16  Am.  St. 
Rep.  298 ;  Town  of  Searcy  v.  Yarnell,  1 
S.  W.  Rep.  319;  s.  c.  47  Ai'k.  269;  Den 
V.  Van  Houten,  10  N.  J.  L.  270;  Mc- 
Broom  V.  Lebanon,  31  Ind.  268; 
Smelser  v.  Wayne  &c.  Turnpike  Co., 
82  Ind.  417;  Singer  Mauuf.  Co.  v. 
Bennett,  28  W.  Va.  16;  Commercial 
Bank    v.     Pfeiffer,    108     N.    Y.    242; 


Dutchess  Cotton  Man.  Co.  v.  Davis,  i 
Johns.  (N.  Y.)  237;  s.c.  7  Am.  Dec. 
549 ;  Sanger  v.  Upton,  91  U.  S.  56 ;  Buf- 
ffalo  &c.  R.  Co.  V.  Carey,  26  N.  Y.  75; 
Chubb  V.  Upton,  95  U.  S.  665;  Hender- 
son &c.  R.  Co.  V.  Leavell,  6  B.  Mon. 
358;  John  v.  Farmers  &c.  Bank,  2 
Blackf.  (Ind.)  367;  Hubbard  ».  Chap- 
pel,  14  Ind.  601;  Chester  Glass  Co.  v. 
Dewey,  16  Mass.  94;  Jones  v.  Cincin- 
nati Type  Foundry  Co.,  14  Ind.  89; 
Bank  of  Toledo  v.  International  Bank, 
21  N.  Y.  542;  Cong.  Soc.  v.  Perry,  6 
N.  H.  164;  Case  •y.  Benedict,  9  Cush. 
(Mass.)  540;  Woodson  v.  Bank,  4  B. 
Mon.  (Ky.)  203;  Worcester  Medical 
Inst.  V.  Harding,  11  Cush.  (Mass.) 
285;  Tar  River  Nav.  Co.  v.  Neal,  3 
Hawks  (N.  C.),520;  Douglass  County 
V.  Bolles,  94  U.  S.  104;  Butchers  &c. 
Bank  v.  McDonald,  130  Mass.  264; 
Farmers  «S;c.  Bank  v.  Detroit  &c.  R. 
Co.,  17  Wis.  372;  West  Winsted  &c. 
Assn.  V.  Ford,  27  Conn.  282;  Danbury 
&c.  R.  Co.  V.  Wilson,  22  Conn.  435; 
Bank  of  Gallipolis  v.  Trimble,  6  B. 
Mon.  (Ky.)  599;  Eaton  v.  Aspinwall, 
6  Duer  (N.  Y.),  176;  Peake  v.  llallcy, 
14  Ind.  383;  Meikel  v.  German  Sav. 
Fund  Soc,  16  Ind.  181;  Ryan  v.  Van- 
landingham,  7  Ind.  416;  Fort  Wayne 
377 


1  Thomp.  Corp.  §  519.]     de  facto  corporations. 

§  619.  Illustrations  of  the  Rule.  —  An  apt  illustration  of  the 
rule  is  furnished  by  a  case  where  a  person  makes  a  deed  conveying: 
land  to  a  corporation  by  its  corporate  name,  and  the  deed  is  duly  re- 
corded, and  thereafter  such  person  makes  another  deed  conveying  the 
same  land  to  A.  B. ,  and  thereafter  A.  B.  makes  a  deed  conveying  the 
same  land  to  C.  D.  The  estoppel  which  existed  against  the  first 
grantor  exists  against  C.  D. ,  and  he  will  not  be  heard,  in  an  action  of 
ejectment  against  the  tenant  of  the  corporation,  to  set  up  a  defect  in 
the  organization  of  the  corporation,  which  might  be  available  in  a  direct 


&c.  Turnp.  Co.  v.  Deam,  10  Ind.  563 ; 
Enseyi'.  Cleveland  &c.  R.  Co.,  10  Ind. 
178;  Judah  v,  American  Live  Stock 
Ins.  Co.,  4  Ind.  333;  Brookville  &c. 
Turnpike  Co.  v.  McCarty,  8  Ind.  392 ; 
Brownlee  v.  Ohio  &c.  E.  Co.,  18  Ind. 
68;  Board  v.  Bright,  18  Ind.  93;  Ran- 
som V.  Priam  Lodge,  51  Ind.  60;  Will- 
iams V.  Franklin  Township  Assn.,  26 
Ind.  310;  Baker  v,  Neff,  73  Ind.  68; 
Franklin  u.  Twogood,  18  Iowa,  515; 
Cahill  V.  Kalamazoo  Ins.  Co.,  2  Doug. 
(Mich.)  134;  Kennedy  v.  Colton,  28 
Barb.  (N.  Y.)  59;  All  Saints  Church  v. 
Lovett,  1  Hall  (N.  Y.),  191;  Loaners 
Banku.  Jacoby,  10  Hun  (N.  Y.),  143; 
Connecticut  Bank  v.  Smith,  17  How. 
Pr.  (N.  Y.)  487;  Caryl  v.  McElrath,  3 
Sand.  (S.  C.)  176;  Tarbell  v.  Page,  24 
111.  46;  Cochran  v.  Arnold,  58  Pa.  St. 
399;  Low  v.  Connecticut  &c.  R.  Co.,  45 
N.H.  370,  378;  Goodrich  v.  Reynolds, 
31  111.  490;  SwartwouttJ.  Michigan  &c. 
RCo.,  24  Mich.  389;  Wood  v.  Coosa 
&c.  R.  Co.,  32  Ga.  273;  Rice  v.  Rock 
Island  &c.  R.  Co.,  21  111.  93;  Owens  v. 
Pierce,  5  Mo,  App.  576;  St.  Louis  Gas 
Light  Co.  V.  St.  Louis,  11  Mo.  App. 
55 ;  Hamtramck  v.  Bank  of  Edwards- 
ville,  2  Mo.  169;  Jones  v.  Bank  of 
Tenn.,  8  B.  Mon.  (Ky.)  122;  s.  c.  46 
Am.  Dec.  540;  Montgomery  R,  Co.  v. 
Hurst,  9  Ala.  513.  The  doctrine  was 
denied  in  a  forcible  opinion  by  Mr. 
Justice  Nelson,  of  the  Supreme  Court 
of  New  York,  in  Welland  Canal  Co. 
V.  Hathaway,  8  Wend.  (N.  Y.)  480;  s. 
c.  24  Am.  Dec.  51.  The  case  was  that 
of  a  Canadian  corporation,  and  there 
378 


are  indications  here  and  there  in  the 
opinion  of  that  celebrated  jurist,  that 
he  did  not  take  kindly  to  the  assertion 
of  rights  or  privileges  in  the  courts  of 
this  country  on  behalf  of  British  cor- 
porations or  British  subjects.  Al- 
though his  opinion  is  still  regarded  as 
authority  on  the  general  law  of  estop- 
pel, it  has  been  generally  overruled  in 
respect  of  this  particular  question. 
See  also  Williams  v.  Bank  of  Michigan, 
7  Wend.  (N.  Y.)  539;  s.  c.  5  Wend. 
(N.  Y.)  478;  U.  S.  Bank  v.  Stearns,  15 
Wend.  (N.  Y.)  314.  Nevertheless  this 
doctrine  has  been  followed  to  some 
extent  in  subsequent  cases  in  the  same 
State  and  elsewhere.  First  Baptist 
Soc.  V.  Papalee,  16  Wend.  (N.  Y.)  605; 
Buffalo  &c.  R.  Co.  v.  Gary,  26  N.  Y.  75 ; 
Loaners  Bank  v.  Jacoby,  10  Hun  (N. 
Y.),  143;  DeWitt  v.  Hastings,  40  N.  Y. 
Super.  463;  Hargrave  v.  Bank,  1  111. 
84;  Gaines  v.  Bank,  12  Ark.  769; 
Boyce  u.  Trustees,  46  Md.  359;  Bank 
V.  Simonton,  2  Tex.  531;  Halloway  w. 
Memphis  &c.  R.  Co.,  23  Tex.  465; 
Owen  V.  Farmers  Bank,  2  Doug. 
(Mich.)  134,  note;  Mitchell  v,  Rome 
&c.  R.  Co.,  17  Ga.  574,  589.  Among 
the  cases  holding  contrary  to  the 
above,  that  a  promissory  note  given 
to  a  company  by  its  corporate  name 
estops  the  maker  from  denying  its 
corporate  existence  when  sued  upon 
the  note,  are  Pacific  Bank  v.  De  Ro, 
37  Cal.  538;  John  v.  Farmers  &c. 
Bank,  2  Blackf.  (Ind.)  367;  s.  c.  20  Am. 
Dec.  119.  See  also  Hughes  v.  Bank 
of  Somerset,  5  Litt.  (Ky.)  45. 


COUPORATIONS    BY    ESTOPPEL.        [1  ThoUip.   Coip.    §   519. 

proceeding  by  the  State  to  forfeit  its  charter.^  -  -  -  -  In  like  man- 
ner a  person  claiming  under  a  deed  which  recites  a  mortgage  in  favor 
of  a  mortgagee  bearing  a  corporate  name,  is  estopped  from  disputing 
the  corporate  existence  of  such  mortgagee.^  This  is  in  conformity  with 
the  general  principle,  that  when  a  person  executing  a  deed  recites  there- 
in particular  facts,  those  facts  become  conclusive  against  him,  and  also 
against  those  who  derive  title  from  him.^  -  -  -  -  A  bank  was 
duly  organized  under  an  act  of  a  territorial  legislature,  but  could  not 
legally  exercise  its  powers  until  the  charter  creating  it  was  approved  by 
Congress.  It  was  held  that  it  was  nevertheless  a  body  corporate  de 
facto ^  and  that  a  party  making  a  sale  of  real  estate  to  it  was  estopped 
from  thereafter  questioning  its  capacity  to  take  title  after  it  had  paid 
the  consideration  for  the  pui'chase.^  Where  the  act  under  which  the 
corporation  was  organized  was  consohdated  by  the  adoption  of  a  new 
constitution  before  the  act  of  incorporation  was  accepted  by  the  cor- 
porators, as  the  act  of  incorporation  was  originally  vahd,  one  who  had 
contracted  with  the  corporation  was  estopped  to  show  that  the  corpora- 
tors failed  to  organize  under  it  while  it  remained  in  force.^  .  _  -  - 
Where  a  corporation  takes  a  deed  of  trust  upon  land  to  secure  a  loan  of 
money,  and,  upon  a  foreclosure  and  sale  under  the  deed  of  trust,  be- 
comes the  purchaser  and  brings  ejectment  for  the  possession,  it  is  not 
necessary  to  introduce  formal  proof  of  its  existence  as  ai^orporation,  if 
the  deed  of  trust,  being  in  evidence,  recites  that  fact.^  -  -  -  -  It 
is  no  defense  to  an  action  by  a  mutual  insurance  company  to  collect  as- 
sessments, to  show  that  it  met  and  chose  officers  before  its  charter 
went  into  effect,  if  subsequently  to  that  time  persons  were  found,  with 
the  consent  and  under  the  authority  of  the  designated  corporators  and 
without  objection  on  the  part  of  the  State,  actually  exercising  the  cor- 
porate powers  and  claiming  and  using  the  franchise.'''  So,  it  has 
been  held  that  a  debtor  of   a  banking  corporation,  when  sued  upon  an 

»  Broadwell  v.  Merritt,  87  Mo.  95,  ^  Hassenritter    v.    Kirchhoffer,    79 

There  is  even  a  larger  principle,  by  Mo.  239. 

which  estoppels  in  pais  are    visited  '^  Herm.  on  Est.,  §§  616,  629. 

upon  those  in  privity  oj  estate   with  *  Smith  v.  Sheeley,  12  Wall.  (U.  S.) 

an  owner  of  land.    Thus,  if  the  owner  358. 

of  laud  would  be  estopped,  by  reason  ^  Snyder  v.  Studebaker,  19  Ind.  462 

of  his  own  acts  and  conduct,  from  (overruling   upon    this  point    Harri- 

setting    up    title    thereto,    those    in  man  u.  Southam,  16  Ind.  190). 
privity  with  him,   unless  purchasers  •>  German   Bank  v.   Stumpf,    6  Mo. 

for  value  without  notice,  labor  under  App.  17. 

a  similar  disability.   Thistle  u.  Buford,  '  Appleton  Mutual  Fire  Ins.  Co.  v. 

60  Mo.  278.     See  also  Shew  v.  Beebe,  Jesser,  5  Allen  (Mass.),  446. 
35  Vt.  205;  Suodgrass  u.  Kicketts,  13 
Cal.  359  ;  Cooley  r.  Warren,  53  Mo.  166. 

379 


1  Thomp.  Cor  J).  §  521,]     de  facto  corporations. 

acceptance,  ^^^ll  not  be  heard  to  set  up  certain  frauds  by  reason  of  which 
the  banlc  was  never  legally  organized. ^  McDonald,  J.,  said:  "If 
there  were  conditions  precedent  of  the  most  imperative  character  in  the 
charter,  and  a  grossly  fraudulent  organization  had  been  gotten  up  by 
collusion  between  the  commissioners  and  the  subscribers  for  stock,  and 
the  bank  had  been  put  into  operation  apparently  fairly,  and  held  out  to 
the  community  as  a  regularly  and  honestly  organized  bank,  discounting 
notes  and  paying  out  bills,  it  would  be  a  strong  act  of  injustice  to  hold 
that  the  fraud  in  the  organization  could  be  pleaded  collaterally,  as  a 
defense  by  the  bank,  against  the  payment  of  its  notes,  or  by  a  debtor 
to  the  bank,  to  defeat  the  collection  of  the  debt  due  by  him.  The  bank 
should  not  be  allowed  to  take  advantage  of  its  own  wrong ;  and  the 
debtor  of  the  bank,  who  has  received  an  equivalent  for  his  note,  ought 
not  to  be  allowed  to  avail  himself  of  a  defense  of  the  sort,  to  diminish 
the  means  of  paying  the  debts  of  the  bank. ' '  ^ 

§  520.  Various  Statements  of  tliis  Rule. —  Some  variations 
are  met  with  in  the  statements  of  the  rule.  It  is  sometimes  said 
that  a  party  who  enters  into  a  contract  with  an  assumed  corpo- 
ration, in  its  corporate  name,  thereby  admits  it  to  be  duly  con- 
stituted a  body  politic  and  corporate  under  such  name.^  It  is 
also  said  that  the  execution  of  a  note  or  deed  to  a  corporation  is 
prima  facie  evidence  of  the  lawful  existence  of  the  corporation,* 
or  of  the  existence  of  a  charter  and  of  user  under  it,  under  a 
plea  of  nid  liel  corporation.^ 

§  521.  Corporate  Existence  Proved  by  Showing  that  the 
Objecting  Party  has  Dealt  with  it  as  Such. —  General  expres- 
sions are  found  in  many  cases  which  do  not  confine  the  grounds 
of  the  estoppel  to  the  fact  that  the  party  challenging  the  ex- 
istence of  the  corporation  has  executed  to  the  corporation,  in  its 
corporate  name,  the  obligation  sued  on,  but  which  go  further 
and  say  that,  where  the  legal  existence  of  a  corporation  is  chal- 
lenged in  a  collateral  proceeding,  it  may  be  proved  by  showing 
that  the  party  challenging  it  has  dealt  generalbj  with  the  corpo- 
ration, under  such  circumstances  as  impliedly  did  assume  its  cor- 

'  Posty  §  529.  •*  Brown     v.     Scottish     American 

2  Sonthem   Bank   v.    Williams,   25      Mortgage  Co.,  110  111.  235. 

Ga.  5.S4,  536.  »  Montgomery  Eailroad  v.  Hm-st,  9 

3  Franz  u.Teutonia  Building  Assc,      Ala.  513. 
24  Md.  259. 

380 


CORPORATIONS  BY  ESTOPPEL.     [1  Thomp.  Corp.  §  522. 

porate  existence.  This  being  shown,  he  will  according  to  some 
of  these  expressions  be  estopped,  in  a  subsequent  litigation  with 
the  corporation  or  its  receiver,  assignee,  or  other  legal  repre- 
sentative, from  denying  its  corporate  existence.  ^  A  person  so 
dealing  with  a  corporation  will  not  be  heard  to  assert  that,  by 
reason  of  some  irregularity  in  its  organization,  it  is  no  more  than 
a  voluntary  association  and  its  stockholders  liable  as  part- 
ners. 2  The  better  conception  is  believed  to  be  that  the  mere 
fact  of  the  party  against  whom  the  estoppel  is  claimed,  having 
dealt  with  the  alleged  corporal  in  some  other  matter,  does  not 
estop  him  from  denying  its  corporate  existence,  but  is  at  most  an 
evidentiary  fact,  on  the  footing  of  an  admission,  tending  to 
prove  the  existence  of  the  corporation.  A  qualified  statement, 
gleaned  from  a  decision  in  Michigan,  is  that  when  a  body  assumes 
to  be  a  corporation  and  acts  under  a  particular  name,  a  third 
party  dealing  with  it  under  such  assumed  name,  is  estopped  to 
deny  its  corporate  existence,  except  where  there  are  no  facts 
which  make  it  legally  unjust  to  forbid  such  a  denial.^ 

§  522.  Rule  Restrained  to  Cases  of  De  Facto  Corpora- 
tions.— The  rule  as  stated  in  a  preceding  section  *  leaves  entirely 
out  of  view  any  question  as  to  the  rightfulness  of  the  assump- 
tion of  corporate  existence  by  the  party  claiming  it.  It  nakedly 
is  that  one  who  enters  into  a  written  obligation  with  an  assumed 
or  pretended  corporation,  thereby  admits  its  corporate  existence, 
and  estops  himself  from  denying  it,  in  an  action  by  the  corpora- 
tion to  enforce  the  obligation.  In  a  numerous  class  of  cases, 
many  of  them  recent  ones,  the  rule  is  so  stated  as  to  be  re- 
strained in  its  operation  to  cases  of  colorable  or  de  facto  corpora- 
tions. In  these  cases  the  proposition  is  frequently  formulated 
that  a  person  who  contracts  with  a  de  facto  corporation  cannot, 
in  an  action  against  him  on  the  contract,  impeach  the  legality  of 
its  organization ;  ^  or  that  one  who  contracts  with  a  corporation 

IBank    of    Circlcville  v.    Renick,  iu  Sherwood  w.  Alvis,  83  Ala.  115;  s.c. 

15  Oh.  322;    Spahr  v.  Farmers  Bank,  3  Am.  St.  Rep.  695. 
94  Pa.  St.  429.     Compare  Freeland  v.  ^  Estey  Mau.  Co.   v.   Runnels,   55 

Pennsylvania  Central  Ins.  Co.,  94  Pa.  Mich.  130;  s.c.  20  N.  W.  Kep.  823. 
St.  504.  "  Ante,  §  518. 

2  Tarbell  u.  Page,  24  111.    40;'Leh-  »  Butchers     &    Drovers'    Bank    v. 

mau  V.  Warner,  Gl   Ala.  455;  restated  McDonald,  130  Mass.  2G4;  Winget  r. 

381 


1  Thomp.  Corp.  §  622.]     de  facto  corporations. 

which  has  a  de  facto  existence,  that  is  to  say,  the  reputation  of 
being  a  legal  corporation  in  the  actual  exercise  of  corporate 
powers  and  franchises,  is  estopped  from  denying  the  legality  of 
the  existence  of  the  corporation,  or  inquiring  into  irregularities 
attending  its  formation,  to  defeat  the  contract  or  to  avoid  the 
liability  he  has  voluntarily  and  deliberately  incurred.*  Some  of 
the  cases  merely  state  the  fact,  as  shown  by  the  evidence  of  the 
de  facto  existence  of  the  corporation  under  a  colorable  organi- 
zation, to  strengthen  the  rule  which  raises  the  estoppel  ,2  without 
implying  that  even  a  de  facto  organization  is  necessary  to  the 
rule.  Others  distinctly  imply  that  proof  of  a  de  facto  organi- 
zation is  also  necessary, —  such  as  evidence  of  proceedings  in 
professed  compliance  with  a  law  authorizing  the  organization  of 
the  corporation,  and  slight  evidence  of  subsequent  user. ^  "  The 
distinction,"  says  one  court,  "  is  between  an  entire  absence  of 
authority  in  the  organic  law  itself,  and  a  failure  to  comply  with 
some  prerequisite  which  the  law  has  made  a  condition  precedent 
to  the  exercise  of  corporate  functions.  In  the  one  case,  there 
is  a  want  of  power  to  act;  in  the  other,  only  an  abuse  of  power 
conferred.*  One  statement  of  the  rule  is  that  the  person  con- 
tracting with  an  association  assuming  to  be,  and  believed  by  the 
person  to  be,  incorporated,  and  acting  in  a  corporate  capacity, 
cannot,  after  having  received  the  benefit  of  the  contract,  set  up 
as  a  defense  to  an  action  brought  by  the  company  or  its  assignee, 
that  the  company  was  not  legally  incorporated.^  Similarly,  it 
has  been  held  that  a  person  who  has  made  a  promissory  note  to 
a  body  claiming  or  purporting  to  be  a  corporation  cannot,  in  an 
action  thereon,  avoid  the  estoppel  resulting  from  such  admission 
of  the  existence  of  the  corporation  at  the  time,  by  an  answer 
alleging  that  when  he  made  the  note  he  believed  the  payee  was  a 
corporation,  but  afterwards  discovered  that  it  was  not.® 

Quincy  Building  &c.  Assn.  128111.  67;  dence  &c.  Ins.  Co.  v.  Murphy,  8   R.  I. 

s.c.  21   Northeast.  Rep.  12;  White  u.  131. 

Ross,  4  Abb.  App.  Dec.  (N.  Y.)  589.  ^  Merriman  v.  Magiveny,  12  Heisk. 

1  Central  Ag.  &c.  Asso.  v.  Alabama  (Tenn.)  494. 

&c.  Co.,  70  Ala.  120;  s.  c.  9  Am.  Corp.  <  Sherwood  v.  Alvis,   83   Ala.  115; 

Cas.  8,  13.  s.  c.   3  Am.    St.  Rep.  690;  opinion  by 

2  Commissioners  of  Douglas  Co.  v.      Stone,  C.  J. 

Belles,  94  U.  S.  104;  National  &c.  Ins-  ^  Booslie  v.   Gulf  Ice  Co.,    24  Fla. 

Co.  V.  Yoemans,  8   R.  I.    25;  Provi-      550;  5  So.  Rep.  247. 

^  Ransom  V.Priam  Lodge, 51  lud.  60. 
382 


CORPORATIONS  BY  ESTOPPEL.     [1  Thomp.  Corp.  §  523. 

§  523.  This  Estoppel  not  Raised  where  there  is  no  Law 
Authorizing  the  Corporation.  —  In  the  view  of  some  courts  this 
estoppel  extends  only  to  matters  of  fact.  By  analogy  to  a 
principle  already  stated,^  no  such  estoppel  arises  in  cases  where 
there  is  no  law  authorizing  the  existence  of  any  such  corporation 
at  all,  as  the  one  which  assumes  to  exist;  and  the  same  is  true, 
according  to  the  same  opinion,  of  cases  where  the  law  under 
which  the  corporation  claims  to  exist  is  unconstitutional  •,  for  a 
void  statute  is  the  same  as  no  law  at  all.^  The  Supreme  Court 
of  Indiana  have  said  :  "  The  estoppel  goes  to  the  mere  de  facto 
organization  ;  not  to  the  question  of  legal  authority  to  make  an 
organization.  A  de  facto  corporation,  that,  by  regularity  of  or- 
ganization, might  be  one  de  jure,  can  sue  and  be  sued.  And  a 
person  who  contracts  with  such  corporation  while  it  is  acting  under 
its  de  facto  organization,  who  contracts  with  it  as  an  organized 
corporation,  is  estopped,  in  a  suit  on  such  contract,  to  deny  its 
de  facto  organization  at  the  date  of  the  contract ;  but  this  does 
not  extend  to  the  question  of  legal  power  to  organize.  Hence, 
if  an  organization  is  completed,  where  there  is  no  law,  or  an  un- 
constitutional law,  authorizing  an  organization  as  a  corporation, 
the  doctrine  of  estoppel  does  not  apply."  ^  The  Supreme  Court 
of  Michigan  have  laid  down  the  general  rule  in  the  following  lan- 
guage: "Where  there  is  thus  a  corporation  de  facto,  with  no 
want  of  legislative  power  to  its  due  and  legal  existence ;  where  it 
is  proceeding  in  the  performance  of  corporate  functions,  and  the 
public  are  dealing  with  it  on  the  supposition  that  it  is  what  it 
professes  to  be ;  and  the  questions  suggested  are  only  whether 
there  has  been  exact  regularity  and  strict  compliance  with  the 
provisions  of  the  law  relating  to  incorporation, —  it  is  plainly  a 
dictate,  alike  of  justice  and  of  public  policy,  that  in  controver- 
sies between  the  de  facto  corporation  and  those  who  have  entered 
into  contract  relations  with  it,  as  corporators  or  otherwise,  that 
such  questions    should    not  be    suffered  to  be   raised."  *     The 

1  Ante.,  I  505.  &c.    K.    Co.    v.  Evansville,    15     Ind. 

2  Harrimani).  Southara,  16  Ind.  190;      395. 

Brown  v.  Killian,  11  Ind.  449;  Hea.ston  ^  Heaston  v.  Cincinnati  &c.  R.  Co., 

V.  Cincinnati  &c.  R.  Co.,  16  Ind.  275;  16  Ind.  275,  278. 

Snyder    v.    Studebakcr,    19   Ind.  402,  <  Swart wout    v.    Michigan    &c.   E. 

overruling  upon  this  point  Evansville  Co.,  24  Mich.  389,  393. 

383 


1  Thomp.  Coil).  §  524.]     de  facto  corporations. 

.same  court  have  further  said:  "But  both  in  reason  and  on 
authority,  the  ruling  should  be  the  same  where  an  attempt  has 
been  made  to  organize  a  corporation  under  a  general  law  per- 
mitting it.  If  due  authority  existed  for  the  corporation,  and  the 
question  is  one  of  regularity  merely,  '  the  rule  established  by 
law,  as  Avcll  as  reason,  is  that  parties  recognizing  the  existence 
of  corporations  by  dealing  with  them  have  no  right  to  object  to 
any  irregularity  in  their  organization.'  "  ^  But  the  same  court, 
ina  very  recent  case,  have  said:  *'  It  is  undoubtedly  well  settled 
that  a  person  who  has  entered  into  contract  relations  with  a  de 
facto  corporation  cannot,  in  an  action  thereon,  deny  its  corpo- 
rate character  or  set  up  any  informality  in  its  organization  to  de- 
feat the  action.  The  distinction  between  such  cases  and  the 
present  one  is  clear.  If  there  had  been  an}'^  law  under  which  de- 
fendants had  a  right  to  incorporate,  and  the  offer  had  been  to 
show  a  mere  abuse  or  excess  of  its  corporate  powers,  or  had  it 
appeared  that  it  was  a  de  facto  corporation,  and  the  question  re- 
lated to  the  regularity  of  its  organization  merely,  there  could  be 
no  doubt  that  the  plaintiff  would  be  estopped  from  questioning 
its  corporate  existence.  But  the  two  things  necessary  to  show  a 
corporation,  even  de  facto,  do  not  exist.  There  is  no  law  under 
which  the  powers  they  assume  might  lawfully  be  created ;  and  the 
mere  fact  that  they  assumed  to  act  as  such,  even  in  the  full  belief 
that  they  were  legally  incorporated,  would  not  constitute  them  a 
corporation  de  facto. "^ 

§  524.  View  that  Incorporation  must  be  Stated  in  the  Con- 
tract. —  A  few  cases  of  doubtful  authority  have  restrained  the 
rule  so  far  as  to  hold  that  the  fact  that,  in  a  contract  with  an 
association  or  company,  the  defendant  in  the  action  has  desig- 
nated it  by  a  name  which  is  appropriate  to  a  corporate  body, 
does  not  admit  its  legal  existence  as  a  corporation,  unless  it  be 
distinctly  stated  in  the  contract  that  the  company  is  an  incor- 
porated company ;  but  that  it  admits  only  the  existence  of  an 
association  acting  under  that  name.^     It  has  been  held  that,  in- 

1  Ibid.  395.  See  also  Merchants'  23  Tex.  4G5;  s.  c.  76  Am.  Dec.  68; 
&c.  Bank  v.  Stone,  38  Mich.  779.  Williams   v.     Bank    of    Michigan,    7 

2  Eaton  ?7.  Walker,  76  Mich.  579,  589.  Wend.  (N.   Y.)   539;    Wellaud  Canal 

3  Holloway  v.  Memphis  &c.  E.  Co.,  Co.  v.  Hathaway,  8  Wend.  (N.  Y.)  480. 

384 


CORPORATIONS    BY    ESTOPPEL.       [1  Thoinp.  Corp.    §   526, 

dorsing  a  bill  of  exchange  to  a  bank  does  not  admit  that  the  bank 
is  a  corporation.^  And  more  recently  there  is  a  decision  to  the 
effect  that  the  mere  fact  of  mentioning,  in  a  promissory  note,  a 
particular  bank  as  the  place  of  payment  of  the  note,  does  not 
preclude  the  maker  from  disputing  the  corporate  existence  of 
the  bank.^  But  the  contrary  and  more  general  statement  of  the 
rule  is  that  one  who  executes  a  written  obligation  to  an  obligee, 
by  a  name  which  imports  that  it  is  a  corporation,  is  by  that  fact 
estopped,  in  an  action  thereon  to  deny  the  corporate  existence 
of  the  payee.^ 

§  525.  Exception  where  Party  is  Induced  by  Fraud  to  Rec- 
ognize Corporate  Existence. —  An  exception  to  the  rule  has 
been  declared  in  Michigan  in  the  case  where  no  new  rights  have 
accrued  from  the  transaction,  and  where  the  recognition  of  the 
existence  of  the  corporation  is  fraudulently  procured  for  the 
purpose  of  entrapping  the  party  into  the  action  upon  which  the 
recognition  is  based.* 

§  526.  Party  Dealing  with  Corporation  Permitted  to  Show 
Want  of  Knowledge. —  In  every  estoppel  in  pais  it  is  an  essential 
to  the  operation  of  the  principle  that  the  person  against  whom  it 
is  sought  to  raise  the  estoppel,  should  either  have  known  the  state 
of  facts  out  of  which  the  estoppel  springs,  or  else  should  have 
been  in  such  a  situation  that  it  was  in  law  his  duty  to  know  it, — 
that  is,  in  a  situation  where  negligent  ignorance  is,  in  law,  tant- 
amount to  actual  knowledge.^     He  is  therefore  ordinarily  entitled 

1  Hargrave  v.  Bank  of  Illinois,  1  void  and  not  a  lien  upon  real  estate. 
111.  84.  Stoutiraore  v.  Clark,  70  Mo.  471. 

2  Hungerford  Nat.  Bank  v.  Van  ^  Doyle  v.  Mizner,  40  Mich,  160; 
Nostrand,  106  Mass.  559.  s.  c.  3  N.  W.  Rep.  968. 

3  Studebaker  &c.  Co.  v.  Montgom-  ^  The  essential  idea  of  an  estoppel 
ery,  74  Mo.  101.  Barbaroo.  Occident-  in  pais  is  that  he  who  will  not  speak 
al  Grove,  4  Mo.  App.  429;  U.  S.  Ex-  when  he  should,  will  not  be  heard  to 
press  Co.  v.  Bedbury,  34  111.  459.  So  speak  when  he  loould.  It  is  essential 
held  where  a  note  was  made  payable  to  this  idea  that  he  either  had  knowl- 
to  the  order  of  "the  Missouri  City  edge,  or  owed  the  other  party  the  duty 
Savings  Bank."  Much  less  can  it  be  of  knowing  tlie  facts  out  of  which  the 
reasoned  that,  where  the  payee  does,  estoppel  springs;  and  it  is  therefore 
by  the  name  by  which  it  is  described  often  said  in  general  terms  that  silence 
in  the  note,  bring  a  suit  thereon  and  wiihont  knowledge  will  n')t  work  an 
recover  a  judgment,  tlu;  judgment   is  estop[)ol :  Frederick   v.    Missouri  &c. 

385 


1  Thomp.  Corp.  §  527.]     de  facto  corporations. 

to  show  thut  he  had  uo  knowledfije  of  such  a  state  of  facts. 
When,  therefore,  in  a  case  involving  the  question  whether  the 
phiintiff  had  dealt  with  the  defendants  as  a  corporation  or  as  a 
partnership,  he  having  sued  them  as  individuals,  a  finding  of  fact 
that  he  had  full  knowledge  that  they  were  a  corporation,  and 
dealt  with  them  as  such,  was  held  not  supported  by  evidence  of 
publications  made  by  the  defendants  of  statements  showing  their 
incorporation  and  of  the  mailing  of  letters  and  circulars  to  the 
plaintiff  showing  such  fact,  which  were  not  shown  to  have  been 
received, —  especially  where  the  court  excluded  the  testimony  of 
the  plaintiff  denying  his  knowledge  or  information  of  the  exist- 
ence of  the  corporation  ;  and  moreover  such  exclusion  was  error. ^ 

§  527.  Party  Claiming  under  Legislation  Creating  a  Cor- 
poration Estopped  to  Denj'  its  Existence.  —  Obviously  a  l)arty 
cannot  deny  the  existence  of  a  corporation  by  assailing  the 
validity  of  an  act  of  the  legislature  by  which  the  corporation  has 
been  reorganized  or  at  least  endowed  with  its  present  name,  when 
his  only  standing  in  court  is  derived  from  the  same  act  of  the  legis- 
lature. Thus,  in  a  suit  in  equity  to  foreclose  a  railway  mortgage, 
a  holder  of  second  mortgage  bonds,  in  an  answer  and  cross  bill, 
challenged  the  corporate  existence  of  the  railway  company  which 
had  issued  the  bonds.  The  bonds  under  which  this  defendant 
claimed  a  standing  in  court  were  executed  I)y  the  corporation  by 
the  name  which  it  had  assumed  under  the  act  of  the  legislature 
whose  validity  the  defendant  challenged.  The  mortgage  itself, 
in  its  preamble,  recited  the  act  of  the  legislature.  "  In  view  of 
these  facts,"  said  Mr.  Justice  Bradley,  "  we  think  that  the  ap- 
pellant is  estopped  from  denying  the  corporate  existence  of  the 
company  whose  bonds  he  thus  holds,  and  by  virtue  of  which  he 
acquires  ahcus  standi  in  the  suit.  Irregularities  and  even  fraud 
committed  in  making  the  purchase  authorized  by  the  act,  and 
failure  to  perform  strictly  all  the  requisites  for  changing  the 
company's  name,  cannot  avail  the  appellant,  occupying  the  po- 
sition he  does  in  this  suit,  to  deny  the  corporate  existence  of  the 

R.    Co.,    82     Mo.    402;    Spurlock    v.  ^  Eaton  v.  Walker,  ?(!   Mich.    579; 

Sproule,  72  Mo.  503;  Collins  v.  Rogers,      s.  c.  43  N.  W.  Rep.  638. 
63  Mo.  515;  Evans  v.  Snyder,  64  Mo. 
516. 

386 


CORPORATIONS  BY  ESTOPPEL.     [1  Thomp.  Corp.  §  528. 

Alabama  &  Chattanooga  Railroad  Company.  He  waived  all 
such  objections  when  he  took  the  bonds,  and  came  into  court 
only  as  a  holder  and  owner  thereof.  The  irregularities  on  which 
he  relies  might,  perhaps,  have  been  sufficient  cause  for  a  proceed- 
ing on  the  part  of  the  State  to  deprive  the  company  of  its 
franchises,  or  on  the  part  of  third  persons  who  may  have  been 
injuriously  affected  by  the  transactions.  But  neither  the  State 
nor  any  other  persons  have  complained  ;  and  it  is  not  competent 
for  the  appellant  to  raise  the  question  in  this  collateral  way,  for 
the  purpose  of  gaining  some  supposed  advantage  over  other 
creditors  of  the  same  company,  who  have  relied  on  its  corporate 
existence  in  the  same  manner  that  he  has  done."^ 

§  528.  StockUolder  Estopped  to  Deny  Corporate  Exist- 
ence.—  A  frequent  application  of  the  foregoing  doctrine  is  met 
with  in  actions  by  corporations  against  subscribers  to  their  capi- 
tal stock  to  recover  assessments  made  thereon  by  the  board  of 
directors.  In  those  cases  it  is  generally  held  that  one  who  has 
subsiribed  for  stock  in  the  plaintiff  company  by  its  corporate 
name,  is,  when  so  sued,  estopped  from  setting  up  as  a  defense 
that  the  plaintiff  has  no  corporate  existence. ^  And  this  estoppel 
extends  equally  to  its  members  in  any  proceeding  instituted  to 
charge  them  with  liability  in  respect  of  their  membership.^  If, 
beyond  this,  it  appears  that  the  subscriber  to  the  stock  partici- 
pated in  the  organization  of  the  corporation,  as  by  attending 
and  voting  at  an  election  of  directors,^  or  by  serving  as  a  trustee 
himself,^  he  will  be  estopped  from  disputing  the  validity  of  its 
organization,  on  grounds  which  we  shall  not  tnrn  aside  to  dis- 
cuss now,  but  which  will  be  more  fully  considered  hereafter.^ 

1  Wallace  v.  Loomis,  97  U.  S.  14G;  ^  Post,  §1849.<;«  seq.;  Ossipec  Man. 
s.c.  10  Myer  Fed.  Dec,  §  21.  Co.   v.    Canney,  54  N.  II.  l.'95;   Svvart- 

2  Dutchess  Cotton  Man.  v.  Davis,  wout  v.  Michigan  &c.  R.  Co., 24  Mich. 
14  Johns.  (N.  Y.)  238 ;  s.  c.  7  Am.  Dec.  389. 

459;  Ohio   &c.    R.  Co.  v.  McPherson,  <  Henderson  &c.   R.  Co.  ??.  Leavell, 

35   Mo.   13,  2(!;  s.  c.  8ii  Am.  Dec.  128;  !«  B.  Moa.  (Ky  )  358. 

Chester  Glass  Co.  v.  Dewey,  IG  Mass.  ^  Phoenix     Warehousing     Co.      v. 

94;  s.  c.  8  Am.    Dec.  128;  Stoops  v.  Badger,  V>7  N.  Y.  294;  Hunt  v.  Kansas 

Greeusburg  &c.   R.  Co.,  10   Ind.    47;  &c.  Bridge  Co.,  11  Kan.  412. 

Ensey  v.  Cleveland   R.    Co.,    10  Iiid.  «  P(,s«,  §  1972,  ef  seg. 

178;   Ft.    Wayne   &c.  Turnp.     Co.   v. 

Deam,  10  Ind.  563. 

387 


1  Thorn  p.  Corp.  §  5»'U).]     de  facto  corporations. 

§  529.  Estoppel  to  Set  lip  Fraudulent  Organization. — Cred- 
itors of  a  corporation  who  have  dealt  Avith  it  knowing  that  it  was 
fraudulently  constituted,  and  stockholders  who  have  accepted  the 
charter  and  assisted  in  puttin<]j  it  in  operation,  cannot  show  in  a 
suit  by  or  against  a  corporation,  that  the  charter  was  obtained 
by  fraud. ^  And,  generally,  one  who  has  entered  into  a  contract 
with  a  corporation  is  estopped  by  his  contract,  from  setting  up 
the  fraudulent  organization  of  the  corporation,  in  defense  to  a 
suit  brought  by  it  against  him.^ 

§  530.  Exception  where  the  Corporation  has  Expired  by 
Lapse  of  Time. —  There  is  much  judicial  authority  for  the  propo- 
sition that  where  a  corporation  is  brought  to  an  end  by  lapse  of 
time,  that  is,  by  the  expiration  of  the  distinct  limitation  of  its  life 
in  its  charter,  any  further  exercise  of  its  corporate  powers  may  be 
questioned  collaterally.^  The  governing  principle  here  is  that, 
upon  the  expiration  of  the  term  limited  by  the  charter  for  the 
existence  of  the  corporation,  its  dissolution  is  complete.  "  The 
dissolution  in  such  a  case,"  it  has  been  said,  "  is  declared  by  the 
act  of  the  leo;islature  itself.  The  limited  time  of  existence  has 
expired,  and  no  judicial  determination  of  that  fact  is  requisite. 
The  corporation  is  de  facto  dead."  *  In  line  with  this  view,  it  is 
held  that  the  estoppel  spoken  of  in  a  preceding  section^  does  not 
extend  so  far  as  to  preclude  a  party  from  showing  that,  since  the 

1  Cocbran  v.  Arnold,  58  Pa.  St.  v.  Perry,  6  N.  H.  164;  Cochran  v. 
399,  Smithu.  Heidecker,  39  Mo.  157;  Arnold,  58  Pa.  St.  399;  All  Saints 
Patterson  v.  Albany  &c.  Assn.,  63  Church  ?;.  Lovett,  1  Hall  (N.  Y.),  191; 
Ind.  373;  Bear  Camp  River  Co.  v.  John  v.  Farmers  &c.  Bank,  2  Blackf. 
Woodman,  2  Me.   404;  Charles   River  (Ind.)  367. 

Bridge    v.    Warren    Bridge,   7  Pick.  3  people -y.  Manhattan  Co.,  9  Weud. 

(Mass.)  371.  (N.  Y.)  351,382,  per  Sutherland,   J.; 

2  Jones  V.  Cincinnati  &c.  Co.,  14  Morgan  v.  Lawreuceburg  Ins.  Co.,  3 
Ind.  89;  Hubbard  v.  Chappell,  14  Ind.  Ind.  285,  per  Blackford,  J.;  Wilson  v. 
601;  Evansville  &c.  R.  Co.  u.  Evans-  Tesson,  12  Ind.  285,  per  Perkins,  J. ; 
ville,  15  Ind.  395;  Meikel  v.  German  Grand  Rapids  Bridge  Co.  v.  Prange,  35 
Savings  &c.  Soc,  16  Ind.  181;  Brown-  Mich.  400;  s.  c.  24  Am.  Rep.  585; 
lee»;.  Ohio  &c.  R.  Co.,  18  Ind.  68;  Dobson  ^;.  Simonton,  86  N.  C.  492. 
Commissioners  ».  Bright,  J8  Ind.  93;  *  Sturges  v.  Vanderbilt,  73  N.  Y. 
Washington  College  v.  Duke,  14  Iowa,  384,  390,  per  Rapallo,  J.  See  also 
14;  Hamtramck  v.  Bank  of  Edwards-  Bank  of  United  States  v.  McLaughlin, 
ville,  2  Mo.    169;   Camp  v.   Byrne,   41  2  Crauch  C.  C.  (U.  S.)  20. 

Mo.  525;  Congregational  Soc.  in  Troy  5  j^nte,  §  518. 

388 


CORPORATIONS    BY    ESTOPPEL.       [1  Thomp.  Coip.   §  530. 

contract  with  the  corporation  was  entered  into,  it  has  ceased  to 
exist. 1     As   hereafter   more  fully  shown, ^  when  a  corporation 
expires  by  limitation  of  time  or  is  judicially  dissolved,  it  can  no 
longer  prosecute  or  defend  an  action,  in  the  absence  of   some 
saving  provision  in  its  governing  statute.     An  action  can  no  more 
be  prosecuted  against  a  dead   corporation  than  against  a  dead 
man.^     In  such  a  case  the  opposing  party  suggests  the  death  of  the 
corporation,  and,  upon  the  fact  being  admitted  or  proved,  the 
suit  abates,* — just  as  an  action  for  an  injury  to  the  person  abates 
on   suggestion  of   the  death  of  the  defendant,  unless  there  is  a 
saving  statute  allowing  it  to  be  revived  against  his  legal  represent- 
ative.^    The  estoppel  already  spoken  of  relates,  therefore,  only 
to  the  time  of  entering  into  the  contract  with  the  corporation,  and 
does  not  admit  that  there  cannot  be  or  has  not  been  a  dissolution  of 
it.^     Carrying  this  view  still  further,  it  has  been  held  that  if  the 
corporate  existence  has  been  terminated  by  an  act  of  forfeiture, 
or  otherwise,  before  the  commencement  of  the  suit,  the  facts  pro- 
ducing this  result  may   be  specifically   set  forth    by  plea,  and 
the  court  may  judge  whether  they  have  this  effect.^     Applying 
the  doctrine,  we  find  a  ruling  to  the  effect  that  a  stockholder 
who,  after  expiration  of   the  charter  of   a  corporation,  has  sold 
land  belonging  to  it,  as  if  recognizing  its  continued  existence,  is 
not  thereby  estopped  to  set  up  such  expiration  in  defense  of  an 
action  for  the  proceeds,  brought  in  the  name  of  the  corporation.^ 
On  the  other  hand,  it  has  been  ruled  in  Missouri  that  the  question 
whether  the  charter  of  a  corporation  has  expired  by  limitation 
of  time,  can  be  adjudicated  only  in  a  direct  proceeding  by  the 
State, — that  such  a  defense  cannot  be  setup  collaterally  in  an  ac- 
tion by  the  corporation.^     And  in  West  Virginia,  a  private  business 

1  Ensey  v.  Cleveland  R.  Co.,  10  Ind.  «  Trustees  v.  Hills,  G  Cow.  (N.  Y.) 
178;  Ft.  Wayne  Turnp,   Co.  v.  Deam,      23;  s.  c.  16  Am.  Dec.  429,  431. 

10  Ind.  5f;3.  7  Jones  ■;;.  Bank  of  Tennessee,  8  B. 

2  Post,  §  :5257.  Mon.  (Ky.)  122. 

3  Mumraa  v.   Potomac  Co.,  8   Pet.  8  Krutz  v.  Paola  Town  Co.,  20  Kan. 
(U.  S.)    281;  Pomeroy    v.    People,    1  397. 

Wall.  (U.  S.)  23.  »  St.  Louis  Gas  Light  Co.  v.  City  of 

-*  Terry  v.  The  Bank  of  America,  77      St.  Louis,  84  Mo.   202 ;  affirming  s.  c. 

Ga.  177;  s.c.  9  Am.  Corp.  Cas.  45.  11  Mo.  App.  65. 

*  See  Bank  of  Gallipolis  v.  Trimble, 

6  B.  Monr.  (Ky.)  699. 

389 


1  Thorap.  Corp.  §  5IU.]     de  facto  corporations. 

corporation,  duly  organized  under  the  laws  of  that  State,  which 
failed  to  wind  up  its  business  when  its  charter  expired,  but  con- 
tinued in  its  charter  name  to  carry  on  its  corporate  business, 
may  be  sued  in  its  corporate  name  for  a  tort,  committed  by  it 
afier  its  charter  hud  expired.^  If  the  fact  of  the  expiration  of 
the  charter  is  not  suggested  by  the  opposing  party,  the  suggestion 
may  be  made  hi/  the  attorney  who  has  represented  the  corpora- 
tion in  the  litigation.'^  There  is  authority  to  the  effect  that 
the  fact  that  the  corporation  has  ceased  to  exist  prior  to  the 
commencement  of  the  suit  may  be  pleaded  in  abatement^  though 
not  in  bai\^  But  this  draws  us  into  questions  of  pleading ,  which 
are  reserved  for  a  future  portion  of  this  work.* 

§  531.  Forfeiture  for  Misuser  or  Non-user  not  Pleadable 
Collaterally.  —  But,  in  the  absence  of  an  express  statute  other- 
wise providing,  the  question  whether  the  charter  of  a  corporation 
has  been  forfeited  for  misuser  or  non-user  of  its  franchises,  or 
for  any  other  cause  save  the  efflux  of  time,  cannot  be  determined 
in  a  collateral  proceeding,  but  can  only  be  determined  in 
a    direct    proceeding    instituted    by    the    State.^     Although   a 


1  Miller  u.  Coal  Co.,  31  W.  Va.  836; 
s.  c.  8  S.  E.  Rep.  600. 

2  "  The  attorney  for  the  corpora- 
tion may  well  suggest  the  death  of  the 
corporation,  by  plea  or  otherwise,  on 
the  record."  Greeley  v.  Smith,  3 
Story  (U.  S.),  657,  659.  In  Foster  v. 
Essex  Bank,  16  Mass.  244,  the  attor- 
neys who  were  originally  retained  by 
the  directors  of  the  defunct  corpora- 
tion filed  a  suggestion  in  their  own 
names  that,  since  the  last  term  of 
court,  the  corporation  had  been  dis- 
solved by  the  expiration  of  the  time 
limited  for  its  duration  in  the  act  of 
its  incorporation. 

3  Dental  Vulcanite  Co.  v.  Wether- 
bee,  2  Cliff.  (U.  S.)  555;  Meikel  v. 
German  Saving  Fund  Society,  16  Ind. 
181. 

<  Pos«,  Ch.  184,  Art.  II.  The  expi- 
ration of  the  charter  of  the  bauk  will 
not  work  an  abatement  of  an  action 
brought  against  its  directors  to  charge 

390 


them  with  a  personal  liability  for  a  vio- 
lation of  law  in  the  management  of  the 
bank.  Moultrie  v.  Smiley,  16  Ga.  289. 
5  Slee  V.  Bloom.  5  Johns.  Ch.  (N. 
Y.)  366,  381;  Hughes  v.  Bank,  5  Litt. 
(Ky.)  45;  John  t;.  Farmers  &c.  Bank, 
2  Blackf.  (Ind.)  367;  BuiicombTurnp. 
Co.  V.  McCarson,  1  Dev.  &  B.  (N.  C.) 
306;  McFarlan  v.  Triton  Ins.  Co.,  4 
Den,  (N.  Y.)  392;  Ohio  &c.  R.  Co.  v. 
McPherson,  35  Mo.  13;  Bank  of  Gal- 
lipolis  V.  Trimble,  6  B.  Mon.  (Ky.)  599 ; 
Planters'  Bank  v.  Bank  of  Alexander, 
10  Gill  &  J.  (Md.)  346 ;  Farmers'  Bank 
V.  Garten,  34  Mo.  119;  State  v.  Bredow, 
31  Mo.  523,  528;  Rice  u.  Hock  Island  &c. 
R.  Co.,  21  111.  93;  Williams  v.  Bank,  6 
111.667;  Hammett  v.  Little  Hock  &c. 
R.  Co.,  20  Ark.  204;  Bank  of  Circle- 
ville  V.  Kenick,  15  Ohio,  322;  Asheville 
Division  V.  Aston,  92  N.  C  578;  Logan 
V.  Vernon  &c.  R.  Co.,  90  Ind.  552;  At- 
lanta V.  Gate  City  Gas  Light  Co.,  71 
Ga.  106;  Barren  Creek  Ditching  Co.  v. 


CORPORATIONS  BY  ESTOPPEL.     [1  Thomp.  Corp.  §  532. 

statute  expressly  declares  that,  upon  the  happening  of  certain 
events,  the  corporation  "  shall  be  deemed  to  have  surrendered 
the  rights,  privileges  and  franchises  granted  by  any  act  of 
incorporation,  or  acquired  under  the  laws  of  this  State,  and  shall 
be  adjudged  to  be  dissolved,"  ^  and  it  further  appears  that  the 
cotiditions  upon  which  such  dissolution  may  be  declared  have 
been  fulfilled,  the  corporation  nevertheless  remains  in  esse  and 
may  be  sued  by  its  creditors  unless  restrained  by  injunction  until 
the  surrender  of  its  franchises  has  been  judicially  declared  in  a 
direct  proceeding. ^  So,  it  is  no  defense  to  a  suit  brought  by  a 
corporation  for  goods  sold,  etc.,  that,  for  a  failure  to  pay  a 
license  tax  to  the  State,  the  Secretary  of  State  by  publication* 
had  declared  the  corporate  charter  forfeited.^  But,  by  analogy 
to  the  principle  stated  in  the  preceding  section,  when  the  forfeit- 
ure has  been  judicialli/  declared,  the  corporation  is  dead,  and 
upon  that  fact  being  admitted  or  shown,  the  suit  abates,  unless 
there  is  a  saving  statute  permitting  it  to  go  on.* 

§  532.  Corporation  Estopped  to  Deny  Corporate  Exist- 
ence.—  This  estoppel  works  both  ways.  Under  its  operation 
the  corporation  itself,  when  proceeded  against  as  such,  on  an 
obligation  which  it  has  made  in  its  corporate  name  and  charac- 
ter, is  estopped  to  deny  the  regularity  of  its  organization,^  or 
otherwise  to  deny  the  validity  of  its  corporate  existence.®     Stated 


Beck,  99  lud.  247;  "Vernon  Society  v.  *  See  cases  cited  supra,  also  Suth- 

Hills,    6    Cow.    (N.    y.)    23;   Leliigli  erland  w.  Lagro  &c.  Plauk  Rd.  Co.,  19 

Bridge  Co.  v.  Lehigli    Coal  &c.  Co.,  4  Ind.  192. 

Rawle  (Pa.),  9;  All  Saints  Church  v.  *  Southern    Bank    v.   Williams,   25 

Lovett,  1    Hall  (N.  Y.),  192;  State   of  Ga.  534. 

Vermont  v.  Society  &c.,    1  Paine  (U.  ^  Ewingu.  Robeson,  15  Ind.  26;  Cal- 

S  ),  G52;  Merick  v.  Van  Santvoord,  34  lender  v.  Painesville  &c.  R.  Co.,  11  Oh. 

N.  Y.  208;  Barclay  v.  Talman,  4  Edw.  St.  510;  Knapp  v.  Joy,  9  Mo.    App.  47 

Ch.  (N.  Y.)  123;  Pohquioque  Bank  r.  and  575;  Rush  v.  Steamboat  Co.,  84 

Bethel   Bank,  36   Conn.    325;   s.    c.  4  N.C.  702;  Adams  Express  Co.  v.  Hill, 

Am.  Rep.  80.  43  Ind.  157;  Callender  v.   Painesville, 

»  1  Rev.  Stat.  N.  Y.  463,  §  38.  &c.   R.    Co.,    11  Oh.    St.  516;    United 

2  Mickles  v.  Rochester  City  Bank,  States  Express  Co.  v.  Bedbury,  34  111. 
11  Paige  (N.  Y.),  118;  s.  c.  42  Am.  459,  467;  McCullough  v.  Talladega 
Dec.  103;  Kincaid  w.  Dwinelle,  50  N.  Ins.  Co.,  46  Ala.  376;  DeWitt  v.  Ilast- 
Y.  548.  ings,  40  N.  Y.  Sujter.  463,  476.     In  the 

3  Lumber  Co.  v.  Ward,  30  W.  Va.  view  of  some  courts  the  execution  of 
48.  a  written  contract  by  a  corporation  in 

391 


1  Thomp.  Corp.  §  532.]     de  facto  corporations. 

more  broadly,  the  proposition  is  that,  when  an  association  of 
persons  assume  a  name,  which  implies  a  corporate  body,  and 
exercise  corporate  powers,  they  should  not  be  heard  to  deny  that 
they  are  a  corporation.^  Thus,  where  individuals  have  held 
themselves  out  as  a  society  with  corporate  powers,  have  held 
meetings  as  such,  and  in  one  such  meeting,  duly  called,  have  em-, 
ployed  a  person  to  render  services  for  them, —  they  cannot  require 
him  to  prove,  in  an  action  against  them  for  the  value  of  his 
services,  by  their  act  of  incorporation  or  written  constitution, 
that  they  are  empowered  to  act  as  they  have  assumed  to  do.^ 
There  is  a  modified  view  that,  where  an  action  is  brought  on  a 
paper  purporting  to  have  been  issued  by  the  defendant  in  a  cor- 
porate form  or  character,  and  the  defendant  pleads  that  it  was 
unincorporated  when  it  issued  the  certificate  in  question,  the  plea 
may  be  overthrown  by  evidence  tending  to  show  that  the  de- 
fendant was  a  de  facto  corporation  at  the  time.^  Another  court 
goes  so  far  as  to  hold  that  the  fact  that  a  body  has  held  itself 
out  as  a  corporation,  treating  with  the  plaintiff  as  such,  does  not 
estop  it  from  denying  its  liability  as  a  corporation,  where  there 
is  a  statute  which  expressly  prescribes  certain  acts  to  be  done  in 
order  to  constitute  a  corporation,  and  those  acts  have  not  been 
done.  The  court  reasoned  that  the  omission  of  such  statutory 
requisites  cannot  be  supplied  by  the  application  of  the  doctrine 
of  estoppel.*  But  this  is  not  put  forward  by  the  writer  as  the 
prevailing  view.  In  the  view  of  most  courts  there  would,  on 
the  state  of  facts  just  set  forth,  be  a  complete  estoppel,  and  the 
party  claiming  the  benefit  of  the  estoppel  would  not  be  required 
even  to  go  so  far  as  to  prove  that  the  corporation  was  a  color- 
able or  de  facto  corporation.  So  long  as  the  State  does  not  in- 
terfere, it  is  unnecessary  to  inquire  into  the  rights  of  the  people 
in  relation  to  it.^  And  though  the  corporation  may  have  for- 
feited its  charter  by  an  act  which  might  be  judicially  declared  a 

Us  corporate  name  is  such  an  admis-  ^  Stone  v.  Berkshire  Cong.  Society, 

sion  of  incorporation  as  will,  in  an  ac-  14  Vt.  86. 

tion  by  the  other  party  to  the  contract,  ^  Jewell  v.  Grand  Lodge,  41  Minn. 

make  out  a  prima  facie  case  on  that  406;  s.  c.  43  N.  W.  Rep.  88. 

point.      Real    Estate    Sav.    Inst.     v.  *  goyce  tj.  Trustees,  46  Md.  359. 

Fisher,  9  Mo.  App.  593.  ^  Abbott    v.    Aspinwall,  26    Barb. 

1  United  States  Express  Co.  v.  Bed-  (N.  Y.)  202. 
bury,  34  111.  459. 

392 


CORPORATIONS    BY    ESTOPPEL.       [1  Thomp.  Coi'p.    §   533. 

cause  of  forfeiture,  yet  it  cannot  absolve  itself  from  legal  re- 
sponsibility by  alleging  the  fact  which  might  produce  the  for- 
feiture.^ A  corporation  may  also  be  estopped  hy  its  conduct  in 
the  particular  judicial  proceeding,  —  as  by  appearing  and  answer- 
ing in  its  corporate  name,^  or  by  executing  in  that  name  an 
appeal  bond.'^ 

§  533.  Corporations  for  Illegal  Purposes.  —  But  does  the 
same  rule  apply  to  the  defense  that  the  corporation  was  organized 
for  an  illegal  purpose?  The  authorities  upon  this  point  are  few. 
The  Supreme  Court  of  Nebraska,  by  analogy  to  the  rule  that  a 
citizen  cannot,  in  general,  raise  the  defense  that  the  corporation 
was  irregularly  organized,  holds  that  the  defense  cannot  be  made 
that  the  corporation  was  illegally  organized  and  for  an  illegal  pur- 
pose.^ Perhaps  this  can  hardly  be  maiutained'as  a  general  prop- 
osition. A  distinction  may  be  taken  in  this  connection,  namely, 
that  when  the  corporation  is  organized  ostensibly  for  a  legal  pur- 
pose, as  in  the  case  just  noticed,  this  defense  cannot  be  raised; 
but  where  it  appears,  as  is  possible  in  the  case  of  corporations  or- 
ganized under  general  laws,  that  the  association  although  incorpo- 
rated under  the  forms  of  law,  is  for  a  purpose  unwarranted  by  the 
terms  of  the  general  law,  it  would  seem  that  this  fact  might  be 
shown. ^  Accordingly,  a  better  statement  of  the  doctrine  under 
discussion  would  seem  to  be  that  a  person  contracting  with  an 
ostensible  corporation,  to  do  an  act  not  p7'ohibited  hy  law  is 
estopped  in  an  action  by  the  corporation  on  the  contract,  to  deny 
the  existence  of  the  corporation  or  its  power  to  enter  into  such  a 
contract.^ 

'  Hughes  V.  Bank  of  Somerset,   5  ■*  Lincoln  Building  Assn.   v.  Gra- 

Litt.   (Ky.)  47.     See  also  Searsburgh  ham,  7  Neb.  173. 
Turup.  Co.  V.  Cutler,  G  Vt.  315.  ^  Ante,  §  523. 

2  Fost;  §  Chs.  180,  184.  c  Oregonian  Ry.  Co.  w.  Oregon  Ry. 

8  Fost,  Ch.  184,  Art.  I.     East  Ten-  &  Nav.  Co.,  23  Fed.  Rep.  233;  Town  of 

nessee  &c.  II.  Co.  v.  Evans,  6  Ileisk.  S(!arcy  v.  Yaruell,  47  Ark.  201) ;  1  S.  W. 

(Tenn.)  009.  Kep.  319,  322. 

393 


1  ThOQip.  Corp.]       CONSTITUTIONAL   RESTRAINTS. 


CHAPTER    XII. 

CONSTITUTIONAL  RESTRAINTS   UPON   THE  CREATION  OF  CORPORA- 
TIONS AND   THE   GRANTING   OF   CORPORATE   PRIVILEGES. 

Art.    I.  Provisions  of  Various  State  Constitutions,   §§  538-568. 
II.  Restraints  upon  the  Passing  of  Special  Acts  Conferring 
Corporate  Privileges,  §§  573-fi02. 

III.  Restraints  as  to  the  Titles  of  Laws,   §§  607-627. 

IV.  Restraints  as  to  the  Mode  of  Passing  Lavts,  §§  632-639. 
V.  Various  other  Restraints  and  Provisions,  §§  643-659. 


Article  I.     Provisions  of  Various  State  Constitutions. 


Section 

538.  Scope  of  this  chapter. 

539.  Corporations   not  to  be  created 

by  special  laws. 

640.  But  only  under  general  laws. 

541.  And  subject  to  legislative  altera- 
tion or  repeal. 

642.  Legislature  not  to  extend  charter 

nor  remit  forfeitures. 

643.  Except    on     condition     of      ac- 

cepting  constitutional  provis- 
ions. 

544.  Legislature  may  alter,  revoke  or 

annul  existing  charters. 

545.  No  special  law  as  to  more  than 

one  corporation. 

546.  Existing  charters  annulled  where 

no    organization     has      taken 
place. 

547.  State  aid  not  to  be  granted. 

548.  Nor   debts   to  state,  nor   state's 

lien,  released  or  commuted. 

540.  Nor  municipal  aid  granted. 
550.  Except  upon  conditions. 

651.  Neither  state  nor  municipal  aid 
to  be  granted. 

394 


Section 

552.  Provisions  of   Minnesota  consti- 

tution as  to  state  aid:   "  Minne- 
sota railroad  bonds." 

553.  Private      corporations     not      to 

have  municipal  or  taxing  pow- 
ers. 
564.  Laws    permitting    alienation    of 
corporate     franchises    prohib- 
ited. 

555.  Corporations  not  to  employ  Chi- 

nese labor. 

556.  Existing  rights  saved. 

557.  Retrospective  laws  for  benefit  of 

corporations  prohibited. 

558.  Two-thirds  legislative   vote  re- 

quired. 

559.  Duration  of  corporation  limited. 

560.  Power  of   creating   corporations 

devolved  on  the  courts. 

561.  Raving  rights  arising  during  the 

civil  war. 

562.  Provisions  as  to  religious  corpo- 

rations. 

563.  Police  power  over  corporations 

not  to  be  abridged. 


CONSTITUTIONAL  PROVISIONS.     [1  Thomp.  Corp.  §  539. 

Section  Section 

564.  Bills  creating  corporations  con-      5G7.  Meaning  of  the  word  "■  corpora- 

tinued  till  next  session  of  leg-  tion  "    as    used    in    American 

islature.  constitutions. 

565.  Laws    to  be    passed    protecting      568.  Not  to  authorize   investment  of 

laborers.  trust  funds  in  private  corporate 

566.  Bonus  to  be  paid  to  the  state.  securities. 

§  538.  Scope  of  this  Chapter.  —  It  is  proposed  to  consider 
in  this  chapter  a  subject  which  might  better  perhaps  have  been 
considered  at  an  earlier  stage  of  the  discussion,  but  which,  in 
the  struggle  of  other  subjects  for  precedence,  has  been  post- 
poned until  now.  Constitutional  provisions  exist  in  most  of  the 
States  imposing  restraints  upon  the  legislature,  in  respect  of  the 
granting  of  special  charters  and  of  the  passing  of  laws,  either 
general  or  special,  conferring  corporate  powers  or  privileges. 
These  are  especially  frequent  in  the  more  recent  constitutions- 
which  have  been  adopted  in  some  of  the  States,  and  in  the  con- 
stitutions of  the  newly  admitted  States.  So  far  as  they  relate  to 
restraints  of  a  general  and  miscellaneous  character  and  those 
which  are  common  to  all  corporations,  they  are  collected  and 
given  in  the  present  article,  with  the  exception  of  those  of  the 
constitutions  of  the  newly  admitted  States  of  North  Dakota  and 
South  Dakota,  which  constitutions  were  not,  down  to  the  time  of 
going  to  the  press,  accessible  to  the  writer.  So  far  as  they  re- 
late to  particular  corporations,  such  as  railway  companies,  tele- 
graph companies,  and  the  like,  they  are  given  in  the  chapters 
relating  to  those  corporations  So  far  as  they  relate  to  subjects 
which  have  been  set  apart  for  special  discussion,  they  are  post- 
poned and  given  in  those  chapters,  —  as,  for  instance,  that  re- 
lating; to  the  right  of  eminent  domain.^ 

§  539.  Corporations  not  to  be  Created  by  Special  Laws.  — 

"The  general  assembly  shall  pass  no  special  act  conferriug  corporate 
powers,  except  for  charitable,  educational,  penal  or  reformatory  pur- 
poses, where  the  corporations  created  are  to  be  and  remain  under  the 
patronage  and  control  of  the  State.;' 2  -  -  -  -  "  The  legislature 
shall  not  pass  local  or  special  laws  in  any  of  the  following  enumerated 
cases,  that  is  to  say :  Granting  to  any  corporation,  association,  or 
individual     any     special     or     exclusive     right,     privilege     or    imrau- 

1  Post,  Ch.  122.  2  Ark.  Const,  of   1874,  art.  12,  §  2. 

395 


1  Thomp.  Corp.  §  539.]     constitutional  restraints. 

nitv-"^  _  -  .  -  "The  general  assembly  shall  not  pass  local  or 
special  laws  in  any  of  the  following  enumerated  cases,  that  is  to 
say :  .  .  .  chartering  or  hcensing  ferries  or  toll-bridges ;  .  .  . 
granting  to  any  corporation,  association,  or  individual  the  right  to  lay 
down  railroad  tracks;  granting  to  any  corporation,  association,  or 
indi\idual  any  special  or  exclusive  privilege,  immunity,  or  franchise 
whatever.  In  all  other  cases  where  a  general  law  can  be  made  appli- 
cable, no  special  law  shall  be  enacted."  2  .  .  -  -  "No  charter  of 
incorporations  shall  be  granted,  extended,  changed  or  amended  by  spe- 
cial law,  except  for  such  municipal,  charitable,  educational,  penal  or  re- 
formatory corporations  as  are  or  may  be  under  the  control  of  the  State  ; 
but  the  general  assembly  shall  provide  by  general  laws  for  the  organi- 
zation of  corporations  hereafter  to  be  created. "  ^  -  -  -  -  "  The 
general  assembly  shall  not  pass  local  or  special  laws  in  any  of  the  fol- 
lowing enumerated  cases,  —  that  is  to  say,  for  .  .  .  granting  to  any 
corporation,  association  or  individual  any  special  or  exclusive  privilege,  im- 
munity, or  franchise  whatever. "  ^  _  .  .  .  "  Granting  to  any  corpora- 
tion, association  or  individual  the  right  to  lay  down  railroad  tracks,  or 
amending  existing  charters  for  such  purposes. "  ^  _  _  -  -  "  No  cor- 
poration shall  be  created  by  special  laws,  or  its  charter  extended, changed, 
or  amended,  except  those  for  charitable,  educational,  penal  or  reform- 
atory purposes,  which  are  to  be  and  remain  under  the  patronage  and 
control  of  the  State  ;  but  the  general  assembly  shall  provide,  by  general 
laws,  for  the  organization  of  all  corporations  hereafter  to  be  cre- 
ated." ^  _  .  -  -  "  The  legislature  shall  pass  no  special  act  confer- 
ring coi-porate  powers.  Corporations  may  be  created  under  general 
laws  ;  but  all  such  laws  may  be  amended  or  repealed. "  ■'  -  -  -  -  "The 
general  assembly  shall  not  pass  any  local  or  special  law  creating  corpo- 
rations, or  amending,  renewing,  or  extending,  or  explaining  the  charter 
thereof.  .  .  .  Granting  to  any  corporation,  association,  or  individ- 
ual any  special  or  exclusive  right,  privilege  or  immunity,  or  to  any  cor- 
poration, association  or  individual  the  right  to  lay  down  a  railroad 
track."  s  -  -  -  -  "No  corporation,  after  the  adoption  of  this  con- 
stitution, shall  be  created  by  special  laws  ;  nor  shall  any  existing  charter 
be  extended,  changed,  or  amended  by  special  laws,  except  those  for 
charitable,  penal,  or  reformatory  purposes,  which  are  under  the  patron- 
age and  control  of  the  State."  9     -     -     -     -     "  The  legislature  shall  not 

1  Cal.  State     Const.     1879,  art.  4,  *  Ibid. 

§  25,  div.  19.  «  111.  Const,  of  1870,  art.  11,  §  1. 

2  Col.  Const,  of  1876,  art.  5,  §  25.  ^  Kan.  Const,  of  1859,  art.  12,  §  1. 
'  Col.  Const,  of  1876,  art.  15,  §  2.  «  mo.  Const,  of  1875,  art.  4,  §  53. 
4  111.  Const,  of  1870,  art.  4,  §  22.  »  Mo.  Const,  of  1875,  art.  12,  §  2. 

396 


CONSTITUTIONAL  PROVISIONS.     [1  Tliomp.  Coip.  §  539. 

pass  local  or  special  laws  in  any  of  the  following  cases,  that  is  to 
say :  .  .  .  Granting  to  any  corporation,  association  or  individual 
the  right  to  lay  down  railroad  tracks,  or  amending  existing  charters  for 
such  purpose.  Granting  to  any  corporation,  association,  or  individual 
any  special  or  exclusive  privileges,  immunity,  or  franchise  whatever.  In 
all  other  cases  where  a  general  law  can  be  made  applicable,  no  special 
law  shall  be  enacted."  1  _  _  -  _  "  The  general  assembly  shall  not 
pass  any  local  or  special  law  .  .  .  relating  to  ferries  or  bridges, 
or  incorporating  ferry  or  bridge  companies,  except  for  the  erection  of 
bridges  crossing  streams  which  form  boundaries  between  this  and  any 
other  State ;  regulating  labor,  trade,  mining,  or  manufacturing ;  cre- 
ating corporations,  or  amending,  renewing,  or  extending  the  charters 
thereof ;  granting  to  any  corporation,  association,  or  individual  any 
special  or  exclusive  privilege  or  immunity,  or  to  any  corporation,  associa- 
tion, or  individual  the  right  to  lay  down  a  railroad  track."  2  _  _  _  . 
By  the  constitution  of  Idaho,  the  general  assembly  shall  pass  no 
law  .  .  .  chartering  or  licensing  ferries,  bridges,  or  roads  .  .  . 
creating  any  corporation."  3  -  -  -  -  "  The  legislative  assembly  shall 
not  pass  local  or  special  laws  in  any  of  the  following  enumerated  cases, 
that  is  to  say :  .  .  .  Chartering  or  licensing  ferries  or  bridges  or 
toll  roads ;  chartering  banks,  insurance  companies  and  loan  and  trust 
companies  ;  .  .  .  granting  to  any  corporation,  association  or  indi- 
vidual the  right  to  lay  down  railroad  tracks,  or  any  special  or  exclusive 
privilege,  immunity  or  franchise  whatever ;  .  .  .  relinquishing  or  ex- 
tinguishing in  whole  or  in  part  the  indebtedness,  hability  or  obligation 
of  any  corporation  or  person  to  this  State,  or  to  any  municipal  corporation 
therein.  ...  In  all  other  cases  where  a  general  law  can  be  made 
apphcable,  no  special  law  shall  be  enacted."*  -  -  -  -  "  No  charter 
of  incorporation  shall  be  granted, extended,  changed  or  amended  by  special 
law,  except  for  such  municipal,  charitable,  educational,  penal  or  reform- 
atory corporations  hereafter  to  be  created  ;  provided^  that  any  such  laws 
shall  be  subject  to  future  repeal  or  alterations  by  the  legislative  as- 
sembly." ^  _  -  -  _  "The  legislature  is  prohibited  from  enacting 
any  private  or  special  laws  in  the  following  cases :  .  .  .  3.  For 
authorizing  persons  to  keep  ferries  wholly  within  this  State.  .  . 
6.  For  granting  corporate  powers  or  privileges.  ...  10.  Releasing 
or  extinguishing  in  whole,  or  in  part,  the  indebtedness,  liability  or  other 
obligation  of  any  person,  or  corporation  to  this  State,  or  to  any  munici- 
pal corporation  therein."  ^ 

1  Neb.  Const,  of  1875,   art.  3,  §  15.  *  Const.  Montana,  1889,  cart.  5,  §  26. 

2  Peuu.  Const,  of  1873,  art.  3,  §  7.  *  Const.  Montana,  1889,  art.  15,  §  2. 
8  Const.  Idaho,  1889,  art.  3,  §  19.  «  Const.  Wash.  1889-90,  art,  2,  g  28. 

397 


1  Thomp.  Corp.  §  540.]     constitutional  restraints. 

§  540.  But  only  under  General  Laws. —  "  Corporations  may  be 
formed  under  general  laws     .     .     .     "^     -     -     -     -      "  Corporations 
may  be  formed  under  general  laws,  but  shall  not  be  created  by  special 
act."  2    _    _    -     -     "  Corporations  may  be  formed  under  general  laws, 
but  shall  not  be  created  by  special  act,  except  for  municipal,  manufact- 
uring, mining,  immigration,  industrial,  and  educational  purposes,  or  for 
constructing  canals,  or  improving  navigable  rivers  and  harbors  of  this 
State,  and  in  cases  where,  in  the  judgment  of  the  general  assembly,  the 
objects     of     the     corporation     cannot    be     attained     under     general 
laws."  3     _     _     -     -     "  The  legislatui-e  shall  have  power  to  enact  a  gen- 
eral incorporation  act  to  provide  incorporation  for  religious,  charitable, 
literary,  and  manufacturing  purposes,  for  the  preservation  of  animal 
and  vegetable  food,  building  and  loan  associations,  and  for  draining  low 
lands ;  and  no  attempt  shall  be  made  in  such  act  or  otherwise,  to  limit 
or  qualify  the   power  of  revocation  reserved  to  the  legislature  in  this 
section."*     _     -     -     -     "  The  legislature  shall  provide  by  general  law 
for  incorporating  such  municipal,  educational,  agricultural,  mechanical, 
mining  and  other  useful   companies   or  associations  as  may  be  deemed 
necessary."^     .     .     -     -     "  Corporations,  other  than  banking,  shall  not 
be    created    by    special    act,    but    may    be    formed    under    general 
law. "  *5     -     -     -     -     "No  corporation  shall  be  created  by  special  laws  ; 
but  the  general  assembly  shall  provide  by  general  laws,  for  the  organ- 
ization of  all  corporations  hereafter  to  be  created,  except  as  hereinafter 
provided.""     -     -     -     -     "  Corporations  may  be  formed  under  general 
laws  ;  but  shall  not  be  created  by  special  act,  except  for  municipal  pur- 
poses, and  except  in  cases  where  no  general  laws  exist  providing  for  the 
creation  of  corporations  of  the  same  general  character  as  the  corpora- 
tion proposed  to  be  created ;  and  any  act  of   incorporation   passed  in 
violation  of  this  section  shall  be  void.     And,  as   soon  as  practicable 
after  the  adoption  of  this  constiturion,  it  shall  be  the  duty  of  the  gov- 
ernor to  appoint  three  persons  learned  in  the  law,  whose  duty   it   shall 
be  to  prepare  draughts  of  general   laws,  pro\iding  for  the  creation  of 
corporations  in  such  cases  as  may  be  proper,  and  for  ail  other  cases 
where  a  general  law  can  be  made ;  and  for  revising  and  amending,  so 
far  as  may  be  necessary  or  expedient,  the  general  laws  which  may  be  in 
existence  on  the  first  day  of  June,  eighteen  hundred  and  sixty-seven, 
providing  for  the  creation  of  corporations  and  for  other  purposes ;  and 

1  Ark.  Const,  of  1874,  art.    12,    §  6  *  Del.  Const,  of  1831,   art.   2,    Ad- 
(inpart).  dendum  of  §  17. 

2  Cal.  Const,  of    1879,  art.  12,    §    1  °  Florida  Const,  of  18G8,art.  5,  §22. 
(in  part).  ^  Ind-  Const,  of  1851,  art.  11,   §  13. 

3  Ala.  Const,  of  1875,  art.  13,  §  1.  '  la.  Const,  of  1857,  art.  8,  §  1. 

39"8 


CONSTITUTIONAL  PROVISIONS.     [1  Thomi).  Corp.  §  540. 

such  draughts  of  laws  shall,  by  said  commissioners,  be  submitted  to  the 
general  assembly  at  its  first  meeting  for  its  action  thereon."  i  -  -  -  - 
"  Corporations  shall  be  formed  under  general  laws,  and  shall  not  be 
created  by  special  acts  of  the  legislature  except  for  municipal  purposes, 
and  in  cases  where  the  objects  of  the  corporation  cannot  otherwise  be 
attained  ;  and,  however  formed,  they  shall  forever  be  subject  to  the  gen- 
eral laws  of  the  State. "^  -  -  -  -  "Corporations  may  be  formed 
under  general  laws,  but  shall  not  be  created  by  special  act,  except  for 
municipal  purposes.  All  laws  passed  pursuant  to  this  section  may  be 
amended,  altered  or  repealed.  But  the  legislature  may,  by  a  vote  of 
two-thirds  of  the  members  elected  to  each  house,  create  a  single  bank 
with  branches."  3  .  _  _  _  (■•■'^q  corporation  shall  be  formed 
under  special  acts  except  for  municipal  purposes."  4  -  -  -  - 
' '  No  corporations  shall  be  created  by  special  law,  nor  its  charter  ex- 
tended, changed,  or  amended,  except  those  for  charitable,  educational, 
penal  or  reformatory  pui'poses,  which  are  to  be  and  remain  under  the 
patronage  and  control  of  the  State ;  but  the  legislature  shall  provide 
by  general  laws  for  the  organization  of  all  corporations  hereafter  to  be 
created.  All  general  laws  passed  pursuant  to  this  section  may  be 
altered  from  time  to  time  or  repealed. "  ^  _  _  _  _  "  The  legislature 
shall  pass  no  special  act  in  any  manner  relating  to  corporated  powers, 
except  for  municipal  purposes  ;  but  corporations  may  be  formed  under 
general  laws,  and  all  such  laws  may,  from  time  to  time,  be  altered  or 
repealed."  6  .  _  .  .  "  The  legislature  shall  not  pass  private,  local 
or  special  laws  in  any  of  the  following  enumerated  cases,  that  is  to 
say :  .  .  .  Granting  to  any  corporation,  association,  or  individual 
any  exclusive  privilege,  immunit}^,  or  franchise  whatever.  Granting  to 
any  corporation,  association,  or  individual  the  right  to  lay  down  railroad 
tracks.  .  .  .  The  legislature  shall  pass  no  special  act  conferring 
corporate  powers,  but  they  shall  pass  general  laws  under  which  corpo- 
rations may  be  organized  and  corporate  powers  of  every  nature 
obtained,  subject,  nevertheless,  to  repeal  or  alteration  at  the  will  of  the 
legislature."'''  -  -  -  .  "  The  legislature  shall  not  pass  a  private  or 
local  bill  in  any  of  the  following  cases :  .  .  .  Granting  to  any  cor- 
poration, association,  or  individual  the  right  to  lay  down  railroad 
tracks.  Granting  to  any  private  corporation,  association,  or  indi\idual 
any  exclusive  privilege,  immunity,  or  franchise  whatever.     Providing 

1  Md.  Const,  of  1807,  art.  3,  §  48.  <  Minn.  Const,  of  1857,  art,  10,  §   2. 

2  Me.  Const,  of  1820,  art.   4,   §   14,  «  Neb.  Const,   of  1875,  art.  11,  §  1. 
amend.  1876.  «  Nov.  Const,  of  18(;4,  art.  8,  §  1. 

3  Mich.  Const,  of  1850,  art.  15,    §  1,  '  N.  J.  Const.  Amend,  of  1875,  art. 
amend.  1862.  4,  §  7. 

399 


1  Thomp.  Corp.  §  54:0.]     constitutional  restraints. 

for  building  bridges,  and  chartering  companies  for  such  purposes,  ex- 
cept on  the  Hudson  river  below  Waterford,  and  on  the  East  river,  or 
over  the  waters  forming  a  part  of  the  boundaries  of  the  State.  The 
legislature  shall  pass  general  laws  proiiding  for  the  cases  enumerated 
in  this  section,  and  for  all  other  cases  which,  in  its  judgment,  may  be 
provided  for  by  general  laws. "  ^  -  -  -  -  "  Corporations  may  be 
formed  under  general  laws,  but  shall  not  be  created  by  special  act,  ex- 
cept for  municipal  purposes,  and  in  cases  where,  in  the  judgment  of  the 
legislature,  the  object  of  the  corporations  cannot  be  attained  under 
general  laws.  All  general  laws  and  special  acts,  passed  pursuant  to 
this  section,  may  be  altered  from  time  to  time  or  repealed."  2  .  .  _  _ 
"  Corporations  may  be  formed  under  general  laws,  but  shall  not  be 
created  by  special  laws,  except  for  municipal  purposes.  All  laws 
passed  pursuant  to  this  section  may  be  altered,  amended,  or  re- 
pealed, but  not  so  as  to  impair  or  destroy  any  vested  corporate 
rights.""^  -  -  -  -  "Corporations  may  be  formed  under  general 
laws,  but  all  such  laws  may  from  time  to  time  be  altered  or  re- 
pealed."* -  -  _  -  "  No  corporation  shall  be  created,  or  its  powers 
increased  or  diminished,  by  special  laws ;  but  the  general  assembly 
shall  provide  by  general  laws  for  the  organization  of  all  corporations 
hereafter  created,  which  laws  may,  at  any  time,  be  altered  or  repealed ; 
and  no  such  alteration  or  repeal  shall  interfere  with  or  divest  rights 
which  have  become  vested. "  ^  .  .  -  -  "  The  legislature  shall  not, 
except  as  otherwise  provided  in  this  constitution,  pass  any  local  or 
special  law,  .  .  .  For  incorporating  railroads  or  other  works  of 
internal  improvement. "  6  _  _  -  -  "  No  private  corporation  shall 
be  created  except  by  generallaws."  ■''  -  -  -  -  "  General  laws  shall 
be  enacted  providing  for  the  creation  of  private  corporations,  and  shall 
therein  provide  fully  for  the  adequate  protection  of  the  pubhc  and  of 
the  individual  stockholders."  s  .  .  -  _  "  The  legislature  shall  pro- 
vide for  the  organization  of  all  corporations  hereafter  to  be  created  by 
general  laws,  uniform  as  to  the  class  to  which  they  relate ;  but  no  cor- 
poration shall  be  created  by  special  law :  Provided,  That  nothing  in  this 
section  contained  shall  prevent  the  legislature  from  providing  by  special 
laws  for  the  connection  by  canal  of  the  waters  of  the  Chesapeake  with 
the  Ohio  river,  by  line  of  the  James  river,  Greenbrier,  New  River,  and 

1  N.  Y.  Const,  Amend,  of  1874,  art.  •*  S.  C.  Const,  of  1868,  art.  12,  §  1. 
2,  §  18  (in  part).  *  Tenn,  Const,  of  1870,  art.  11,  §  8. 

2  N.  C.  Const.  Amend,  of  1876,  art.  ^  Texas  Const,  of  1876,  art.  3,  §  56. 
8,  §  1.  '  Texas  Const,  of  1876,  art.  12,  §  1. 

8  Oregon  Const,   of  1857,   art.    11,  »  Tex.  Const,   of  1876,  art.  12,  §  2. 

§2. 

400 


CONSTITUTIONAL  PROVISIONS.     [1  Thomp.  Corp.  §  54rl. 

Great  Kanawha."  i  -  -  -  _  "Corporations,  without  banking 
powers  or  privileges,  may  be  formed  under  general  laws,  but  shall  not 
be  created  by  special  act,  except  for  municipal  purposes,  and  in  cases 
where,  in  the  judgment  of  the  legislature,  the  objects  of  the  corpora- 
tion cannot  be  attained  under  general  laws.  All  general  laws  or  special 
acts  enacted  under  the  provisions  of  this  section  may  be  altered  or  re- 
pealed by  the  legislature  at  any  time  after  their  passage."  2  _  _  _  _ 
"  The  legislature  is  prohibited  from  enacting  any  special  or  private  laws 
in  the  following  cases :  For  granting  corporate  powers  or  privileges,  ex- 
cept to  cities."  3 

§  541.  And  Subject  to  Ijegislative  Alteration  or  Repeal.  — 

"  All  general  laws  and  special  acts  passed  pursuant  to  this  section  may 
be  altered,  amended  or  repealed."  *----"  Corpoi-ations  may 
be  formed  under  general  laws  ;  which  laws  may  from  time  to  time,  be 
altered  or  repealed.  The  general  assembly  shall  have  the  power  to 
alter,  revoke,  or  annul,  any  charter  of  incorporation  now  existing  and 
revocable  at  the  adoption  of  this  constitution,  or  any  that  may  here- 
after be  created,  whenever  in  their  opinion,  it  may  be  injurious  to  the 
citizens  of  this  State  ;  in  such  manner,  however,  that  no  injustice  shall 
be  done  to  the  corporators."^  _  _  -  _  "  All  laws  now  in  force  in 
this  State  concerning  corporations,  and  all  laws  that  may  be  hereafter 
passed  pursuant  to  this  section,  may  be  altered  from  time  to  time  or 
repealed."  6  _  _  _  _  "  Subject  to  the  provisions  of  this  article,  the 
general  assembly  shall  have  power  to  amend  or  repeal  all  laws  for  the 
organization  or  creation  of  corporations,  or  granting  of  special  or  exclu- 
sive privileges  or  immunities,  by  a  vote  of  two-thirds  of  each  branch,  of 
the  general  assembly;  and  no  exclusive  privileges  except  as  in  this 
article  pi'ovided,  shall  ever  be  granted." '^  -  _  _  _  "All  charters 
granted  or  adopted  in  pursuance  of  this  section  and  all  charters  hereto- 
fore granted  and  created,  subject  to  repeal  or  modification,  may  be 
altered,  from  time  to  time,  or  be  repealed.  Provided,  nothing  herein 
contained  shall  be  construed  to  extend  to  banks  or  the  incorporation 
thereof."^  -  -  -  -  "The  legislature  may  provide  by  law  for 
altering,  revoldng  or  annulling,  any  charter  of  incorporation,  existiug 
and  revocable  at  the  time  of  the  adoption  of  this  constitution,  in  such 

1  W.  Va.   Const,  of   1872,  art.  11,  ^  Ark.  Const,  of  1874,  art.  12,  §  6. 
§  1.  6  cal.  Slate  Const.  1879,   art.  12,  § 

2  Wis.  Const,   of  1818,  art.  11,  §  1.  1.     Similar  provisions    exist    in    the 

3  Wis.  Const.  Amoud.  of  1871,  art.  Constitulions    of  many  other  States, 
4,  §  31.  as  seen  by  the  preceding  section. 

*  Ala.  Const,   of   1875,  art.  13,  §  1  '  la.  Const,  of  1857,  art.  8,  §  12. 

(in  part).  «  Md.  Const,  of  18U7,  art.  3,  §  48. 

26  401 


1  Tliomp.  Corp.  §  543.]     constitutional  restraints. 

manner,  however,  that  no  injustice  shall  be  done  to  the  corpora- 
tion." ^  _  _  -  -  "No  charter  of  incorporation  shall  be  granted,  ex- 
tended, changed  or  amended  by  special  law,  except  for  such  municipal, 
charitable,  educational,  penal  or  reformatory  corporations  as  are  or 
may  be  under  the  control  of  the  State,  but  the  legislature  shall  provide 
by  general  law  for  the  organization  of  corporations  hereafter  to  be 
created :  Provided,  That  any  such  law  shall  be  subject  to  future  repeal 
or  alteration  by  the  legislature."  2  _  _  _  _  "  Corporations  may  be 
formed  under  general  laws,  but  shall  not  be  created  by  special  acts. 
All  laws  relating  to  corporations  may  be  altered,  amended  or  repealed 
by  the  legislature  at  any  time,  and  all  corporations  doing  business  in 
this  State  may,  as  to  such  business,  be  regulated,  limited  or  restrained 
by  law. ' '  3 

§  542.  Liegislature  not  to  Extend  Charter  nor  Remit  For- 
feitures. —  "The  legislature  shall  not  extend  any  franchise  or  charter, 
nor  remit  the  forfeiture  of  any  franchise  or  charter  of  any  corporation 
now  existing,  or  which  shall  hereafter  exist  under  the  laws  of  this 
State."*  -  _  -  -  "  The  general  assembly  shall  not  remit  the  forfeit- 
ure of  the  charter  of  any  corporation  now  existing,  or  alter  or  amend 
such  forfeited  charter,  or  pass  any  other  general  or  special  laws  for  the 
benefit  of  such  corporations."  ^ 

§  543.  Except  on  Condition  of  Accepting  Constitutional 
Provisions.  —  ' '  The  general  assembly  shall  not  remit  the  forfeiture  of 
the  charter  of  any  corporation  now  existing,  or  alter  or  amend  the  same 
or  pass  any  general  or  special  law  for  the  benefit  of  such  corporation, 
other  than  in  execution  of  a  trust  created  by  la\^^  or  by  contract,  except 
upon  the  condition  that  such  corporation  shall  thereafter  hold  its  charter 
subject  to  the  provisions  of  this  constitution."  6  _  _  _  >  "The  gen- 
eral assembly  shall  not  remit  the  forfeiture  of  the  charter  of  any 
corporation  now  existing,  or  alter  or  amend  the  same,  or  pass  any  other 
general  or  special  law  for  the  benefit  of  such  corporation,  except  upon 
the  conditition  that  such  corporation  shall  thereafter  hold  its  charter 
subject  to  the  provisions  of  this  constitution."'^  -  -  -  -  "  No 
corporation  other  than  municipal  corporations  in  existence  at  the  time  of 
the  adoption  of  this  constitution,  shall  have  the  benefit  of   any   future 

'  Const.  Idaho,  1889,  art.  11,   §  3.  ^  Mo.  Const,  of  1875,  art.  12,  §  3. 

2  Const.  Idaho,  1889,  art.  11,  §   2.  6  Ala.  Const,  of  1875,  art.  13,  §  3. 

3  Const.  Wash.  1889-90,  art.  12,  §  1.  ^  Penn.  Const,  of  1873,  art.  16,  §  2; 
<  Cal.    Const.    1879,  art.   12,    §   7;  Ark.  Const,  of  1874,  art.  17,  §  8. 

Const.  Wash.  1889-90,  art.  12,  §  3. 
402 


CONSTITUTIONAL  PROVISIONS.     [1  Thomp.  Coip.  §  546. 

legislation,  without  first  filing  in  the  office  of  the  Secretary  of  State  an 
acceptance  of  the  provision  of  this  constitution  in  binding  form."  i 

§  644.  Leg-islature  may  Alter,  Revoke  or  Annul  Existing 
Charters.  —  ' '  The  general  assembly  shall  have  the  power  to  alter,  re- 
voke or  amend  any  charter  of  incorporation  now  existing,  and  revocable 
at  the  ratification  of  this  constitution,  or  any  that  may  hereafter  be 
created,  whenever  in  their  opinion  it  may  be  injurious  to  the  citizens  of 
the  State,  in  such  manner,  however,  that  no  injustice  shall  be  done  to 
the  corporators."  2  -  -  -  -  "  The  general  assembly  shall  have  the 
power  to  alter,  revoke,  or  annul  any  charter  of  incorporation  now  exist- 
ing and  revocable  at  the  adoption  of  this  constitution,  or  any  that  may 
hereafter  be  created,  whenever  in  their  opinion  it  may  be  injurious  to 
the  citizens  of  the  State,  in  such  manner,  however,  that  no  injustice 
shall  be  done  to  the  corporators."  ^  -  -  -  .  "The  general  as- 
sembly shall  have  the  power  to  alter,  revoke,  or  annul  any  charter  of 
incorporation  now  existing  and  revocable  at  the  adoption  of  this  con- 
stitution, or  any  that  may  hereafter  be  created,  whenever  in  their  opin- 
ion it  may  be  injurious  to  the  citizens  of  this  commonwealth ;  in  such 
manner,  however,  that  no  injustice  shall  be  done  to  the  incorpora- 
tors."* -  -  -  -  "The  legislative  assembly  shall  have  the  power 
to  alter,  revoke  or  annul  any  charter  of  incorporation  existing  3t  the 
time  of  the  adoption  of  this  constitution,  or  which  may  be  hereafter 
incorporated,  whenever  in  its  opinion  it  may  be  injurious  to  the 
citizens  of  the  State. ' '  ^ 

§  545.  No  Special  Law  as  to  More  than  One  Corporation.  — 

"No  law  hereafter  enacted  shall  create,  renew,  or  extend  the  charter 
of  more  than  one  corporation. "  ^  -  -  -  .  "No  law  hereafter 
enacted  shall  create,  renew  or  extend  the  charter  of  more  than  one 
corporation."  ' 

§  546.  Existing  Charters  Annulled  where  no  Organization 
has  Taken  Place. —  "  All  existing  charters  or  grants  of  special  or  ex- 
clusive privileges,  under  which  a  bona  fide  organization  shall  not  have 
taken  place,  and  business  been  commenced  in  good  faith,  at  the  time  of 
the  adoption  of  this  constitution,  shall  thereafter  have  no  valid- 
ity. "8     _     _     .     .     t '  jt^ii  existing   charters   or  grants  of  special  or  ex- 

1  Const.  Idaho,  1889,  art.  11,  §  7.  *  Const.    Montana,    1889,  art.    16, 

2  Ala.  Const,  of   1875,  art.   13,  §  10      §  3. 

(in  part).  6  A!a.  Const,  of  1875,  art.  13,  §  10. 

3  Col.  Const,  of   1876,   art.  15,  §  3.  '  Penn.  Const,  of  1873,  Art.  IG,  §  10. 
*  Penn.  Const,  of  1873,  art.  10,  §  10.           «  Ark.  Const,  of  1874,  art.  12,    §  1; 

403 


1  Thomp.  Corp.  §  547.]     constitutional  restraints. 

elusive  piivileges,  under  which  organization  shall  not  have  taken  place, 
or  which  shall  not  have  been  in  operation  within  ten  days  from  the  time 
this  constitution  takes  effect,  shall  thereafter  have  no  validity  or  effect 
whatever."  1  _  _  .  -  "  All  existing  charters  or  grants  of  special  or 
exclusive  pri\aleges  under  which  organization  shall  not  have  taken  place, 
or  which  shall  not  be  in  operation  within  sixty  days  from  the  time  this 
constitution  takes  effect,  shall  thereafter  have  no  validity  or  effect  what- 
ever." ^  _  _  _  _  "  All  existing  charters  or  grants  of  special  or  ex- 
clusive privileges  under  which  organization  shall  not  have  taken  place, 
or  which  shall  not  have  been  in  operation  within  two  years  from  the 
time  this  constitution  takes  effect,  shall  thereafter  have  no  vaHdity  or 
effect  whatever :  provided,  that  nothing  herein  shall  prevent  the  execu- 
tion of  any  bona  fide  contract  heretofore  lawfully  made  in  relation  to  any 
existing  charter  or  grant  in  this  State."  ^ 

§  547.  State  Aid  not  to  be  Granted.  —  "  Except  as  herein  pro- 
vided the  State  shall  never  become  a  stocldiolder  in  or  subscribe  to,  or  be 
interested  in,  the  stock  of  any  corporation  or  association."*  _  -  _  _ 
"  The  State  shall  not  be  a  stockholder  in  any  bank  after  the  expiration 
of  the  present  bank-charter ;  nor  shaU  the  credit  of  the  State  ever  be 
given  or  loaned  in  aid  of  any  person,  association  or  corporation ;  nor 
shall  the  State  hereafter  become  a  stockholder  in  any  corporation  or 
association. "  ^  -  -  -  -  "  The  State  shall  not  become  a  stockholder 
in  any  corporation  nor  shall  it  assume  or  pay  the  debt  or  liabihty  of 
any  corporation  unless  incurred  in  time  of  war  for  the  benefit  of  the 
State."  6  _  _  -  _  "  The  State  shall  not  subscribe  to  or  be  in- 
terested in  the  stock  of  any  company,  association  or  corpora- 
ion."'  -  -  -  -  "  The  State  shall  not  in  any  manner  loan  its  credit, 
nor  shall  it  subscribe  to,  or  be  interested  in  the  stock  of  any  company, 
association  or  corporation. "  ^  -  -  -  -  "No  money  shall  ever  be 
appropriated  or  drawn  from  the  State  treasury  for  the  use  or  benefit  of 
any  corporation,  association,  asylum,  hospital  or  any  other  institution 
not  under  the  exclusive  management  and  control  of  the  State  as  a  State 

Penn.  Const,  of  1873,  art.  16,  §1;  Mo.  ^  ^eb.  Const,  of  1875,  art.  11,  §  6. 

Const,  of   1875,  art.   12,    §    1;    Colo.  ^  w".  Va.  Const,   of   1872,   art.  11, 

Const,  of  1876,  Art.  15,  §   1     (in   sub-  §  3. 

stance)  ;  Ala.  Const,  of  1875,  art.    13,  ^  Ark.  Const,  of  1874,  art.  12,  §  7. 

§  2  (with the  word  "ratification,"  in-  ^  ind.  Const,  of  1851,  art.  11,  §  12. 

teadof   "adoption  ");  Coust.   Idaho,  ^  la.  Coast,  of  1857,  art.  8,  §  3. 

art.  11,   §   1    (in  substance);  Const.  '  Mich.  Const,  of  1850,  art.  1 4,  §  8: 

Mont.    art.    15,  .  §  1   (in     substance);  Oregon  Const,  of  1857,  art.  11,  §  6. 
Const.  Wash.,  art.    12,    §  2   (iu  sub-  «  Cal.  State  Const.    1879,   art.    12, 

stance).  §  13. 
1  111.  Const,  of  1870,  art.  H,  §  2. 
404 


CONSTITUTIONAL  PROVISIONS.     [1  Thomp.  Corp.  §  547. 

institution,  nor  shall  any  grant  or  donation  of  property  ever  be  made 
thereto  by  the  State  ;  provided,  that  notwithstanding  anything  contained 
in  this  or  any  other  section  of  this  constitution,  the  legislature  shall 
have  the  power  to  grant  aid  to  institutions,  conducted  for  the  support 
and  maintenance  of  minor  orphans,  or  half  orphans,  or  abandoned 
children,  or  aged  persons  in  indigent  circumstances ;  such  aid  to  be 
granted  by  a  uniform  rule  and  proportioned  to  the  number  of  inmates 
of  such  respective  institutions ;  provided  further,  that  the  State  shall 
have,  at  any  time,  the  right  to  inquire  into  the  management  of  such  in- 
stitutions ;  pro\dded  further,  that  whenever  any  county,  or  city  and 
county,  or  city  or  town  shall  provide  for  the  support  of  minor  orphans 
or  half  orphans,  or  abandoned  children  or  aged  persons  in  indigent  cu'- 
cumstances,  such  county,  city  and  county,  city  or  town  shall  be  entitled 
to  receive  the  same  pro  rata  appropriations  as  may  be  granted  to  such 
institutions  under  church  or  other  control.  An  accurate  statement  of 
the  receipts  and  expenditures  of  public  moneys  shall  be  attached  to  and 
pubUshed  with  the  laws  at  every  regular  session  of  the  legisla- 
tui-e."  ^  -  -  -  -  "No  tax  shall  be  levied  upon  persons  for  the 
benefit  of  any  chartered  company  of  the  State,  or  for  paying  the  interest 
on  any  bonds  issued  by  said  chartered  companies,  counties,  or  corpora- 
tions for  the  above  mentioned  purposes,  and  any  laws  to  the  contrary 
are  hereby  declared  null  and  void. "  2  _  -  _  _  "  The  credit  of  the 
State  shall  not,  in  any  manner,  be  given  or  loaned  to  or  in  aid  of,  any 
individual,  association,  or  corporation ;  and  the  State  shall  never  assume 
or  become  responsible  for  the  debts  or  Uabilities  of  any  individual, 
association,  or  corporation."  ^  _  _  .  _  "The  credit  of  this  com- 
monwealth shall  never  be  given  or  loaned  in  aid  of  any  person,  association, 
municipality  or  corporation. "  *  -  -  -  -  "The  credit  of  the  State 
shall  not  in  any  manner  be  given  or  loaned  to  or  in  aid  of  any  individual, 
association  or  corporation. "  ^  _  _  .  _  "  The  credit  of  the  State 
shall  not  be  granted  to  or  in  aid  of  any  person,  association  or  corpo- 
ration." 6  -  _  .  .  "  The  credit  of  the  State  shall  not  be  pledged  or 
loaned  in  aid  of  any  person,  association,  or  corporation ;  nor  shall  the 
State  hereafter  become  a  stockholder  in  any  corporation  or  associa- 
tion. "  '^  -  -  -  -  "  The  general  assembly  shall  have  no  power  to 
give  or  to  lend,  or  to  authorize  the  giving  or  lending  of  the  credit  of  the 
State  in  aid  of  or  to  any  person,  association,  or  corporation,  whether 
municipal  or  other,  or  to  pledge  the  credit  of  the  State  in  any  manner 

1  Cal.  Const.  1879,  art.  4,  §  22.  *  Ky.  Const,  of  1850,  art.  2,  §  33. 

■^  Florida  Const,  of  18C8,  art.  12,  §  «  Md.  Const,  of  18G7,  art.  3,  §  34. 

8.  8  Mich.  Con,st.  of    1850,  art.  14,  §6. 

s  la.  Const,  of  1857,  art.  7,  §  1.  ^  Miss.  Const,  of    1868,  art.  12,  §  6, 

405 


1  Thorn  p.  Corp.  §  54:7.]     constitutional  restraints. 

•whatsoever,  for  the  payment  of  the  habiUties,  present  or  prospective,  of 
any  individual,  association  of  individuals,  municipal  or  other  corpora- 
tion whatsoever."  ^  -  -  -  -  "The  general  assembly  shall  have 
no  power  to  make  anj^  grant,  or  to  authorize  the  making  of  any 
gi-ant  of  pubhc  money  or  thing  of  value  to  any  individual,  association  of 
individuals,  municipal  or  other  corporation  whatsoever:  Provided, 
That  this  shall  not  be  so  construed  as  to  prevent  the  grant  of  aid  in 
a  case  of  public  calamity."  ^  _  _  _  _  "The  general  assembly 
shall  have  no  power  hereafter  to  subscribe  or  authorize  the  subscrip- 
tion of  stock  on  behalf  of  the  State,  in  any  corporation  or  association, 
except  for  the  purpose  of  securing  loans  heretofore  extended  to  cer- 
tain railroad  corporations  by  the  State."  ^  _  _  _  _  "The  State 
shall  not  donate  or  loan  money  or  its  credit,  subscribe  to  or  be  inter- 
ested in  the  stock  of  any  company,  association,  or  corporation,  except 
corporationsformedfor  educational  or  charitable  purposes."  ^  -  -  -  - 
"And  the  general  assembly  shall  have  no  power  to  give  or  lend  the 
credit  of  the  State  in  aid  of  any  person,  association,  or  corporation,  ex- 
cept to  aid  in  the  completion  of  such  railroads  as  may  be  unfinished  at 
the  time  of  the  adoption  of  this  constitution,  or  in  which  the  State  has  a 
direct  pecuniary  interest,  unless  the  subject  be  submitted  to  a  direct 
vote  of  the  people  of  the  State,  and  be  approved  by  a  majority  of  those 
who  shall  vote  thereon."^  _  _  _  _  "Neither  the  credit  nor  the 
money  of  the  State  shall  be  given  or  loaned  to  or  in  aid  of  any  associa- 
tion, corporation,  or  private  undertaldng.  This  section  shall  not,  how- 
ever, prevent  the  legislature  from  making  such  provision  for  the  educa- 
tion and  support  of  the  blind,  the  deaf  and  dumb,  and  juvenile  delin- 
quents as  to  it  may  seem  proper ;  nor  shall  it  apply  to  any  fund  or 
property  now  held,  or  which  may  hereafter  be  held,  by  the  State  for 
educational  purposes."  ^  _  -  _  _  "The  credit  of  the  State  shall 
not,  in  any  manner,  be  given  or  loaned  to,  or  in  aid  of,  any  indi^ddual, 
association,  or  corporation  whatever ;  nor  shall  the  State  ever  hereafter 
become  a  joint  owner  or  stockholder  in  any  company  or  association  in 
this  State  or  elsewhere,  formed  for  any  purpose  whatever."  7  -  -  -  - 
*'  No  appropriations,  except  for  pensions  or  gratuities  for  military  serv- 
ices, shall  be  made  for  charitable,  educational,  or  benevolent  purposes, 
to  any  person  or  community,  nor  to  any  denominational  or  sectarian  in- 
stitution, corporation  or  association."^     _     _     _     _     "The  credit    of 

1  Mo.  Const,  of  1875,  art.  i,  §  45.  «  n.  y.  Const.  Amend,  of  1874,  art 

2  Mo.  Const,  of  1875,  art.  4,  §  46.  8,  §  10. 

3  Mo.  Const,  of  1875,  art.  4,  §  49.  '  Ohio  Const,  of  1851,  art.  8,  §  4. 

*  Nev.  Const,  of  18C4,  art.  8,  §  9.  *  Penn.    Const,    of    1873,     art.    3, 

5  N.  C.  Const.  Amend,  of  1876,  art.      §  18. 
5,  §4. 

406 


CONSTITUTIONAL  PROVISIONS.     [1  Thomp.  Corp.  §  547. 

the  commonwealth  shall  not  be  pledged  or  loaned  to  any  individual, 
company,  corporation,  or  association,  nor  shall  the  commonwealth  be- 
come a  joint  owner  or  stockholder  in  any  compan}',  association,  or  cor- 
poration."! -  -  -  .  "The  credit  of  this  State  shall  not  be  here- 
after loaned  or  given  to  or  in  aid  of  any  person,  association,  company, 
corporation,  or  municipahty,  nor  shall  the  State  become  the  owner,  in 
whole  or  in  part,  of  any  bank,  or  a  stockholder  with  others  in  any  asso- 
ciation, company,  corporation  or  municipahty."  ^  -  -  -  .  "No 
bonds  of  the  State  shall  be  issued  to  any  railroad  company  which  at  the 
time  of  its  application  for  the  same  shall  be  in  default  in  paying  the  in- 
terest upon  the  State  bonds  previously  loaned  to  it,  or  that  shall  here- 
after and  before  such  application  sell  or  absolutely  dispose  of  any  State 
bonds  loaned  to  it  for  less  than  par.  "3  ....  "  The  legislature 
shall  have  no  power  to  give  or  to  lend,  or  to  authorize  the  gi^^ng  or  lend- 
ing, of  the  credit  of  the  State  in  aid  of,  or  to  any  person,  association,  or 
corporation,  whether  municipal  or  other  ;  or  to  pledge  the  credit  of  the 
State  in  any  manner  whatsoever  for  the  pa3mient  of  the  liabiKties,  pres- 
ent or  prospective,  of  any  indivdual,  association  of  individuals,  munici- 
pal or  other  corporation  whatsoever. "  *  _  -  .  «  "  The  legislature 
shall  have  no  power  to  make  any  grant,  or  authorize  the  making  of  any 
grant,  of  public  money  to  any  individual,  association  of  individuals, 
municipal  or  other  corporation  whatsoever ;  provided,  that  this  shall  not 
be  so  construed  as  to  prevent  the  grant  of  aid  in  case  of  pubhc  calam- 
ity." 5  -  -  -  -  "  The  credit  of  the  State  shall  not  be  granted  to  or 
in  aid  of  any  pounty,  city,  township,  corporation,  or  person ;  nor  shall 
the  State  ever  assume  or  become  responsible  for  the  debts  or  liabiKties 
of  any  count}^  city,  town,  township,  corporation,  or  person ;  nor  shall 
the  State  ever  hereafter  become  a  joint  owner  or  stockholder  in  any  com- 
pany or  association  in  this  State  or  elsewhere,  formed  for  any  pui-pose 
whatever."  6  .  _  .  .  "  The  credit  of  the  State  shall  not  be  granted 
to,  or  in  aid  of,  any  person,  association,  or  corporation."'  -  -  -  - 
"The  State  shall  not  subscribe  to  or  become  interested  in  the  stock  of 
any  company,  association,  or  corporation."  8  -  -  .  _  "The  credit 
of  the  State  shall  never  be  given  or  loaned  in  aid  of  any  individual,  as- 
sociation, or  corporation."  9  -  -  -  -  "  The  credit  of  the  State  shall 
not,  in  any  manner,  be  given,  or  loaned  to  or  in  aid  of  any  individual, 
association,  municipality  or  corporation ;  nor  shall  the  State,  directly  or 

»  Penn.  Const,  of  1873,  art.  9,  §  6,  «  W.   Va.  Const,   of   1872,   art.  10, 

2  Tenn.  Const,   of  1870,  art  2,  §  31.  §  6, 

3  Tenn.  Const,  of  1870,  art.  2,  §  33.  '  Va.  Const,  of  1870,  art,  10,  §  12. 
*  Tex.  Const,  of  1876,  art.  3,  §  50.  8  va.  Const,  of  1870,  art.  10,  §  14. 
5  Tex.  Const,  of  1876,  art.  3,  §  51.  »  Wis.  Const,  of  1848,  art.  7,  §  3. 

407 


1  Thoiup.  Corp.  §  548]     constitutional  restraints. 

indirectl}',  become  a  stockholder  in  any  association  or  corpora- 
tion."^ _  _  _  _  "  The  credit  of  the  State  shall  not,  in  any  manner,  be 
given  or  loaned  to,  or  in  aid  of,  any  individual,  association,  company  or 
corporation."  2  _  .  .  _  "  The  State  shall  not  in  any  manner  loan 
its  credit,  nor  shall  it  subscribe  to,  or  be  interested  in  the  stock  of  any 
company,  association  or  corporation."  ^ 

§  548.  Nor  Debts  to  State,  nor  State's  Lien,  Released  or 
Commuted. — • ' '  The  legislatui-e  shall  not  pass  local  or  special  laws  in 
any  of  the  following  enumerated  cases,  that  is  to  say :  Releasing  or  ex- 
tinguishing, in  whole  or  in  part,  the  indebtedness,  liability,  or  obliga- 
tion of  any  corporation  or  person  to  this  State  or  to  any  municipal 
corporation  therein."  4  _  _  _  _  "  The  general  assembly  shall  have 
no  power  to  release  or  extinguish,  in  whole  or  in  part,  the  indebtedness, 
liability  or  obligation  of  any  corporation  or  individual  to  this  State,  or 
to  any  municipal  corporation  therein. "  ^  -  -  -  -  "  Except  as 
herein  otherwise  provided,  the  State  shall  never  assume  or  pay  the  debt, 
or  liability  of  any  county,  town,  city  or  other  corporation  whatever, 
or  any  part  thereof,  unless  such  debt  or  liability  shall  have  been  created 
to  repel  invasion,  suppress  insurrection,  or  to  provide  for  the  public 
welfare  and  defense.  Nor  shall  the  indebtedness  of  any  corporation  to 
the  State  ever  be  released  or  in  any  manner  discharged,  save  by  payment 
into  the  pubhc  treasury."  s  -  -  -  -  "  The  general  assembly  shall 
have  no  power  to  release  or  alienate  the  Ken  held  by  the  State  upon  any 
railroad,  or  in  any  wise  change  the  tenor  or  meaning,  or  pass  any  act  ex- 
planatory thereof ;  but  the  same  shall  be  enforced  in  accordance  with 
the  original  terms  upon  which  it  was  acquired."  '  -  -  -  -  "The 
general  assembly  shall  have  no  power  to  release  or  extinguish,  or  author- 
ize the  releasing  or  extinguishing,  in  whole  or  in  part,  the  indebtedness, 
liability,  or  obligation  of  any  corporation  or  individual  to  this  State,  or 
to  any  county  or  other  municipal  corporation  therein. "  ^  -  -  -  - 
"  The  legislature  shall  have  no  power  to  release  or  alienate  any  lien  held 
by  the  State  upon  any  railroad,  or  in  any  wise  change  the  tenor  or 
meaning,  or  pass  any  act  explanatory  thereof ;  but  the  same  shall  be 
enforced  in  accordance  with  the  original  terras  upon  which  it  was 
acquired."  3  .  -  _  -  "The  liability  to  the  State  of  any  incorpo- 
rated company  or  institution  to  redeem  the  principal  and  pay  the 
interest  of  any  loan  heretofore  made  by  the  State  to  such  company  or 

1  Const.   Idaho,    1889,  art.  8,  §  2.  ^  111.  Const,  of  1870,  art.  4,  §  23. 

2  Const.   Wash.  1889-90,  art.  8,  §  5.  «  Ark.  Const,  of  1874,  art.  12,  §  12. 

3  Const.  Wash.  1889-90,  art.  12,  §  9.  ^  Mo.  Const,  of  1875,  art.  4,  §  50, 

^  Cal.    State   Const.    1879,    art.    4,  »  Mo.   Const,  of   1875,  art.  4,  §  51. 

§  25,  div.  16.  9  Tex.   Const,  of  1876,  art.  3,  §  54. 

408 


CONSTITUTIONAL  PROVISIONS.     [1  Thomp.  Coi'p.  §  549. 

institution  shall  not  be  released  or  commuted."^  _  -  _  .  "The 
legislature  shall  not  pass  local  or  special  laws  in  any  of  the  following 
enumerated  cases,  that  is  to  say :  .  .  .  Releasing  or  extinguishing, 
in  whole  or  in  part,  the  indebtedness,  liability  or  obUgation  of  any  per- 
son or  corporation  in  this  State,  or  any  municipal  corporation  there- 
in." ^  -  -  -  -  "No  obligation  or  liability  of  any  person,  associa- 
tion or  corporation,  held  or  owned  by  the  State,  or  any  municipal 
corporation  therein,  shall  ever  be  exchanged,  transferred,  remitted,  re- 
leased or  postponed,  or  in  any  way  diminished  by  the  legislative 
assembly ;  nor  shall  such  liability  or  obligation  be  extinguished,  except 
by  the  payment  thereof  into  the  proper  treasury."  ^ 

§  549.  Nop  Municipal  Aid  Granted. —  "No  county,  city,  town 
or  other  municipal  corporation  shall  become  a  stockholder  in  any  com- 
pany, association  or  corporation ;  or  obtain  or  appropriate  money  for, 
or  loan  its  credit  to,  any  corporation,  association,  institution  or  indi- 
vidual." *  -  -  -  -  "No  political  or  municipal  corporation  shall 
become  a  stockholder  in  any  banking  corporation,  directly  or  indi- 
rectly. "  ^  -  -  -  -  "  The  general  assembly  shall  have  no  power  to 
authorize  any  county,  city,  town,  or  township,  or  other  political  corpo- 
ration or  subdivision  of  the  State  now  existing,  or  that  may  be  hereafter 
established,  to  lend  its  credit,  or  to  grant  public  money  or  thing  of  value 
in  aid  of  or  to  any  individual,  association,  or  corporation  whatsoever, 
or  to  become  a  stockholder  in  such  corporation,  association,  or  com- 
pany." 6  _  .  _  -  "  No  city,  county,  town,  precinct,  municipality, 
or  other  subdivision  of  the  State  shall  ever  become  a  subscriber  to  the 
capital  stock,  or  owner  of  such  stock,  or  any  portion  or  interest  therein, 
of  any  railroad  or  private  corporation,  or  association."'^  _  _  _  - 
"No  county,  city,  borough,  town,  township,  or  village  shall  hereafter 
give  any  money  or  property,  or  loan  its  money  or  credit,  to  or  in  aid  of 
any  individual,  association,  or  corporation  or  become  secui-ity  for  or  be 
directly  or  indirectly  the  owner  of  any  stock  or  bonds  of  any  association 
or  corporation. "  ^  -  -  -  -  "  The  general  court  shall  not  authorize 
any  town  to  loan  or  give  its  money  or  credit,  directly  or  indirectly,  for 
the  benefit  of  any  corporation  having  for  its  object  a  dividend  of  profits, 
or  in  any  way  aid  the  same  by  taking  its  stock  or  bonds."  s>  -  -  -  - 
"  The  general  assembly  shall  never  authorize  any  county,  city,  town  or 

1  Va.  Const,  of  1870,  art.  10,  §  21.  «  Mo.  Const,  of  1875,  art.  i,  §  47. 

2  Const.  Idaho,  1889,  art.  3,  §  19.  ^  Neb.  Const,  of   1875,  art.  11,  §  1. 

3  Const.  Montana,  1889,  art.  5,  ^  N.  J.  Const.  Amend,  of  1875,  art. 
§  39.  1,  par.  19. 

4  Ark.  Const,  of  1874,  art.  12,  §   5.  »  N.  H.    Const.   Amend,     of    1877, 

5  la.  Const,  of  1858,  art.  8,  §  4.  part  2,  §  5,  proviso. 

409 


1  Thomp.  Corp.  §  550.]     constitutional  restraints. 

township,  by  vote  of  its  citizens  or  otherwise,  to  become  a  stockholder 
in  any  joint-stock  company,  corporation,  or  association  whatever;  or  to 
raise  money  for,  or  loan  its  credit  to  or  in  aid  of,  any  such  company, 
corporation,  or  association."  ^  -  _  -  -  "  No  county,  city,  town,  or 
other  municipal  corporation,  by  vote  of  its  citizens  or  otherwise,  shall 
become  a  stocldiolder  in  any  joint  stock  company,  corporation,  or  as- 
sociation whatever,  or  raise  money  for  or  loan  its  credit  to  or  in  aid  of 
any  such  company,  corporation,  or  association. "  ^  _  _  .  _  "The 
general  assembly  shall  not  authorize  any  county,  city,  borough,  town- 
ship, or  incorporated  district  to  become  a  stockholder  in  any  company, 
association,  or  corporation,  or  to  obtain  or  appropriate  money  for,  or  to 
loan  its  credit  to,  any  corporation,  association,  institution,  or  individ- 
ual."^ _  .  _  -  "  The  legislature  shall  have  no  power  to  authorize 
any  county,  city,  town  or  other  political  corporation,  or  subdivision  of 
the  State,  to  lend  its  credit  or  to  grant  public  money  or  thing  of  value, 
in  aid  of  or  to  any  individual,  association,  or  corporation  whatsoever  ;  or 
to  become  a  stockholder  in  such  corporation,  association  or  com- 
pany." 4  _  _  -  -  "  No  county,  city,  or  other  municipal  corporation 
shall  hereafter  become  a  subscriber  to  the  capital  of  any  private  cor- 
poration or  association,  or  make  any  appropriation  or  donation,  to 
the  same,  or  in  any  wise  loan  its  credit ;  but  this  shall  not  be  con- 
strued to  in  any  way  affect  any  obhgation  heretofore  undertaken 
pursuant  to  law."^  -  -  -  -  "No  county,  city,  town,  township, 
board  of  education,  or  school  district,  or  other  subdivision,  shall  lend 
or  pledge  the  credit  or  faith  thereof,  directly  or  indirectly,  in  any  man- 
ner to,  or  in  aid  of  any  individual,  association  or  corporation,  for  any 
amount  or  for  any  purpose  whatever,  or  become  responsible  for  any 
debt,  contract  or  liability  of  any  individual,  association  or  corporation  in 
or  out  of  this  State."  ^ 

§  550.  Except  upon  Certain  Conditions.  —  "No  law  shall  be 
passed  by  which  a  citizen  shall  be  compelled  against  his  consent,  di- 
rectly or  indirectly,  to  become  a  stockholder  in,  or  contribute  to,  any 
railroad  or  work  of  public  improvement,  except  in  the  case  of  the  in- 
habitants of  a  corporate  town  or  city.  In  such  cases,  the  general 
assembly  may  permit  the  corporate  authorities  to  take  such  stock,  or 
make  such  contribution,  or  engage  in  such  work,  after  a  majority  of 
the  quaUfled  voters  of  such  town  or  city,  voting  at  an  election  held  for 

1  Ohio  Const,  of  1851,  art.  8,  §  6.  *  Tex.  Const,  of  1870,    art.  3,  §   52. 

2  Oregon  Const,  of  1857,  art.  U,  *  Tex.  Const,  of  1876,  art.  11,  §  3. 
§  9.  *  Const.  Idaho,  1889,  art.  8,  §  4. 

3  Penn.  Const,  of  1873,  art.  9,  §  7. 

410 


CONSTITUTIONAL    PROVISIONS.       [1  Thouip.   Copp.    §   550. 

the  purpose,  shall  have  voted  in  favor  of  the  same ;  but  not  other- 
wise."^ _  _  _  _  "No  county  of  this  State  shall  contract  any 
debt  or  obligation,  in  the  construction  of  any  railroad,  canal  or  other 
work  of  internal  improvement,  nor  give  or  loan  its  credit  to  or  in  aid  of 
any  association  or  corporation,  unless  authorized  by  an  act  of  the 
general  assembly,  which  shall  be  published  for  two  months  before  the 
next  election  for  members  of  the  house  of  delegates,  in  the  newspapers 
published  in  such  county,  and  shall  also  be  approved  by  a  majority  of 
all  the  members  elected  to  each  house  of  the  general  assembly,  at  its 
next  session  after  said  election. "  2     _     _     _     _     "  The  legislature  shall 

not  authorize  any  county,  city,  or  town  to  become  a  stockholder  in,  or 
to  lend  its  credit  to,  any  company,  association,  or  corporation,  unless 
two-thirds  of  the  qualified  voters  of  such  county,  city,  or  town,  at  a 
special  election,  or  regular  election,  to  be  held  therein,  shall  assent 
thereto."^  _  _  _  -  "No  county,  city,  town  or  other  municipal 
corporation  shall  become  a  stockholder  in  any  joint-stock  company,  cor- 
poration, or  association  whatever,  or  loan  its  credit  in  aid  of  any  such 
company,  corporation,  or  association,  except  railroad  corporations, 
companies,  or  associations."^  _  .  _  _  "But  the  credit  of  uo 
county,  city,  or  town  shall  be  given  or  loaned  to  or  in  aid  of  any  person, 
company,  association,  or  corporation,  except  upon  an  election  to  be 
first  held  by  the  qualified  voters  of  such  county,  city,  or  town,  and  the 
assent  of  three-fourths  of  the  votes  cast  at  said  election.  Nor  shall  any 
county,  city  or  town  become  a  stockholder  with  others  in  any  company, 
association,  or  corporation,  except  upon  a  like  election  and  the  assent 
of  a  like  majority.  But  the  counties  of  Grainger,  Hawkins,  Hancock, 
Union,  Campbell,  Scott,  Morgan,  Grundy,  Sumner,  Smith,  Fentress, 
Van  Buren,  White,  Putnam,  Overtown,  Jackson,  Cumberland,  Ander- 
son, Henderson,  Wayne,  Marshall,  Cocke,  Coffee,  Macon,  and  the  new 
county  herein  authorized  to  be  established  out  of  fractions  of  Sumner, 
Macon,  and  Smith  counties,  and  Roane,  shall  be  excepted  out  of  the 
provisions  of  this  section,  so  far  that  the  assent  of  a  majority  of  the 
quaUfied  voters  of  either  of  said  counties  voting  on  the  question  shall  be 
sufficient,  when  the  credit  of  such  county  is  given  or  loaned  to  any  per- 
son, association,  or  corporation :  Provided,  That  the  exception  of  the 
counties  above  named  shall  not  be  in  force  beyond  the  year  one  thousand 
eight  hundred  and  eighty,  and  after  tliat  period  they  shall  be  subject  to 
the  three-fourths  majority  applicable  to  the  other  counties  of  the 
State."  ^    .     -     .     .     "  The  legislative  assembly  shall  have  no  power  to 

J  Ga.  Const,   of   18C8,  art.    3,    §  G,  ^  Miss.  Const,  of  1868,  art.  12,  §  14. 

No.  4.  *  Nev.  Const,  of  1864,  art.  8,  §  10. 

«  Md.  Const   of    1867,  art.  3,  §  54.  «  Tenn.  Const,  of  1870,  art.  2,  §  29. 

411 


1  Thomp.  Corp.  §  551]     constitutional  restraints. 

pass  any  law  authorizing  the  State,  or  any  county  in  the  State,  to  con- 
tract any  debt  or  obligation  in  the  construction  of  any  railroad,  nor  give 
or  loan  its  credit  to  or  in  aid  of  the  construction  of  the  same."  ^ 

§  551.  ?f either  State  nor  Municipal  Aid  to  be  Granted. — 

' '  The  legislature  shall  have  no  power  to  give  or  to  lend  or  to  authorize 
the  giving  or  lending,  of  the  ci'edit  of  the  State,  or  of  any  county,  city 
and  county,  city,  township  or  other  pohtical  corporation  or  subdivision 
of  the  State  now  existing  or  that  may  be  hereafter  established  in  aid  of 
or  to  any  person,  association  or  corporation,  whether  municipal  or  other- 
wise, or  to  pledge  the  credit  thereof,  in  any  manner  whatever  for  the 
payment  of  the  liabilities  of  any  individual,  association  municipal  or 
other  corporation,  whatever ;  nor  shall  it  have  power  to  make  any  gift, 
or  autnorize  the  making  of  any  gift  of  any  public  money  or  thing  of 
value  to  any  individual,  municipal  or  other  corporation  whatever ;  pro- 
vided, that  nothing  in  this  section  shall  prevent  the  legislature  granting 
aid  pursuant  to  section  twenty-two  of  this  article ;  and  it  shall  not  have 
power  to  authorize  the  State,  or  any  political  subdivision  thereof,  to 
subscribe  for  stock,  or  to  become  a  stockholder  in  any  corporation 
whatever."  2  _  _  _  _  "The  legislature  shall  have  power  to  pro- 
\ide  for  issuing  State  bonds  bearing  interest  for  securing  the  debt  of 
State,  for  the  erection  of  State  buildings,  and  for  the  support  of  State 
institutions,  but  the  credit  of  the  State  shall  not  be  pledged  or  loaned 
to  any  individual  company,  corporation,  or  association ;  nor  shall  the 
State  become  a  joint  owner  or  stockholder  in  any  company,  association, 
or  corporation.  The  legislature  shall  not  authorize  any  county,  city, 
borough,  township,  or  incorporated  district  to  become  a  stockholder  in 
any  company,  association,  or  corporation,  or  to  obtain  or  appropriate 
money  for,  or  to  loan  its  credit  to,  any  corporation,  association,  institu- 
tion or  individual. "  3  .  _  _  _  "No  donation  of  land  or  appropri- 
ation of  money  shall  be  made  by  the  State  or  any  municipal  corporation 
to  or  for  the  use  of  any  society,  association,  or  corporation  wnat- 
ever."  *  »  _  _  _  "  No  county  shall  subscribe  for  stock  in  any  in- 
corporated company,  unless  the  same  be  paid  for  at  the  time  of  such 
subscription ;  nor  shall  any  county  loan  its  credit  to  any  incorporated 
company,  nor  borrow  money  for  the  purpose  of  taking  stock  in  any 
such  company,  nor  shall  the  general  assembly  ever,  on  behalf  of  the 
State,  assume  the  debts  of  any  county,  city,  town,  or  township,  nor  of 
any  corporation  whatever. ' '  ^ 

1  Const.  Montana,  1889,  art.  5,  §  38.  ••  N.  J.  Const.  Amend,  of   1875,  art. 

2  Cal.  State  Const.  1879,  art.  4,  §  31.  1,  par.  20. 

3  Florida  Const,    of    1868,  art.  3,  «  Ind.    Const,     of     1851,    art.    10, 
Add.  17.  §  6. 

412 


CONSTITUTIONAL  PROVISIONS.     [1  Thomp.  Coip.  §  552. 

§  652.  Provisions  of  Minnesota  Constitution  as  to  State  Aid: 
** Minnesota  Railroad  Bonds,'*  —  "The  credit  of  the  State  shaE 
never  be  given  or  loaned  in  aid  of  any  indi\adual,  association,  or  corpo- 
ration." 1  -  -  -  -  Subsequently  this  section  was  so  altered  and 
amended  as  to  read:  "  The  credit  of  this  State  shall  never  be  given  or 
loaned  in  aid  of  any  individual,  association,  or  corporation,  except  that 
for  the  purpose  of  expediting  the  construction  of  the  lines  of  raUroads, 
in  aid  of  which  the  Congress  of  the  United  States  has  granted  lands  to 
the  territory  of  Minnesota,  the  governor  shall  cause  to  be  issued  and 
delivered  to  each  of  the  companies  in  which  said  grants  are  vested  by 
the  legislative  assembly  of  I^Iinnesota  the  special  bonds  of  the  State, 
bearing  an  interest  of  7  per  cent,  per  annum,  payable  semi-annually  in 
the  city  of  New  York,  as  a  loan  of  public  credit,  to  an  amount  not  ex- 
ceeding twelve  hundred  and  fifty  thousand  dollars;  or  an  aggi-egate 
amount  to  all  of  said  companies  not  exceeding  five  millions  of  dollars, 
in  manner  following,  to  wit :  whenever  either  of  the  said  companies  shall 
produce  to  the  governor  satisfactory  evidence,  verified  by  the  affidavits 
of  the  chief  engineer,  treasurer,  and  two  directors  of  said  company, 
that  any  ten  miles  of  the  road  of  said  company  has  been  actually  con- 
structed and  completed  ready  for  placing  the  superstructure  thereon, 
the  governor  shall  cause  to  be  issued  and  delivered  to  such  company 
bonds  to  the  amount  of  one  hundred  thousand  dollars,  and  whenever 
thereafter,  and  as  often  as  either  of  said  companies  shall  produce  to  the 
governor  like  evidence  of  a  further  construction  of  ten  miles  of  its 
road  as  aforesaid,  then  the  governor  shall  cause  to  be  issued  to  such 
company  further  like  bonds  to  the  amount  of  one  hundred  thousand  dol- 
lars for  each  and  every  ten  miles  of  road  thus  constructed ;  and  when- 
ever such  company  shall  furnish  hke  evidence  that  any  ten  miles  of  its 
road  is  actually  completed  and  cars  running  thereon,  the  governor 
shall  cause  to  be  issued  to  such  company  like  bonds  to  the  amount  of 
one  hundred  thousand  dollars ;  and  whenever  thereafter,  and  as  often 
as  either  of  said  companies  shall  produce  to  the  governor  like  evidence 
that  any  further  ten  miles  of  said  road  is  in  operation  as  aforesaid,  the 
governor  shall  cause  to  be  issued  to  such  company  farther  like  bonds  to 
the  amount  of  one  hundred  thousand  dollars,  untU  the  full  amount  of  the 
bonds  hereby  authorized  shall  be  issued ;  Provided,  that  two  fifths  and  no 
more  of  all  bonds  issued  to  the  Southern  Minnesota  Railroad  Company 
shall  be  expended  in  the  construction  and  equipment  of  the  fine  of  road 
from  La  Crescent  to  the  point  of  junction  with  the  Transit  road,  as  pro- 
vided by  law :  And  further  pro\ided,  that  the  Minneapolis  and  Cedar 
Valley  Kaikoad  Company  shall  commence  the  construction  of  their  road 

1  Mian.  Const,  of  1857,  art.  9,  §  10. 

413 


1  Thomp.  Corp.  §  552.]     constitutional  kestraints. 

at  Faribault  and  Minneapolis,  and  shall  grade  an  equal  number  of  miles 
from  each  of  said  places.  The  said  bonds  thus  issued  shall  be  denomi- 
nated '  Minnesota  State  Railroad  bonds,'  and  the  faith  and  credit  of 
this  State  are  hereby  pledged  for  the  payment  of  the  interest  and  the 
redemption  of  the  principal  thereof.  They  shall  be  signed  by  the 
governor,  countersigned  and  registered  by  the  treasurer,  and  sealed 
with  the  seal  of  the  State,  of  denominations  not  exceeding  one  thousand 
dollars,  payable  to  the  order  of  the  company  to  whom  issued,  transfer- 
able by  the  indorsement  of  the  president  of  the  said  company,  and  re- 
deemable at  any  time  after  ten  and  before  the  expiration  of  twenty-five 
years  from  the  date  thereof.  Within  thirty  days  after  the  governor 
shall  proclaim  that  the  people  have  voted  for  a  loan  of  State  credit  to 
railroads,  any  of  said  companies  proposing  to  avail  themselves  of  the 
loan  herein  provided  for,  and  to  accept  the  conditions  of  the  same,  shall 
notify  the  governor  thereof,  and  shall  within  sixty  days  commence  the 
construction  of  their  roads,  and  shall  within  two  years  thereafter  con- 
struct, ready  for  the  superstructure,  at  least  fifty  miles  of  their  road. 
Each  company  shall  make  provision  for  the  punctual  payment  and  re- 
demption of  all  bonds  issued  and  delivered  as  aforesaid  to  said  com- 
pany and  for  the  punctual  payment  of  the  interest  which  shall  accrue 
thereon  in  such  manner  as  to  exonerate  the  treasury  of  the  State  from 
any  advances  of  money  for  that  purpose ;  and,  as  security  therefor,  the 
governor  shall  demand  and  receive  from  each  of  said  companies,  before 
any  of  said  bonds  are  issued,  an  instrument  pledging  the  net  profits  of 
its  road  for  the  payment  of  said  interest,  and  a  conveyance  to  the  State 
of  the  first  two  hundred  and  forty  sections  of  land,  free  from  prior  en- 
cumbrances, which  such  company  is  or  may  be  authorized  to  sell  in 
trust  for  the  better  security  of  the  treasury  of  the  State  from  loss  on 
said  bonds,  which  said  deed  of  trust  shall  authorize  the  governor  and 
Secretary  of  State  to  make  conveyances  of  title  to  all  or  any  of  such 
lands  to  purchasers  agreeing  with  their  respective  railroad  companies 
therefor ;  Provided,  That  before  releasing  the  interest  of  the  State  to 
such  lands,  such  sale  shall  be  approved  by  the  governor ;  but  the  pro- 
ceeds of  all  such  sales  shall  be  applied  to  the  payment  of  interest  ac- 
cruing upon  the  bonds  in  case  of  default  of  the  payment  of  the  same, 
and  as  a  sinking  fund  to  meet  any  future  default  in  the  payment  of  in- 
terest and  the  principal  thereof  when  due ;  and  as  further  security,  an 
amount  of  first-mortgage  bonds,  on  the  roads,  lands,  and  franchises  of 
the  respective  companies,  corresponding  to  the  State  bonds  issued, 
shall  be  transferred  to  the  treasurer  of  the  State  at  the  time  of  the  issue 
of  State  bonds,  and  in  case  either  of  said  companies  shall  make  default 
in  payment  of  either  the  interest  or  principal  of  the  bonds  issued  to 
said  companies  by  the  governor,  no  more  State  bonds  shall  thereafter 
414 


CONSTITUTIONAL  PROVISIONS.     [1  Thomp.  Corp.  §  552. 

be  issued  to  said  company ;  and  the  governor  shall  proceed  in  such 
manner  as  may  be  prescribed  by  law  to  sell  the  bonds  of  the  default- 
ing company  or  companies,  or  the  lands  held  in  trust  as  above,  or 
may  require  a  foreclosure  of  the  mortgage  executed  to  secure  the 
same :  Provided,  That  if  any  company  so  in  default,  before  the  day 
of  sale,  shall  pay  all  interest  and  principal  then  due,  and  all  ex- 
penses incurred  by  the  Stte,  no  sale  shall  take  place,  and  the  right 
of  such  company  shall  not  be  impaired  to  a  further  loan  of  State 
credit;  Provided,  If  any  of  said  companies  shall  at  any  time 
offer  to  pay  the  principal,  together  with  the  interest  that  may 
then  be  due  upon  any  of  the  Minnesota  State  Railroad  bonds,  which 
may  have  been  issued  under  the  provisions  of  this  section,  then 
the  Treasurer  of  State  shall  receive  the  same,  and  the  liability  of  said 
company  or  companies,  in  respect  to  said  bonds,  shall  cease  upon  such 
payment  into  the  State  treasury,  of  principal,  together  with  the  interest 
as  aforesaid :  Provided  further.  That  in  consideration  of  the  loan  of 
State  credit  herein  provided,  that  the  company  or  companies  which  may 
accept  the  bonds  of  the  State  in  the  manner  herein  specified  shall,  as  a 
condition  thereof,  each  complete  not  less  than  fifty  miles  of  its  road  on 
or  before  the  expiration  of  the  year  1861,  and  not  less  than  one  hundred 
miles  before  the  year  1864,  and  complete  four-fifths  of  the  entire  length 
of  its  road  before  the  year  1866,  and  if  any  failure  on  the  part  of  any 
such  company  to  complete  the  number  of  miles  of  its  road  or  roads,  in 
the  manner  and  within  the  several  times  herein  prescribed,  shall  forfeit 
to  the  State  all  rights,  title,  and  interest  of  any  kind  whatsoever  in  and 
to  any  lands,  together  with  the  franchises  connected  with  the  same  not 
pertaining  or  appUcable  to  the  portion  of  the  road  by  them  constructed, 
and  a  fee-simple  to  which  has  not  accrued  to  either  of  said  companies, 
by  reason  of  such  construction,  which  was  granted  to  the  company  or 
companies,  thus  failing  to  comply  with  the  provisions  hereof ,  by  act  of 
the  legislature  of  the  Territory  of  Minnesota,  vesting  said  land  in  said 
companies  respectively."^  _  _  _  _  By  an  amendment  ratified  in 
1860,  this  section  was  so  altered  and  amended  as  to  read :  "  The  credit 
of  the  State  shall  never  be  given  or  loaned  in  aid  of  any  individual,  asso- 
ciation or  corporation.  Nor  shall  there  be  any  further  issue  of  bonds 
denominated  'Minnesota  Railroad  bonds,' under  what  purports  to  be 
an  amendment  to  section  ten  of  article  nine  of  the  constitution  adopted 
on  the  fifteenth  of  April,  eighteen  hundred  and  fifty-eight,  which  is 
hereby  expunged  from  the  constitution,  excepting  and  reserving  to  the 
State,  nevertheless,  all  rights,  remedies,  and  forfeitures  accruing  under 

1  Minn.  Coust.  Amendment  of  1858,  art.  9,  §  10. 

415 


1  Thomp.  Corp.  §  55JJ.  j     constitutional  restraints. 

said  amendment."  i  -  -  -  -  The  following  amendment  was  rati- 
fied in  1871 :  "  Any  law  providing  for  the  repeal  or  amendment  of  any 
law  or  laws  heretofore  or  hereafter  enacted,  which  provides  that  any 
railroad  company  now  existing  in  this  State,  or  operating  its  roads 
therein,  or  which  may  be  hereafter  organized,  shall,  in  lieu  of  all  other 
taxes  or  assessments  upon  their  real  estate,  roads,  rolling  stock,  and 
other  personal  property,  at  and  during  the  time  and  periods  therein 
specified,  pay  into  the  treasury  of  this  State  a  certain  percentage  there- 
in mentioned  of  the  gross  earnings  of  such  railroad  companies  now 
existing  or  hereafter  organized,  shall,  before  the  same  shall  take  effect 
or  be  in  force,  be  submitted  to  a  vote  of  the  people  of  this  State,  and 
be  adopted  and  ratified  by  a  majority  of  the  electors  of  the  State 
voting  at  the  election  at  which  the  same  shall  be  submitted  to 
them."  2  ....  The  following  was  ratified  in  1872 :"  The  legis- 
lature shall  not  authorize  any  county,  township,  city,  or  other  municipal 
corporation  to  issue  bonds  or  to  become  indebted  in  any  manner  to  aid 
in  the  construction  or  equipment  of  any  or  all  railroads  to  any  amount 
that  shall  exceed  ten  per  centum  of  the  value  of  the  taxable  property 
within  such  county,  township,  city,  or  other  municipal  corporation ;  the 
amount  of  such  taxable  property  to  be  ascertained  and  determined  by 
the  last  assessment  of  said  property  made  for  the  purpose  of  State  and 
county  taxation  previous  to  the  incurring  of  such  indebtedness."  ^ 

§  553.  Private  Corporations  not  to  have  Municipal  or  Taxing 
Powers.  —  "No  power  to  levy  taxes  shall  be  delegated  to  individuals 
or  private  corporations.""^  ...  -  "  The  legislature  shall  not 
delegate  to  any  special  commission,  private  corporation,  company,  as- 
sociation or  individual,  any  power  to  make,  control,  appropriate,  super- 
vise or  in  any  way  interfere  with,  any  county,  city,  town  or  municipal 
improvement,  money,  property,  or  effects,  whether  held  in  trust  or 
otherwise,  or  to  levy  taxes  or  assessments,  or  perform  any  municipal 
functions  whatever."^  _  -  .  -  "  The  general  assembly  shall  not 
delegate  to  any  special  commission,  private  corporation  or  association, 
any  power  to  make,  supervise,  or  interfere  with  any  municipal  improve- 
ment, money,  property,  or  effects,  whether  held  in  trust  or  otherwise, 
or  to  levy  taxes  or  perform  any  municipal  function  whatever."  ^ 

1  Minn.  Const.  Amendmentof  1860,  *  Ala.  Const,  of  1875,  art.  10,  §  2. 
art.  9,  §  10.                                                       *  Cal.    State  Const.   1879,  art.  11, 

2  Minn.  Const.  Amendmentof  1871,      §  13. 

art.  i,  §  32  [a].  «  Penn.  Const,  of  1873,  art.  3,  g  20; 

»  Minn.   Const.  Amend,    of    1872,      Const.    Montana,    188i),  art.    5,   §  36 

art.  9,  §  15.  (with  slight  verbal  variations). 
416 


CONSTITUTIONAL  PROVISIONS.     [1  Thomp.  Corp.  §  558. 

§  554.  Laws  Permitting- Alienation  of  Corporate  Franchises 
Prohibited.  —  "  The  legislature  shall  not  pass  any  laws  permitting  the 
leasing  or  alienation  of  any  franchise,  so  as  to  reheve  the  franchise  or 
property  held  thereunder  from  the  habilities  of  the  lessor  or  grantor, 
lessee  or  grantee,  contracted  or  incurred  in  the  operation,  use  or  enjoy- 
ment of  such  franchise,  or  any  of  its  privileges."  ^  _  _  _  _  "No 
corporation  shall  lease  or  alienate  any  franchise,  so  as  to  relieve  the  fran- 
chise, or  property  held  thereunder  from  the  liabihties  of  the  lessor,  or 
grantor,  lessee,  or  grantee,  contracted  or  incurred  in  the  operation,  use, 
or  enjoyment  of  such  franchise,  or  any  of  its  privileges."  ^ 

§  555.  Corporations   not  to  Employ  Chinese  Labor.  —  "No 

corporation  now  existing  or  hereafter  formed  under  the  laws  of  this 
State,  shall,  after  the  adoption  of  this  constitution,  employ,  directly  or 
indirectly  in  any  capacity,  any  Chinese  or  Mongolian.  The  legislature 
shall  pass  such  laws  as  may  be  necessary  to  enforce  this  provision."  ^ 

§  556.  Existing  Rights  Saved. — "The  rights  and  duties  of  all 
corporations  shall  remain  as  if  this  constitution  had  not  been  adopted  ; 
with  the  exception  of  such  regulations  and  restrictions  as  are  contained 
in  this  constitution. "  ^  _  _  _  _  "  Corporations  created  by  or  under 
the  laws  of  the  Territory  of  Nevada  shall  be  subject  to  the  provisions 
of  such  laws  until  the  legislature  shall  pass  laws  regulating  the  same,  in 
pursuance  of  the  provision  of  this  constitution. "  ^  -  -  -  -  "  Noth- 
ing in  this  article  shall  be  construed  to  divest  or  affect  rights  guaranteed 
by  any  existing  grant  or  statute  of  this  State  or  of  the  Republic  of 
Texas."  6 

§  557.  Retrospective  Laws  for  Benefit  of  Corporations  Pro- 
hibited.—  "  The  general  assembly  shall  pass  no  law  for  the  benefit  of 
a  railroad  or  other  corporation,  or  any  individual  or  association  of  in- 
dividuals, retrospective  in  its  operation,  or  which  imposes  on  the  people 
of  any  county  or  municipal  subdivision  of  the  State  a  new  liability  in 
respect  to  transactions  or  considerations  already  past."  ' 

§  558.  Two-thirds  Legislative  Vote  Required. —  "No   act  of 

incorporation,  except  for  the  renewal  of  existing  corporations,  shall  be 

1  Cal.  State  Const.  1879,  art.  12,  *  Conn.  Const,  of  1818,  art.  10,  §  3 
§  10;  Const.  Montana,  1889,  art.  15,  ''  Nev.  Const,  of  18G4,  art.  8,  §  4 
§  17;    Const.  Idaho,  1889,  art.    11,  §  15.  6  'pex.  Const,    of  1876,  art.  12,  §  7 

2  Const.  Wash.  1889-90,  art.  12,  §  8.  '  Col.  Const,  of  187G,  art.  15,  §  12 

3  Cal.  State.  Const.  1879,  art.  19,  Mo.  Const,  of  1875,  art.  12,  g  19; 
§  2.  Const.  Montana,  1889,  art.  15,  §  13. 

27  417 


1  Thomp.  Corp.  §  560.]     constitutional  restraints. 

hereafter  enacted  without  the  coucurreuce  of  two-thirds  of  each  branch 
of  the  legislature,  and  with  a  reserved  power  of  revoeatiou  by  the  legis- 
lature." ^  -  -  -  -  "The  legislature  shall  pass  no  law  altering  or 
amending  any  act  of  incorporation  heretofore  granted  without  the 
assent  of  two-thirds  of  the  members  elected  to  each  house ;  nor  shall 
any  such  act  be  renewed  or  extended.  This  restriction  shall  not  apply 
to  municipal  corporations."  ^  _  _  _  _  "No  vote,  resolution,  law 
or  order,  shall  pass,  granting  a  donation,  or  gratuity,  in  favor  of  any 
person,  except  by  the  concurrence  of  two-thirds  of  each  branch  of  the 
general  assembly,  nor  by  any  vote,  to  a  sectarian  corporation  or  asso- 
ciation." ^ 

§  559.    Duration   of  Corporations   Limited.  —  "No    act    of 

incorporation  which  may  be  hereafter  enacted  shall  continue  in  force 
for  a  longer  period  than  twenty  years,  without  the  re-enactment  of 
the  legislature,  unless  it  be  an  incorporation  for  public  improve- 
ment." 4  _  _  _  _  "  No  corporation,  except  for  municipal  pur- 
poses, or  for  the  construction  of  railroads,  plank  roads  and  canals,  shall 
be  created  for  a  longer  time  than  thirty  years."  ^ 

§  560.  Power  of  Creating  Corporations  devolved  on  the 
Courts. —  "  The  general  assembly  shall  have  no  power  to  grant  corporate 
powers  and  privileges  to  private  companies,  except  to  banking,  insur- 
ance, railroad,  canal,  navigation,  mining,  express,  lumber,  manufactur- 
ing, and  telegraph  companies ;  nor  to  make,  or  change,  election  pre- 
cincts ;  nor  to  estabhsh  bridges  or  ferries ;  nor  to  change  names  of 
legitimate  children  ;  but  it  shall  prescribe,  by  law,  the  manner  in  which 
such  powers  shall  be  exercised  by  the  courts.  But  no  charter  for  any 
bank  shall  be  granted  or  extended,  and  no  act  passed  authorizing  the 
suspension  of  specie  pajonents  by  any  bank,  except  by  a  vote  of  two- 
thirds  of  the  general  assembly.  The  general  assembly  shall  pass  no  law 
making  the  State  a  stocliholder  in  any  corporate  company ;  nor  shall  the 
•  credit  of  the  State  be  granted  or  loaned  to  aid  any  company  without  a 
provision  that  the  whole  property  of  the  company  shall  be  bound  for  the 
security  of  the  State,  prior  to  any  other  debt  or  lien,  except  to  laborers  ; 
nor  to  any  company  in  which  there  is  not  already  an  equal  amount  in- 
vested by  private  persons ;  nor  for  any  other  object  than  a  work  of 
public  improvement."  ^ 

1  Del.  Const,   of  1831,  art.  2,  §  17.  ^  Mich.  Const,  of  1850,  art.  15,  §  10. 

2  Mich.  Const,  of  1850,  art.  15,  §  8.  See  Attorney-General  v.  Perkins,  73 

3  Ga.  Const,    of  18G8,    art.  3,    §  6,  Mich.  303;  s.  c.  41  N.  W.  Rep.  426. 
No.  2.  «  Ga.  Const,   of   1868,  art.  3,  §  6, 

*  Del.  Const,  of  1831,  art.  2,   §  17.      No.  5. 
418 


CONSTITUTIONAL  PROVISIONS.     [1  Thomp.  Coip.  §  565. 

§  561.  Saving  Rights  Arising  during  the  Civil  War.—  "  All 

rights,  privileges,  and  immunities  which  may  have  vested  in  or  accrued 
to  any  person  or  persons,  or  corporation,  in  his,  her,  or  their  own  right, 
or  in  any  fiduciary  capacity,  under  any  act  of  any  legislative  body  sitting 
in  this  State  as  such,  or  of  any  decree,  judgment,  or  order  of  any  court, 
sitting  in  this  State  under  the  laws  then  of  force  and  operation  therein, 
and  recognized  by  the  people  as  a  court  of  competent  jui-isdiction,  since 
the  19th  day  of  January,  1861,  shall  be  held  in\-iolate  by  all  courts  of 
this  State  unless  attacked  for  fraud,  or  unless  otherwise  declared  invalid 
by,  or  according  to,  this  constitution."  1 

§  562.  Provisions  as  to  Religious  Corporations.— "  The  title 
to  all  property  of  rehgious  corporations  shall  vest  in  trustees,  whose 
election  shall  be  by  the  members  of  such  corporations."  2  _  _  _  _ 
"  The  general  assembly  shall  not  grant  a  charter  of  incorporation  to  any 
church  or  religious  denomination,  but  may  secure  the  title  to  church 
property  to  an  extent  to  be  limited  bylaw."  3  _  _  _  _  "  jsfo  charter 
of  incorporation  shall  be  granted  to  any  church  or  religious  denomina- 
tion. Provision  may  be  made  by  general  laws  for  securing  the  title  to 
church  property  and  for  the  sale  and  transfer  thereof,  so  that  it  shall  be 
held,  used,  or  transferred  for  the  purposes  of  such  church  or  rehgious 
denomination."  * 

§  563.  Police  Power  over  Corporations  not  to  be  Abridged. — 

"  The  exercise  of  the  pohce  power  of  the  State  shall  never  be  abridged, 
or  so  construed  as  to  permit  corporations  to  conduct  their  business  in 
such  manner  as  to  infringe  the  equal  rights  of  individuals  or  the  general 
well  being  of  the  State."  ^ 

§  564.  Bills  Creating  Corporations  Continued  till  next  Ses- 
sion of  Legislature.  ~  "  Hereafter,  when  any  bill  shall  be  pre- 
sented to  either  house  of  the  general  assembly  to  create  a  corporation, 
for  any  other  than  for  religious,  literary,  or  charitable  purposes,  or  for 
a  military  or  fire  company,  it  shall  be  continued  until  another  election 
of  members  of  the  general  assembly  shall  have  taken  place,  and  such 
public  notice  of  the  pendency  thereof  shall  be  given  as  may  be  required 
by  law. ' '  ^ 

§  565.  Laws    to    be    Passed  Protecting  Laborers. —  "  The 

legislature  shall,  at  its  first  session,  pass  laws  to   protect   laborers  on 

1  Ga.  Const,  of  18fi8,  art.  11,  No.  5.  ♦  W.  Va.  Const,  of  1872,  art.  6,  §  47. 

2  Kan.  Const,   of   1859,  art.  12,  §  3,  ^  m,,.  Const,  of  1875,  art.  12,  §  5. 

3  Va.  Const,  of  1870,  art.  5,  §  17.  «  K.  I.  Const,   of  1812,  art.  4,  §  17. 

419 


1  Thomp.  Corp.  §  567.]     constitutional  restraints. 

public  buildings,  streets,  roads,  railroads,  canals,  and  other  similar 
public  works  against  the  failure  of  contractors  and  sub-contractors  to 
pay  their  current  wages  when  due,  and  to  make  the  corporation,  com- 
pany', or  individual  for  whose  benefit  the  work  is  done  responsible  for 
their  ultimate  payment.  "^ 

§  566.  Bonus  to  be  Paid  to  the  State.  —  "  No  corporation, 
company,  or  association,  other  than  those  formed  for  benevolent,  relig- 
ious, scientific,  or  educational  purposes,  shall  be  created  or  organized 
under  the  laws  of  this  State,  unless  the  persons  named  as  corporators 
shall,  at  or  before  the  filing  of  the  articles  of  association  or  incorpora- 
tion, pay  into  the  State  treasury  fifty  dollars,  for  the  first  fifty  thousand 
dollars  or  less  of  capital  stock,  and  a  further  sum  of  five  dollars  for 
every  additional  tea  thousand  dollars  of  its  capital  stock.  And  no 
such  corporation,  company,  or  association  shall  increase  its  capital 
stock  without  first  paying  into  the  treasury  five  dollars  for  every  ten 
thousand  dollars  of  increase:  Provided,  That  nothing  contained  in  this 
section  shall  be  constnied  to  prohibit  the  general  assembly  from  levying 
a  further  tax  on  the  franchises  of  such  corporation."  ^ 

§  567.  Meaning  of  tlie  Word  "  Corporation "  as  Used  in 
American  Constitutions.  —  "  The  term '  corporation,'  as  used  in  this 
article,  shall  be  construed  to  include  all  joint-stock  companies,  or  any 
associations  having  any  of  the  powers  or  privileges  of  corporations  not 
possessed  by  individuals  or  partnerships."^  _  _  _  -  "The  term 
'  corporation  '  as  used  in  this  article,  shall  be  construed  to  include  all 
associations  and  joint-stock  companies  having  any  of  the  powers  or 
privileges  of  corporations  not  possessed  by  individuals  or  partnerships,"  * 
"  except  such  as  embrace  banking  privileges."  ^  "  The  term  '  corpora- 
tion,' as  used  in  this  article  shall  be  held  and  construed  to  include  all 
associations  and  joint- stock  companies,  having  or  exercising  any  of  the 
powers  or  privileges  of  corporations  not  possessed  by  individuals  or 
partnerships  ;  and  all  corporations  shall  have  the  right  to  sue,  and  shall 
be  subject  to  be  sued  in  all  courts  in  like  cases  as  natural  persons,  sub- 
ject to  such  regulations  and  conditions  as  may  be  prescribed  by  law."  ^ 

1  Tex.  Const,  of  1876,  art.  61,  §  35.      Kan.  Const,  of  1859,   art.  12,    §   6  (in 

2  Mo.  Const,  of  1875,  art.  10,  §  21.      substance);  Mich.  Const,  of  1850,  art. 

3  Ala.  Const,  of  1875,  art.  13,  §  13;      15,  §  11  (in  substance). 

Mo.   Const,  of   1875,  art.  12,  §  11  (in  «  jUnn.  Const,  of  1857,  art.  10,  §  1. 

substance) ;  N.  C.  Const,  of  187G,  art.  «  Const.     Montana,    1889,    art.  15, 

8,   §  3;  Penn.    Const.    1873;    art.   16,  §  18;  Const.  Wash.    1889-90,  art.    12, 

§  13;  Idaho  Const.  1889,  art.  11,   §  16.  §5  (in  substance). 
*  Cal.  Const,  of  1879,  art.    12,  §  4; 
420 


SPECIAL  STATUTES.     [1  Thomp.  Coi'p.  §  568. 

§  568.  Jfot  to  Authorize  Investment  of  Trust  Funds  in 
Private  Corporate  Securities.  —  "  No  act  of  the  legislative  assem- 
bly shall  authorize  the  investment  of  trust  funds  by  executors,  adminis- 
istrators,  guardians  or  trustees  in  the  bonds  or  stock  of  any  private 
corporation. ' '  ^ 


Article  II.     Restraints  upon  the  Passage  op  Special  Statutes  Con- 
FERKiNG  Corporate  Privileges. 


Section 

573.  Kestraints  upon  the  passage  of 

special  acts  conferring  corpo- 
rate powers. 

574.  Object    of    such    constitutional 

provisions. 

575.  Such  provisions  not  retroactive. 

576.  Accepting  charter  after  date  of 

constitutional  prohibition. 

577.  General  laws  perpetuating  privi- 

leges granted  by  previous 
special  charters. 

578.  Conferring  corporate  privileges 

on  corporations  to  be  there- 
after created  under  general 
laws. 

579.  Illustration. 

580.  Rule  in  the  federal  courts  where 

a  state  constitution  has  re- 
ceived conflicting  interpreta- 
tions in  the  state  courts. 

581.  Further  of  prohibitions  against 

special  acts  conferring  corpo- 
rate powers. 

582.  States  in  which  applicable  only 

to  private  corporations. 

583.  Prohibition  against  incorporating 

includes  prohibition  against 
amending. 

584.  A  contrary  view. 

585.  Restrains  amendments  enlarging 

existing  powers  and  privileges. 
58').  General  enabling  acts  applicable 
to  existing  corporations. 

587.  Distinctions  as  to  what  are  and 

what  are  not  corporate  powers. 

588.  Exceptions   where  general  laws 

cannot  be  made  applicable. 


Section 

589.  Special  act  not  made  general  by 

legislative  declaration  to  that 
effect. 

590.  Acts  curing  defects  in  the  organ- 

ization of  particular  corpora- 
tions. 

591.  What  is  a  "  local "  law  within  the 

meaning  of  such  a  prohibition. 

692.  Statute  is  general  when  uniform 

in  its  operation  upon  all  the 

members  of  a  particular  class. 

593.  Provided    classification    natural 

and  not  arbitrary. 

594.  Illustration:    Invalidity  of  stat- 

utes operative  only  in  cities 
having  a  certain  number  of 
inhabitants. 

595.  Other    cases    illustrating    these 

distinctions. 

596.  Corporations  carrying  on  opera- 

tions in  specific  localities. 

597.  Creation  of  a  park  district  out- 

side of  the  corporate  limits  of 
a  city. 
698.  What   statutes    have    been  held 
local  or  special. 

599.  Instances  of    statutes  held  not 

local  or  special. 

600.  Special  statutes    granting  "  ex- 

clusive privileges,  immunities 
or  franchises." 

601.  Confei'riug  certain  public  police 

powers  upon  existing  corpora- 
tions. 

602.  Empowering  existing   municipal 

corporations  to  subscribe  for 
stock  in  private  corporations. 


»  Const.  Montana,  1889,  art.  5,  §  37. 


421 


1  Thomp.  Corp.  §  575.]     constitutional  restraints. 

§  573.  Restraints  upon  the  Passage  of  Special  Acts  Confer- 
ring Corporate  Powers.  —  As  already  seen,^  the  constitutions  of 
many  of  the  States  prohibit  the  legishiture  from  pa>;sing  special 
acts  creating  corporations,  conferring  corporate  powers,  extend- 
ing corporate  charters,  or  remitting  forfeitures  thereof.  These 
constitutional  provisions  will  now  be  considered. 

§  574.  Object  of  such  Constitutional  Provisions. — These 
constitutional  provisions  were  generally  established  for  the  pur- 
pose of  correcting  existing  evils  of  a  flagrant  character.  Their 
purpose  was  "  to  inaugurate  the  policy  of  placing  all  corpora- 
tions of  the  same  kind  upon  a  perfect  equality  as  to  all  future 
grants  of  power  ;  of  making  such  laws  applicable  to  all  parts  of 
the  State,  and  thereby  securing  the  vigilance  and  attention  of  its 
whole  representation;  and,  finally,  of  making  all  judicial  con- 
structions of  their  powers,  or  the  restrictions  imposed  upon  them, 
equally  applicable  to  all  corporations  of  the  same  class."  ^ 

§  575.  Such  Provisions  not  Retroactive. — Such  constitu- 
tional provisions  are  not  regarded  as  retroactive,  unless  they 
are  declared  so  in  express  terms;  and  if  by  their  terms  retro- 
active, they  would  be  invalid.^  They  do  not  operate  to  vacate 
charters  already  granted  by  special  acts,  where  those  charters 
have  been  accepted  and  acted  upon,  as  by  organizing  the  corpo- 
ration under  them.*  If,  prior  to  the  adoption  of  a  constitution 
containing  such  a  prohibition,  the  legislature  creates  by  a  special 
act  a  corporation,  e.g.,  a  railroad  company,  and  the  company  in 
good  faith  enters  upon  the  construction  of  its  road  before  the 

1  Ante,  §  539,  et  seq.  (Ky.)  1,  17;  State  v.   Illinois  Central 

'  Atkinson  v.  Marietta  &c.  R.  Co.,  R.  Co.,  33   Fed.   Rep.  730;  Covington 

15  Oh.  St.  21,  35;    quoted    witli    ap-  u.  East  St.  Louis,  78  111.  648.     Section 

proval    in    San    Francisco    v.  Spring  1  of  article  1  of  tlie  lllinoi-*  constitu- 

Valley  Water  Works,  48  Cal.  493,  518.  tion  of  1870  was  not  designed  to  reppal 

See    also    Van   Riper    v.  Parsons,  40  the  general  law  on  the  subject  of  pri- 

N.  J.  L.  1.  vate  corporations  in  force  prior  to  the 

3  Ante,  §66;  post,  Ch.  117.  adoption  of  the  constitution,  and  all 

♦  State  V.  Stormont,  24  Kan.   686.  corporations  framed  under  such  law 

Compare    Atchison   v.    Bartholow,   4  after  the  adoption    of  the    constitu- 

Kan.  124;   State  v.  Young,  3  Kan.  445;  tion  were  held  formal   and  effectual. 

State  u.  Hitchcock,  1  Kan.  178;  Slack  Meeker  v.  Chicago  Cast  Steel  Co.,  84 

V.   Maysville  &c.  R.  Co.,  13  B.  Monr.  IlL  276. 

422 


SPECIAL  STATUTES.     [1  Thomp.  Corp.  §  575. 

adoption  of  the  constitutional  prohibition,  the  prohibition  will 
not  have  the  effect  of  revoking  its  charter,^  Moreover,  where 
an  act  of  this  nature  has  been  passed  prior  to  the  establishment 
of  the  constitutional  prohibition,  the  effect  of  the  proliibition 
will  not  be  to  disable  the  legislature  from  amending  the  former 
act,  provided  the  effect  of  the  amendment  is  to  make  it  less 
onerous  to  the  inhabitants  of  the  counties  aflfected  by  it.^  In  like 
manner  if,  prior  to  the  establishment  of  such  a  constitutional  or- 
dinance, the  legislature  has  passed  an  act  clothing  the  county 
courts  with  powt-r  to  grant  aid  to  a  railway  company,  and  the 
power  remains  unexecuted  at  the  time  of  the  passage  of  the  or- 
dinance, the  ordinance  will  not  operate  to  repeal  the  statute,  or 
to  prevent  the  execution  of  the  power  thereby  conferred ;  ^  for 
as  already  seen,*  such  a  statute,  although  in  terms  a  grant  of 
power  to  the  municipal  corporation,  confers  a  right  or  privilege 
upon  the  private  corporation;  and  this,  it  seems,  is  in  the  na- 
ture of  a  contract  between  the  State  and  the  private  corporation, 
which  is  not  subject  to  subsequent  impairment  by  the  State, 
even  in  the  form  of  a  constitutional  ordinance.  Indeed,  where 
the  States  have  established  new  constitutions  those  instruments 
frequently  provide  that  laws  enacted  under  the  prior  constitution 
shall  continue  in  force  under  the  present  constitution  until 
altered  or  repealed  by  the  legislature ;  and  sometimes  they  con- 
tain such  a  provision  with  special  reference  to  acts  creating  cor- 
porations,—  for  example,  the  following  from  the  constitution  of 
Indiana,  of  1850:  "  All  acts  of  incorporation  for  municipal  pur- 
poses shall  continue  in  force  under  this  constitution,  until  such 
time  as  the  general  assembly  shall,  in  its  discretion,  modify  or 
repeal  the  same."^  When,  therefore,  a  city  had  power  under 
the  old  constitution  to  subscribe  to  the  stock  in  chartered  com- 
panies for  making  roads  and  other  internal  improvements,  this 
power  remained  unimpaired  under  the  new.^     On  the  other  hand, 

1  Little  Rock   &c.  R.  Co.  v.   Little  <  Ante,  §  36G. 

Rock  &c.  R.  Co.,  36  Ark.  6(i3.  =  Ind.  Const.  1860,  Schedule  Speci- 

^  Ibid.    Compare  Quincy  &c.  R.  Co.  flcation,  4.     See  aLso  Commissioners 

V.  Morris,  84  111.  410.  of    New  Town    Cut    v.    Seabrook,    8 

8  Slack  V.  Mivsville  &c.  R.  Co.,  13  Strobli.  (S.  C.)  5G0;  Demarest  u.  New 

B.  Mnnr.  (Ky.)  1,  17;  State  w.  Trustees  New  York,  74  N.  Y.  IGl. 
of  Union  Township,  8  Ohio  St.  394.  ^  Aurora  v.  West,  9  Ind.  74,  85. 

423 


1  Thomp.  Corp.  §  577.]     constitutional  restraints. 

as  already  seon,^  many  of  the  State  constitutions  have  annulled 
existing  special  charters,  under  which  bona  fide  organizations  had 
not  taken  place  at  the  time  of  their  adoption,  or  within  a  stated 
period  thereafter.  But  these  provisions  are  subject  to  the  same 
rule  of  interpretation.  Thus,  the  provisions  of  the  constitution 
of  Illinois  of  1870,^  that  no  corporation  shall  be  created,  or  its 
powers  enlarged,  by  special  laws,  and  that  all  the  existing  char- 
ters or  grants  of  special  or  exclusive  privileges  under  which  or- 
ganization shall  not  have  taken  place,  or  which  shall  not  have 
been  in  operation  within  ten  days  of  the  time  the  constitution 
took  effect,  should  have  no  validity,  —  refer  only  to  corporations 
w^iich  were  then  unorganized,  or  were  not  in  operation,  and  do 
not  take  away  any  special  or  exclusive  privileges  granted  to  cor- 
porations organized  and  in  actual  operation.^ 

§  576.  Accepting  Charter  after  Date  of  Constitutional  Pro- 
hibition. —  But  if  a  corporation  is  created  by  a  special  law,  at  a 
time  when  there  is  no  constitutional  provision  in  force  prohibiting 
legislatures  from  passing  such  acts  of  incorporation,  but  the 
persons  named  do  not  accept  the  charter  or  organize  thereunder, 
until  after  the  passage  of  such  a  constitutional  provision,  their 
organization  will  be  regarded  as  a  naked  assumption,  in  such  a 
sense  as  will  not  prevent  a  person  sued  upon  a  promissory  note 
given  for  shares  of  their  stock  from  setting  up  their  want  of 
corporate  character  as  a  defense,* 

§  577.  General  Law  Perpetuating  Privileges  Granted  by 
Previous  Special  Charters.  — Where  special  charters  are  granted 
conferring  peculiar  privileges,  at  a  time  when  there  is  no  consti- 
tutional inhibition  against  the  creation  of  corporations  by  special 
acts,  and  subsequently  such  a  constitutional  inhibition  is  estab- 
lished, the  result  will  be  that  the  peculiar  privileges  granted  by 
such  special  statutes  will  expire  by  the  terms  of  limitation  therein 
prescribed.  After  the  establishment  of  such  a  constitutional 
inhibition,  it  will  not  be  competent  for  the  legislature  to  enact  a 

1  Ante,  §  546.  •*  Gillespie  v.  Ft,  "Wayne  &c.  Co.,  17 

"^  111.  Const.  1870,  art.    11,  §§  1,  2.      Ind.     243.     See     also     Harriman    v. 
3  State  V.  Illinois  Cent.  R.  Co,,  33      Southam,  16  lud,  190;  ante,  §  505. 
Fed.  Rep,  730, 
424 


SPECIAL  STATUTES.     [1  Thomp.  Coi'p.  §  579. 

general  law  of  such  a  nature  that,  by  reorganizing  under  it  the 
coi-poration  so  specially  chartered,  the  corporators  can  perpet- 
uate their  peculiar  privileges  indefinitely.  When,  therefore,  a 
bridge  company  was  chartered  by  a  special  act,  there  being  no 
constitutional  inhibition,  for  the  period  of  twenty-one  years,  with 
the  francli ise  of  taking  tolls,  and  it  attempted  to  organize  under 
such  a  general  law,  enacted  after  the  establishment  of  such  a 
constitutional  inhibition,  it  was  held  that  it  could  not,  by  thus 
organizing,  perpetuate  its  franchise  of  taking  tolls,  but  that  its 
bridge  thereafter  became  a  public  highway,  and  it  would  be 
ousted  of  the  franchise  of  taking  tolls,  by  an  information  in  the 
nature  of  quo  warranto.^ 

§  578.  Conferring  Corporate  Privileges  on  Corporations  to 
be  thereafter  Created  under  General  Laws.  —  A  constitutional 
prohibition  against  creating  corporations  by  special  laws,  can 
not  be  evaded  by  the  passage  of  a  special  act  conferring  corporate 
privileges  upon  a  body  of  associates  to  be  thereafter  incorporated 
under  a  general  law.  An  act  which  grants  to  individuals  and  to 
their  assigns  certain  powers  and  privileges,  and  then  provides 
that  the  act  shall  not  take  effect  unless  the  persons  to  whom  the 
grant  is  made  shall,  within  a  certain  time,  organize  themselves 
into  a  corporation  under  existing  laws,  is  a  grant,  not  to  the  in- 
dividuals as  persons,  but  to  the  corporation  when  formed.  Such 
an  act  is  an  attempt  on  the  part  of  the  legislature  to  confer 
powers  and  privileges  upon  a  corporation  by  a  special  act,  in  the 
face  of  the  constitutional  prohibition.  When  such  persons  or- 
ganize themselves  into  a  corporation  under  the  general  law,  the 
corporation  possesses  no  powers  or  privileges  except  such  as  are 
conferred  by  such  law.  ^ 

§  579.  Illustration.  —  With  such  a  constitutional  inhibition  exist- 
ing, the  legislature  of  California  undertook  to  pass  "  an  act  to  authorize 
George  H.  Ensign  and  others,  owners  of  the  Spring  Valley  Water 
Works,  to  lay  down  water  pipes  in  the  public  streets   of  the  city  and 

1  State  V.  Lawrence  Bridge  Co.,  22  Water  Works,  48  CaL  493  (overruling 
Kan.  438.  The  principle  of  ttiis  decis-  California  State  Tel.  Co.  u.  AltaTel. 
ion  is  embodied  in  some  of  the  consti-  Co.,  22  Cal.  398).  Compare  Spring 
tutious  in  express  terms.    Ante,,  §  542.  Valley  Water  Works  v.  San  Francisco, 

2  San    Francisco  v.  Spring  Valley  22  Cal.  442 ;  post,  §  580. 

425 


1  Thomp.  Corp.  §  580.]     constitutional  restraints. 

county  of  San  Francisco."  The  act  provided  that  "  the  said  George 
H.  Ensign  and  his  associates  and  their  assigns  shall  have  the  right, 
and  the  same  is  hereb\^  granted  to  them  and  their  assigns,  to  lay  down 
distributing  iron  water  pipes  in  any  of  the  public  streets,  ways  or  alleys 
of  the  city  and  county  of  San  Francisco,"  etc.  The  eighth  section  of 
the  act  provided :  ' '  This  act  shall  not  take  effect  until  the  parties  named 
in  section  one  shall,  within  sixty  days  after  its  passage,  duly  organize 
themselves,  in  conformity  with  the  existing  laws  regulating  corporations, 
now  in  force  in  this  State."  It  was  held  that  this  statute  was  unconsti- 
tutional and  void,  as  being  an  attempt  by  indirect  methods  to  confer 
corporate  pri\dleges,  by  a  special  law,  upon  a  corporation  to  be  there- 
after created.  Mr.  Chief  Justice  Rhodes,  while  agreeing  generally  with 
the  reasoning  of  the  court,  dissented  from  its  conclusion,  on  the  ground 
that  the  statute  did  not  involve  an  attempt  to  confer  corporate  powers 
upon  the  grantees  named,  but  that  the  powers  conferred  upon  them 
were  such  as  might  be  conferred  upon  a  natural  person  or  upon  an  unin- 
corporated association.  In  other  words,  his  opinion  was  that  a  granting 
of  the  mere  right  to  lay  down  water  pipes  in  the  streets  of  a  city,  upon 
certain  terms  and  conditions,  did  not  involve  the  granting  of  any  cor- 
porate powers.^ 

§  580.  Rule  in  the  Federal  Courts  where  a  State  Constitu- 
tion has  Received  Conflicting^  Interpretations  in  the  State 
Courts.  —  This  decision  of  the  Supreme  Court  of  California  was 
subsequently  denied  by  the  Circuit  Court  of  the  United  States, 
for  the  District  of  California.  The  Federal  courts  are  foreign 
jurisdictions,  in  respect  of  the  States,  to  the  extent  that  they 
are  bound  by  the  interpretation  which  the  State  courts  put  upon 
their  own  constitutions  and  laws,  when  such  interpretation  is  not 
in  conflict  with  the  constitution  of  the  United  States. ^  But  to 
this  rule  those  courts  have  annexed  the  qualification  that,  where 
the  highest  court  of  the  State  adopts  an  oscillating  and  incon- 
sistent construction  of  its  own  constitution  or  statutes  in  a  given 
particular,  the  Federal  court  will  not  be  bound,  in  successive  de- 
cisions, to  follow  the  oscillations  of  the  pendulum,  when  to  do 
so  will  give  to  the  subsequent  decisions,  altering  the  construc- 
tion   of  the  constitution  or    statute,   a  retroactive  efect,   so   as 

1  San  Francisco  v.  Spring  Valley  Debolt,  16  How.  (U.  S.)  415,  431; 
Water  Works,  48  Cal.  493,  509,  533.  Gelpcke  v.  Dubuque,  1  Wall.  (U.  S.) 

2  Webster  v.  Cooper,  14  How.  175,  206;  Cliicago  &c.  R.  Co.  v.  Min- 
(U.  S.)  504;  Ohio  Life  Ins.  &c.  Co.  v.  nesota,  10  Sup.  Ct.  Rep.  462. 

426 


SPECIAL  STATUTKS.     [1  Thoiiip.  Corp.  §  580. 

to  allow  them  to  render  invalid  contracts  which  were  lawful 
at  the  time  when  they  were  made.i  "  The  sound  and  the 
true  rule  is,"  said  Mr.  Justice  Miller,  "that  if  the  contract, 
when  made,  was  valid  by  the  Liws  of  the  State,  as  then  ex- 
pounded by  all  the  departments  of  the  government  and  ad- 
ministered in  its  courts  of  justice,  its  validity  and  obligation 
cannot  be  impaired  by  any  subsequent  action  of  legislation  or 
decision  of  its  courts  altering  the  construction  of  the  law.  The 
same  principle  applies  when  there  is  a  change  of  judicial  decis- 
ion as  to  the  constitutional  power  of  the  legislature  to  enact  the 
law.  To  this  rule  thus  enlarged  we  adhere.  It  is  the  law  of 
this  court.  It  rests  upon  the  plainest  principles  of  justice.  To 
hold  otherwise  would  be  as  unjust  as  to  hold  that  rights  acquired 
under  a  statute  may  be  lost  by  its  repeal."  ^  Moreover,  where 
the  course  of  decisions  of  the  highest  court  of  a  State  upon  a 
given  question  is  so  oscillating  that  the  Federal  court  is  at 
liberty  to  regard  the  interpretation  of  the  constitution  or  statute 
in  a  given  instance  as  unsettled  by  the  State  tribunal,  it  will  be  at 
liberty  to  adopt  the  view  which  appears  to  it  most  correct. 
This  is  well  illustrated  by  a  decision  of  Mr.  Justice  Sawyer  at 
circuit  in  an  important  case  already  cited.  In  1863  the  Supreme 
Court  of  California  construed  a  provision  of  the  constitution  of 
that  State  restraining  the  legislature  from  creating  corporations 
by  special  acts  except  lor  municipal  purposes.  That  construc- 
tion remained  unquestioned  by  the  courts  of  that  State  for 
eleven  years,  during  which  time  much  legislation  of  a  similar 
character  to  that  in  question  in  the  Federal  court,  and  among  it 
that  involved  in  the  case  in  the  Federal  court,  was  enacted;  and 
under  this  legislation  important  rights  had  become  vested.  In 
1874  the  Supreme  Court  of  California,  being  differently  consti- 
tuted, overruled  the  prior  decision,  three  of  the  six  judges  who 
sat  in  the  two  cases  having  taken  one  view,  and  three  the  other. 
At  the  time  of  the  decision  in  the  Federal  court  the  Supreme 
Court  was  again  being  reorganized,  with  seven  members,  only 
one  of  whom  had  considered  the  question  as  a  member  of  the 
State   court   of  last    resort.     Under   these    circumstances    Mr. 

1  Ohio  Life  Ins.  &c.  Co.  v.  Deljolt,  ^  Qelpcke  v.  Dubuque,  1  Wall.  (U. 

16  How.  (U.  S.)  4;]2;  Rowan   v.  Run-      S.)  206. 
nels,  5  How.  (U.  S.)  134. 

427 


1  Thomp.  Corp.  §  581.]     constitutional  restraints. 

Circuit  Judge  Sawyer  held  thiit  the  construction  of  the  constitu- 
tion was  not  settled,  within  the  rule  which  oblio;es  the  Federal 
courts  to  follow  the  construction  of  the  State  courts,  and  conse- 
quently that  the  Federal  courts  were  at  liberty  to  adopt  the  view 
which  appeared  to  them  correct.^ 

§  581.  Further  of  Prohibitions  against  Special  Acts  Confer- 
ring Corporate  Powers.  —  The  constitutions  of  some  of  the 
States  are  more  explicit,  in  so  far  as  they  guard  against  any 
possibility  of  misconstruction  by  providing  that  "  the  general  as- 
sembly shall  pass  no  special  act  conferring  corporate  powers."  ^ 
It  is  obvious  that  this  language  goes  further  than  to  prohibit  the 
creation  of  corporations  by  special  act.  It  bars  the  way  to  the 
passage  of  any  such  act,  conferring  upon  an  existing  corporation 
any  powers  which  in  their  nature  can  only  be  possessed  and 
exercised  by  corporations.  With  this  prohibition  in  force,  a  rail- 
way company  which,  by  its  charter,  did  not  have  the  power  to 
sell  its  franchise  of  being  a  corporation,  7nortgaged  its  properties, 
and  these  properties  were  sold  under  the  mortgage  ;  and  the  pur- 
chasers thereafter  procured  a  special  act  of  the  legislature,  which 
undertook  to  give  effect  to  the  sale,  by  authorizing  them  to  re- 
organize the  former  corporation,  to  create  a  new  stock  and  to 
elect  a  new  board  of  directors.^  It  was  held  that  this,  in  sub- 
stance and  legal  effect,  was  an  attempt  to  create  a  corporation 
and  to  confer  corporate  powers  by  a  special  act,  and  that  it  was 
in  conflict  with  the  constitutional  prohibition  aV)Ove  quoted. 
The  court,  speaking  through  Ranney,  J.,  said:  "  The  defendant's 
counsel  insist  that  the  act  does  not  assume  to  confer  corporate 
powers,  but  is  simply  declaratory  of  the  effect  of  a  sale  of  the 
road  and  franchises  under  the  decree;  that  the  object  of  the  act 
is  to  remove  doubts  as  to  the  effect  of  such  a  sale,  which  it  does, 
not  by  conferring  corporate  powers,  but  by  declaring  that  the 
sale    shall  transfer  to    the  purchasers  the  powers  and  capacities 

1  Southern  Pacific  R.  Co.  v.  Orton,  by    tlie    court    ia   San    Francisco  u. 

6   Sawy.   (U.  S.)  157.     Tlie  court  ac-.  Spring  Valley  Water  Works,  48  Cal. 

cordiu;j;ly  adopted  the    view    of  the  493.    As  to  these  decisions  see  ante, 

Supreme   Court  of  California,  as  laid  §§  478,  479. 

down  in  California  State  Tel.   Co.  v.  ^  See,  for  instance,  Ohio  Const,  of 

Alta  Tel.  Co.,  22  Cal.  398,  and  declined  1851,  art.  13,  §  1;  o,nt&,  §  539. 
to  follow  that  subsequently  adopted  ^  gee  §  257,  et  seq. 

428 


SPECiAii  STATUTES.     [1  Thomp.  Coi'p.  §  583. 

theretofore  conferred  upon  the  Cincinnati  &  Marietta  Company, 
which  it  sanctions  as  an  incident  of  the  sale  and  purcliase,  includ- 
ing the  right  of  the  purchasers  to  reorganize,  without  which  the 
purchase  of  the  franchise  would  be  a  barren  acquisition  in  their 
hands.  That  the  transaction  assumed  this  form,  there  is  no 
doubt;  but  this  does  not  relieve  us  from  the  necessity  of  inquir- 
ing what  it  was  in  substance.  Constitutional  provisions  would 
be  of  little  value,  if  they  could  be  evaded  by  a  mere  change  of 
forms.  These  provisions  of  the  constitution  are  too  explicit  to 
admit  of  the  least  doubt,  that  they  were  intended  to  disable  the 
general  assembly  from  either  creating  corporations,  or  conferring 
upon  them  corporate  powers,  by  special  acts  of  legislation."  ^ 

§  582.  States  in  which  Applicable  only  to  Private  Corpora- 
tions.—  By  judicial  construction  in  some  States,^  and  by  the 
express  language  of  constitutional  provisions  in  others,^  restric- 
tions against  the  passage  of  special  laws  creating  corporations  or 
conferring  corporate  powers,  apply  only  to  private^  not  to  mw- 
n^c^JO«^  corporations.  This  is  the  construction  of  the  provision 
of  the  present  constitution  of  Pennsylvania,  vacating  all  exist- 
insT  charters  under  which  a  valid  organization  shall  not  have 
taken  place.*  On  the  other  hand,  a  constitutional  provision  that 
"  the  legislature  shall  pass  no  special  act  conferring  corporate 
powers  "  ^  has  been  held  to  apply  to  municipal  as  well  as  to  private 
corporations.^     But  it  has  been  held  in  Kansas  that,  while  this 

1  Atkinson  v.  Marietta  &c.  E.  Co.,  izing  these  cases,  "  An  act  specially 
15  Oh.  St.  21,  35.  Compare  "Wallace  amending  the  charter  of  a  city  in  re- 
V.  Loomis,  97  U.  S.  146;  s.  c.  Myer  spect  to  making  local  improvements 
Fed.  Dec,  §  20.  or  assessments    [citing    Atchison  v. 

2  State  V.  Newark,  40  N.  J.  L.  71;  Bartholow,  4  Kan.  124;  Gilmore  v. 
Balleniine  u.  Pulaski,  15  Lea  (Tenn.),  Norton,  10  Kan.  491;  State  v.  Pugh, 
633.  43  Oh.  St.  98],  or  specially  extending 

3  Ante,  §  539.  the  limits  of  a  particular  city  [citing 

*  Ante,  §  54G;  Lehigh  Water  Co.'s  Wyandotte  v.  Wood,  5  Kan.  C03;  State 
Appeal,  102  Pa.  St.  515.  v.  Cincinnati,  20  Oh.  St.  18],  is  uncon- 

*  Kan.  Const.,  art.  12,  §  1;  Oh.  stitutional;  and  so  it  seems  is  an  act 
Const., art.  13,  §2.  which  authorizes  a  city   by  name  to 

6  Atchison  V.  Bartholow,  4  Kan.  issue  its  scrip  for  a  particular  pur- 
124;  Wyandotte  v.  Wood,  5  Kan.  603;  pose,  and  to  levy  taxes  to  pay  it  in  aid 
State  V.  Maloy,  20  Kuu.  619;  State  v,  of  a  sinjrle  enterprise,  — the  court  iu- 
Cincinnati.  20  Oh.  St.  IS.  Hence,  as  dining  to  hold  such  an  enactm 'ut  to 
observed  Ijy  Judge  Dillon,  in  sumniar-      be  a  special  act,  audoue  which  under- 

429 


1  Thomp.  Corp.  §  584.]     constitutional  restraints. 

restriction  includes  municipal  corporations  properly  so  called,  it 
does  not  embrace  quasi-corporations^  such  as  school  districts,  al- 
though the  latter  are  declared  by  statute  to  be  bodies  corporate.^ 
In  New  York  it  has  been  held  that  a  constitutional  provision 
requiring  the  assent  of  two-thirds  of  the  general  assembly  to  the 
passage  of  any  bill  creating,  continuing,  altering  or  renewing 
any  body  politic  or  corporate,^  applies  to  municipal,  as  well  as 
to  private  corporations.^ 

§  583.  Prohibition  against  Incorporating  Includes  Proliibi- 
tion  against  Amending. — A  prohibition  against  incor[)orating 
cities  and  towns  except  by  general  laws  has  been  justly  held  to 
include  a  prohibition  against  amending,  by  special  statutes,  acts 
of  incorporation  already  in  existence.  "  To  say  that  the  legis- 
lature may  not  pass  a  law  to  incorporate  a  city,  but  may  to 
amend  an  act  of  incorporation  in  existence  before  the  adoption 
of  the  constitution,  or  charters  formed  under  the  general  law, 
would  make  this  provision  of  the  constitution  practically  amount 
to  nothing.  For  if  they  may  amend,  they  may  to  the  extent  of 
passing  an  entire  new  law,  except  as  to  one  section.  Or  they 
may  at  one  session  amend  half  the  law,  and  at  the  next  the  other 
half;  and  thus  the  plain  and  positive  prohibition  of  the  funda- 
mental law  would  be  evaded.  By  such  a  construction,  the  evils 
sought  to  be  remedied  would  continue,  if  possible,  in  a  more  ob- 
jectionable form."  * 

§  584.  A  Contrary  View. —  A  contrary  view  was  taken  of 
this  subject  by  Mr.  Circuit  Judge  Sawyer,  in  an  elaborate  decis- 
ion in  the  Circuit  Court  of  the  United  States  for  the  District  of 

took    to    confer  corporate   powers."  As  to  what  is  an  alteration  within  this 

Dillon    Mun.  Corp.   (4th  ed.),   §    46;  provision,   see   Corning  v.  Green,  23 

citing  to   the   last  point  Commercial  Barb,  (N.  Y.)  33;  Smith  v.  Helraer,  7 

National  Bank  v.  lola,  2  Dill.  (U.  S.)  Barb.  (N.  Y  )  416;  Morris  v.  People, 

353.  3  Den.  (N.  Y.)  381. 

1  Beach  v.  Leahy,  11  Kan.  23.  See  *  Ex  parte  Fritz,  9  la.  30,  33.  To 
also  State  v.  Cincinnati,  20  Oh.  St.  the  same  effect  see  McGregor  v.  Bay- 
18,  37;  contra,  School  District  v.  In-  lies,  19  la.  43;  Davis  v.  Wooluough, 
surance  Co.,  103  U.  S.  707;  ante,  %  20.  9  la.    104;  Baker  u.    Steamboat    Mil- 

2  Post,  §  632.  waukee,  14  la.  214;  State  v.  Barbee,  3 

3  Purdy  V.  People,  4  Hill   (N.   Y.),  Ind.  258. 
384;  reversing  s.  c.  2  Hill  (N.  Y.;,  yi. 

430 


SPECIAL  STATUTES.     [1  Thomp.  Corp.  §  584. 

California,  in  1879.  He  held  that  the  provision  of  the  constitu- 
tion of  California  prohibiting  the  legislature  from  creating  cor- 
porations by  special  acts  except  for  municipal  purposes,  did  not 
extend  so  far  as  to  render  invalid  an  act  passed  by  the  legislature 
of  that  State  authorizing  the  Southern  Pacific  Railroad  Company 
to  change  the  line  of  its  road,  to  accept  a  congressional  grant  of 
land,  and  to  construct  its  road  as  provided  in  the  act  of  Congress 
incorporating  the  Atlantic  and  Pacific  Railroad  Company.  The 
syllabus  of  the  case  as  reported,  understood  to  have  been  pre- 
pared by  the  learned  judge  himself,  gives  as  good  a  summation 
of  his  course  of  reasoning  as  can  be  made.  He  proceeded  upon 
the  view  that  the  settled  rules  of  construction  of  State  constitu- 
tions is  that  they  are  not  special  grants  of  powers  to  legislative 
bodies,  but  general  grants  of  all  legislative  power,  not  actually 
prohibited  or  expressly  excepted ;  that  the  exception  must  be 
strictly  construed;  in  other  words,  that  the  construction  is  strict 
against  those  who  stand  on  the  exception^  and  liberal  in  favor  of 
the  government  itself.  He  laid  stress  upon  the  established  rule 
of  strict  construction,  applicable  to  State  constitutions,  that  an 
act  of  the  legislature  should  never  be  declared  unconstitutional 
unless  there  is  a  clear  repugnance  between  the  statute  and  the 
organic  law.  He  took  the  view  that  what  the  legislature  author- 
ized the  railway  company  in  the  particular  case  to  do,  was  not 
the  conferring  of  a  corporate  franchise  at  all.  According  to  his 
reasoning,  the  essence  of  a  corporation  consists  only  of  a 
capacity  to  have  perpetual  succession  under  the  special  denomi- 
nation and  in  an  artificial  form;  to  take,  hold  and  grant 
property  ;  to  contract  obligations,  and  to  sue  and  be  sued  by  its 
corporate  name;  and  a  capacity,  by  its  corporate  name,  to  re- 
ceive and  enjoy,  in  common,  grants  of  privileges  and  immuni- 
ties. He  reasoned  that  the  riglit  to  be  a  corporation  is  a  dist  inct, 
independent  franchise,  complete  within  itself,  having  no  neces- 
sary connection  with  other  distinct  franchises,  which  arc  the 
subjects  of  legislative  grunt,  and  which  may,  or  may  not  be 
given  to  corporations  once  created,  as  well  as  to  natural  persons, 
as  to  the  legislature  may  seem  advisable.  He  proceeded  upon 
the  view  that  corporate  powers,  strictly  speaking,  are  such  as 
are  peculiar  to  corporations,  and  essential  to  their  being,  :ind 
not  such  powers  as  are  usually,  or  may  be,  possessed  and  enjoyed 

481 


1  Thomp.  Corp.  §  585.]     constitutional  restraints. 

indifferently  by  corporations  and  natural  persons.  Referring 
specially  to  the  meaning  of  the  clause  of  the  constitution  of 
California  which  prohibits  the  creation  of  corporations  by 
special  act,  he  reasoned  that  the  creation  of  a  corporation  is  the 
bringing  into  being  of  an  artificial  person  having  the  essential 
attributes  of  a  corporation —  the  creation  of  the  distinct  and  in- 
dependent franchise  called  a  corporation, —  which,  when  created, 
has  a  capacity,  among  other  things,  by  its  corporate  name,  to 
receive  and  enjoy  such  other  franchises,  privileges  and  immuni- 
ties, property  and  rights,  as  the  legislature  itself,  or  other  per- 
sons with  its  permission,  may  grant  it.  He  reasoned  tliat  the 
granting  of  independent  franchises,  other  than  the  specific  fran- 
chises constituting  a  corporation,  and  of  other  privileges  and 
powers,  to  a  pre-existing  corporation,  are  not  acts  creative  of  a 
corporation,  but  acts  regulating  the  conduct  of  the  existing  cor- 
poration in  its  relation  to  and  intercourse  with  the  public  and 
other  persons,  natural  and  artificial.  His  conclusion  easily  fol- 
lowed, that  an  act  of  the  legislature  which  merely  granted  to  an 
existing  railroad  corporation  authority  to  change  the  line  of  its 
road,  is  not  an  act  creating  a  corporation  in  whole  or  in  part  and 
does  not  involve  the  creation  of  any  new  corporate  power. ^ 

§  585.  Restraining  Amendments  Enlarging  Existing  Powers 
and  Privileges. —  There  is  no  doubt  that  such  a  constitutional 
provision  ought  to  be  construed  as  restraining  the  po  wer  of  the 
legislature  to  amend  existing  special  charters,  in  any  way,  so  as 
to  enlarge  the  powers  or  privileges  thereby  conferred.  It  has 
been  held  that  they  do  not  prohibit  the  legislature  from  passing 
special  acts  regulating  existing  corporations,  in  the  exercise  of 
the  powers  already  conferred  upon  them  by  special  laws.  This 
seems  to  have  been  the  conclusion  of  the  Court  of  Appeals  of  New 
York,  in  a  case  involving  the  rights  of  an  elevated  railway  com- 
pany created  by  a  special  statute  prior  to  the  constitutional  amend- 
ment which  contained  the  prohibition.  The  court,  speaking 
through  Church,  C.  J.,  laid  stress  on  the  fact  that  "  no  exclusive 

1  Southern  PaciQc  R.  Co.  v.  Orton,      Francisco  v.     Spring    Valley    Water 
6  Sawy.    (U.  S.)  157.     The  court  de-      Works,   48   Cal.  493,   for  the  reasons 
clined  to  follow  the  decision  of  the      already  stated.    Ante,  §  480. 
Supreme  Court  of  California  in  San 
432 


SPECIAL  STATUTES.     [1  Thomp.  Corp.  §  586. 

right  or  franchise  was  granted  to  the  respondent  corporation  upon 
any  construction  of  the  clause.  Every  substantial  right  existed 
before  the  passage  of  the  act;  and  the  conditions  imposed,  em- 
bracing changes  of  structure  and  manner  of  occupying  streets, 
should  be  regarded  asrestrictiveof  existing  rights,  and  not  grants 
of  rights  or  franchises  within  the  constitutional  sense."  ^  Quot- 
ing this  language,  it  was  said  in  a  subsequent  case  by  Gray,  J.  : 
"  If  the  legislative  act  operates  upon  a  charter  in  the  direction  of 
a  regulation,  an  adjustment,  or  a  restriction  of  powers  possessed, 
it  could  not  be  objectionable.  Within  its  reserved  powers  the 
legislature  may,  at  all  times,  amend  or  alter  the  charter  ;  but  the 
constitutional  amendment  will  not  permit  it,  by  a  private  bill,  to 
make  any  new  grant  of  rights,  comprehended  within  those  speci- 
fied by  the  amendment."  2  The  legislature  could  not,  therefore, 
by  amending  the  charter  of  a  corporation  created  with  power  to 
transport  freight  and  passengers  through  a  pneumatic  tube,  which 
charter  had  been  granted  by  a  special  act  before  the  constitutional 
amendment,  empower  it  to  construct  an  ordinary  railway  for  that 
purpose,  with  any  motive  power  which  it  might  see  fit  to  use, 
not  emitting  smoke,  cinders,  etc.^ 

§  586.  General  Enabling  Acts  Applicable  to  Existing  Cor- 
porations. —  General  enabling  acts,  applicable  to  existing  cor- 
porations or  to  all  existing  corporations  of  a  particular  kind,  are 
not  unconstitutional,  as  being  within  the  prohibition  against  con- 
ferring corporate  powers  by  special  acts.  Thus,  an  act  providing 
that  any  university  or  college,  organized  and  incorporated  under 
the  provisions  of  any  special  charter,  etc.,  may,  by  a  majority  of 
its  board  of  directors,  change  its  name,  if  done  before  a  given 
date,  is  valid.  It  is  not  a  local  act,  nor  does  it  amend  the  charter 
of  any  particular  college  or  university,  or  create  a  new  corporation. 
It  operates  alike,  and  uniformly  throughout  the  Slate  upon  like 
facts.*  The  fact  that  the  act  limits  the  time  within  which  such 
institutions  of  learning  may  change  their  names  does  not  affect  its 
validity.^ 

1  Re  Gilbert  Elevated  R.  Co.,  70  N.  ■''  Ibid.  But  s^e  post,  §  5^9,  p.  450. 
Y.  361.                                                                 -I  Ilazclett  v.  Butler  University,  84 

2  Astorv.  Arcade  R.  Co.,  113  N.  Y.      Ind.  230. 

93,  HI; 's.  c.  20  North  East.  Rep.    59i.  ^  Ibid.;  citing    Clare  v.   State,   68 

28  433 


1  U'liomp,  Corp.  §  587.]     constitutional  restraints. 

§  587.  Distinctions  as  to  What  are  and  What  are  not  Cor- 
porate Powers.  —  With  reference  to  a  constitutional  prohibition 
against  creating  corporations  by  special  acts,  much  judicial 
thought  lias  been  expended  upon  the  question  what  are  and  what 
are  not  to  be  deemed  corporate  powers  and  franchises.  It  is 
undeniably  logical  that  where  the  legishiture  is  prohibited  from 
creating  a  corporation  by  a  special  act,  it  cannot,  without  an 
evasion  of  the  prohibition,  confer  by  special  act  et<sential  corpo- 
rate francJiises  on  existing  corporations,  which  are  organized 
under  previous  valid  charters  or  under  general  laws.  It  is  hence 
highly  important  to  consider  what  powers  are  in  the  nature  of 
corporate  franchises  and  what  are  not.  It  has  been  reasoned, 
on  very  doubtful  grounds,  that  only  such  powers  or  faculties  are 
corporate  franchises  as  can  be  possessed  and  enjoyed  by  corpora- 
tions alone,  and  that  powers  or  privileges  which  can  be  possessed 
and  enjoyed  by  individuals  are  not  to  be  deemed  corporate  fran- 
chises, and  maybe  conferreduponexistingcorporationsby  a  special 
act  of  the  legislature,  notwithstanding  the  prohibition  in  question.^ 
On  the  other  hand,  it  has  been  held  that  a  grant  of  an  easement  in 
a  street^  made  by  the  legislature  to  a  corporation,  cannot  be  sus- 
tained as  a  grant  of  an  interest  in  the  lands,  but  must  be 
viewed  purely  as  a  grant  of  corporate  power,  which  cannot 
be  made  to  a  private  corporation  by  special  act.^  The  rea- 
soning in  support  of  this  view  is  that  the  State  has  no 
proprietary  interest  in  the  streets  of  a  city  dedicated  to  public 
use;  and  that  its  power  to  grant  to  a  private  corporation  an 
easement  over  streets,  not  common  to  the  public  at  large,  is 
limited  to  such  power  as  it  possesses  in  its  sovereign  capacity  to 
grant  a  franchise,  and  not  to  any  proprietary  interest  in  the  streets, 
the  fee  of  the  streets  in  a  city  being,  as  a  general  rule,  in  the  owners 
of  the  adjoining  land,  on  each  side,  to  the  center  of  the  street," 
The  conclusion  therefore  is  that  private  corporations  to  supply 

Ind.    17.    As  to  distinction  taken  in  nying  the   case    next    cited.     See  the 

the  same    State    between    legal  and  reasoniug  of  the  learned  judge  more 

special  acts,  see  Hymes  v.  Aydelott,  at  large,  ante,  §  584. 
26  Ind.  431;    State  v.  Reitz,  62  Ind.  ^  city  of   San  Francisco   v.  Spring 

159.  VaUey  Water  Works,  48  Cal.  493. 

1  See  the  reasoning  of  Mr.  Circuit  ^  City  of   San  Francisco  v.   Spring 

Judge  Sawyer  in  Southern  Pacific  R.  Valley  Water  Works,  48  Cal.  493. 
Co.  ».  Orton,  6  Sawy.  (U.  S.)  157;  de- 
434 


SPECIAL  STATUTES.     [1  Thomp.  Corp.  §  588. 

a  city  with  water,  cannot  be  created  by  special  act,  nor  can 
the  power  to  supply  a  city  with  water  be  conferred  on  a  private 
corporation  by  special  act ;  and  the  fact  that  the  franchise 
of  such  a  corporation  consists  chiefly  in  an  easement  in  city 
streets,  does   not   exempt  them    from   the   constitutional  rule.* 

§  588.  Exception  where  General  I^aws  can  not  be  Made 
Applicable. —  Some  of  the  constitutions  annex  to  the  prohibi- 
tion airainst  the  passage  of  local  or  special  laws  the  qualification 
that  they  shall  not  be  passed  where  general  laws  can  be  made 
applicable. 2  Although  there  is  a  division  of  opinion  upon  the 
question,  the  weight  of  authority  is  that  the  legislature  is  the 
exclusive  Judge  of  the  question  whether  a  general  law  can  be 
made  applicable  in  particular  circumstances.^  The  view  that, 
to  remit  the  decision  of  this  question  exclusively  to  the  dis- 
cretion of  the  legislature  would  deprive  such  a  constitutional 
prohibition  of  all  its  vitality,  is  founded  on  the  most   ordinary 


i  City  of  San  Francisco  v.  Spring 
Valley  VV^ater  Works,  48  Cal.  493. 

2  Ante,  §  539.  Thus,  the  constitution 
of  Indiana  (Ind.  Const.  1850,  art.  4,  § 
22),  enumerates  along  list  of  cases  in 
which  the  general  assembly  shall  not 
pass  local  or  special  laws,  and  then  in 
the  following  section  provides:  "In 
all  the  cases  enumerated  In  the  pre- 
ceding section,  and  in  all  other  cases 
where  a  general  law  can  be  made  ap- 
plicable, all  laws  shall  be  general,  and 
of  uniform  operation  throughout  the 
State." 

3  In  Kansas,  it  is  held  that  the  leg- 
islature is  the  exclusive  judge  of  the 
question:  State  v.  Hitchcock,  1  Kan. 
178;  Beach  v.  Leahy,  11  Kan.  23;  Har- 
vey v.  Rush  County,  32  Kan.  159; 
Francis  v.  Atchison  &c.  R.  Co.,  19 
Kan.  303 ;  Norton  County  v.  Shoemaker, 
27  Kan.  77 ;  Knowles  v.  Board  of  Edu- 
cation, 33  Kan.  692,  G99.  In  Colorado 
the  same  rule  prevails.  Brown  v. 
Denver,  7  Col.  305;  Carpenter  v. 
People,  8  Col.  116;  Darrow  v.  People, 
Id.  426.  So  in  Nevada:  Evans  v.  Job, 
8  Nev.  322.     The  same   rule  formerly 


applied  in  Missouri.  State  v.  County 
Court,  .50  Mo.  317;  State  u.  County 
Court,  51  Mo.  82;  Hall  v.  Bray,  Id. 
288;  Commissioners  v.  Shields,  62  Mo. 
247;  Murdock  v.  Woodson,  2  Dill.  (U. 
S.)  188;  but  under  the  present  consti- 
tution of  Missouri  the  question  cannot 
arise,  for  the  exception  has  been  elim- 
inated. In  Indiana  it  was  at  first  held 
to  be  a  judicial  question.  Thomas  v. 
Board  of  Commissioners,  5  Ind.  4. 
But  this  decision  has  been  subse- 
quently overruled,  and  it  is  now  held 
to  be  a  question  for  the  exclusive  de- 
cision of  the  legislature.  Gentile  v. 
State,  29  Ind.  409;  Longworth  v.  Ev- 
ansville,  32  Ind.  322;  State  v.  Tucker, 
46  lad.  358.  See  also  1  Dill.  Mun. 
Corp.,  §  48  (4th  ed).  In  Iowa  the 
early  Indiana  doctrine  (since  over- 
ruled) was  followed:  Ex  parte  Pritz, 
9  la.  30,  36;  Von  Phul  v.  Hammer,  29 
Iowa,  222.  And  so  in  New  Jersey  the 
question  has  been  recently  held  not 
a  question  for  the  exclusive  determi- 
nation of  the  legislature.  State  V.  New- 
ark, 40  N,  J.  L.  71. 

435 


1  Thomp.  Corp.  §  589.]     constitutional  restraints. 

observation  of  American  legislation.  In  the  Supreme  Court  of 
Indiana  it  was  said:  "  It  would  impose  no  restriction  upon  the 
action  of  the  legislature,  nor  confer  any  power  which  that  body 
would  not  possess  in  the  absence  of  such  a  provision."  And  it 
was  further  said  ;  "If  that  section  permits  the  legislature  to  en- 
act a  special  or  local  law  ad  libitum^  in  any  case  not  enumerated, 
the  principle  involved  would  deprive  this  court  of  all  authority 
to  call  in  question  the  correctness  of  a  legislative  construction 
of  its  own  powers  under  the  constitution."  ^  Although  this  de- 
cision has  been  overruled  in  the  State  in  which  it  was  pronounced, 
and  although  the  weight  of  authority  is  no  doubt  opposed  to  its 
conclusion,  the  above  reasons  have  never  been  answered.  Where, 
however,  the  lanffuage  of  the  constitutional  inhibition  is  that 
special  charters  shall  not  be  granted  except  where,  in  the  judg- 
ment of  tlie  legislature,  the  general  laws  are  insufficient  to  meet 
the  particular  case,  the  question  is  put  beyond  the  reach  of  ju- 
dicial construction,  because  the  constitution  itself  refers  every 
such  case  to  the  exclusive  judgment  of  the  legislature,  and  it  is 
inferred,  wherever  a  special  act  of  such  a  nature  is  passed  that 
the  legislature  has  judged  that  general  laws  are  insufficient  to 
meet  the  case,  especially  where  the  contrary  holding  would  over- 
turn many  charters  and  destroy  many  vested  rights. ^ 

§  589.  Special  Act  not  Made  General  by  L.egislative  De- 
claration to  that  Effect. — But  whether  the  limitation  on  the 
prohibition  considered  in  the  next  preceding  section  exists  or  not, 
an  act  which  purports  on  its  face  to  be,  and  is,  in  fact,  a  special 
act,  cannot  be  converted  into  a  general  act,  by  a  declaration  of 
the  legislatm'e  in  another  act  that  it  shall  be  considered  a  general 

1  Thomas  v.  Board  of  Commission-  a  special  act  is  necessary  or  not,  rests 
el's,  5  Ind.  4,  7  (followed  in  Es  parte  wholly  in  the  discretion  of  the  legis- 
Pritz,  9  la.  30,  36).  lature.    People  v.   Bovven,  21   N.   Y. 

2  Johnson  V.  Joliet  &c.  R.  Co.,  23  517;  s.c.  aff'd  30  Barb.  24.  The  leg- 
Ill.  202.  This  was  the  provision  of  islature  having  created  a  corporation 
the  former  constitution  of  Illinois,  art.  by  a  special  act,  it  is  not  competent 
10,  §  1 ;  Scates  Comp.  111.  Stat.  71.  to  the  judiciary  to  review  the  discre- 
The  provision  of  the  constitution  of  tion  or  judgment  of  the  legislature 
New  York  is  the  same  as  the  early  and  declare  the  act  unconstitutional, 
constitution  of  Illinois,  and  it  has  re-  Hosier  v.  Hilton,  15  Barb.  (N.  Y.)  657. 
suited  in  the  same  view,  that  whether 

436 


SPECIAL  STATUTES.     [1  Tliomp.  Corp.  §  590. 

act;i  otherwise  the  legislature  might  lift  itself  above  the  con- 
stitutional prohibition,  by  merely  declaring  that  what  it  was  doing 
was  not  within  the  prohibition. ^ 

§  590.  Acts  Curing  Defects  in  the  Organization  of  Partic- 
ular Corporations. — In  the  early  periods  of  American  legisla- 
tion, it  was  the  fashion  for  the  legislatures  to  enact  statutes 
curing  all  sorts  of  misprisions  and  defects,  so  as  to  save  rights  in 
particular  cases.  These  statutes  went  under  the  general  denom- 
ination of  curative  acts.  An  extended  reference  to  them  would 
not  be  of  much  practical  value  ;  since  the  power  to  pass  them  has 
been  taken  from  the  legislatures  by  many  recent  State  constitu- 
tions, in  the  form  of  ordinances  prohibiting  the  passage  af  special 
laws.^  The  principle  which  was  invoked  to  uphold  such  legis- 
lation was  thus  stated  by  Chancellor  Kent  in  his  commentaries : 
"  This  doctrine  [that  of  the  Dartmouth  College  Case]  is  not  un- 
derstood to  apply  to  remedial  statutes^  which  may  be  of  a  retro- 
spective character,  provided  they  do  not  impair  contracts,  or 
disturb  al)Solutely  vested  rights;  and  only  go  to  confirm  rights 
already  existing,  and  are  in  furtherance  of  the  remedy,  by  curing 
defects,  and  adding  to  the  means  of  enforcing  existing  obliga- 
tions. Such  statutes  have  been  held  valid,  when  clearly  just  and 
reasonable  and  conducive  to  the  general  welfare,  even  though 
they  might  operate  in  a  degree  on  existing  rights,  —  as  a  statute 
to  confirm  marriages  defectively  celebrated,  or  a  sale  of  lands 
defectively  made,  to  pay  debts  of  a  testator  or  intestate.  The 
leo-al  rio-hts  affected  in  those  cases  by  the  statutes  were  deemed 
to  have  been  vested  subject  to  the  equity  existing  against  them,  and 
which  the  statutes  recognized  and  enforced."  *  In  other  words, 
these  curative  statutes  have  been  supported  upon  the  ground  that 
acts  are  valid  which  give  remedies  where  none  existed  before, 
throuo-h  defects  that  would  have  been  fatal,  had  the  legislature 
not  interfered  and  given  a  perfect  remedy  by  curing  interven- 
ing irregularities.  In  such  cases  the  weight  of  judicial  opinion 
seems  to  have  been  that  no  rights  are  interfered  with,  which  are 


»  Belleville    R.    Co.   v.  Gregory,  15  *  Cooley  Const.  Lim.  (5th  ed.),  pp. 

m.  20.  455  to  472. 

2  City  of  San  Francisco   v.  Spring  *  2  Kent  Com.  34. 

Valley  Water  Works,  48  Cal.  493. 

437 


1  Thoinp.  Corp.  §  590.]     constitutional  restiiaints. 

vested  in  such  a  sense  us  to  come  within  the  rule  that  forbids  tlie 
interference  of  the  legislature.^  According  to  Mr.  Justice 
Cooley,  the  rule  applical)le  to  cases  of  this  description  is  sub- 
stantially the  folio  wiug:  "If  the  thing  wanting,  or  which  failed 
to  be  done,  and  which  constitutes  the  defect  in  the  proceedings, 
is  something  the  necessity  for  which  the  legislature  might  have 
dispensed  with  by  prior  statute,  then  it  is  not  beyond  the  power 
of  the  legislature  to  dispense  with  it  by  subsequent  statute.  And 
if  the  irregularity  consists  in  doing  some  act,  or  in  the  mode  or 
manner  of  doing  some  act  which  the  legislature  might  have  made 
immaterial  by  prior  law,  it  is  equally  competent  to  make  the 
same  immaterial  by  a  subsequent  law."  ^  Quoting  this  language 
and  applying  this  principle,  it  is  held  by  the  Supreme  Court  of 
Alabama,  that  it  is  competent  for  the  legislature,  by  a  curative 
act,  to  render  valid  the  organization  of  a  corporation,  which 
might  otherwise  have  been  invalid  by  reason  of  the  non-perform- 
ance of  something  which  the  law  required  to  be  done  as  a  condi- 
tion precedent  to  the  corporate  existence.^  In  other  words, 
where  the  State  prescribes  certain  conditions  as  essen- 
tial to  the  organization  of  a  corporation,  it  is  competent 
for  the  State  to  waive  or  dispense  with  such  conditions ; 
and  the  State  waives  such  conditions  by  enacting  a  subse- 
quent statute  declaring  the  existence  of  the  association  as  a 
corporate  body,  and  approving  or  ratifying  its  organization  and 
amending  its  charter.*  So,  in  New  York  the  conclusion  has  been 
reached  that,  notwithstanding  a  constitutional  prohibition  against 
the  passage  of  special  charters  creating  banking  corporations,  it 
is  competent  for  the  legislature,  by  a  special  curative  act,  to  give 
validity  to  the  corporate  organization  of  a  banking  company, 

'  Syracuse  City  Bank  v.  Davis,  16  past   transactions,    according    to  the 

Barb.  CN.   Y.)   188,    192.     See  on  tliis  legislative  judgment;  the  power  of  ui - 

subject  Fosters.  Essex  Bank,  16  Mass.  terpreting  and  applying  the   laws   1  es 

258;  Cochran  u.  Van  Surlay,  20  Wend,  wholly     with     the    courts.     Lincoln 

305;  Butlerw.  Palmer,  1  Hill  (N.  Y.),  Building  Assoc,  v.  Graham,  7  Neb.  173. 
325;  Hepburn  ?;.  Curtis,  7  Watts  (Pa.),  2  Cooley  Const.  Lim.  (oth  ed.),  [>. 

300;      Johnson     v.      Wells      County  458. 

Comm'rs,    107  Ind.    15;   Lockhart  u.  ^  Central  Ag.  &c.  Asso.  u.  Alabama 

Troy,  48  Ala.  579.    But  it  is  not  within  &c.  Co  ,  70  Ala.  120;  s.  c.  9  Am.  Corp. 

the  power  of  the  legislature  to  pass  an  Cas.  8. 
act  obliging  the  courts  to  construe  and  *  Ibid, 

apply  a  previous  law,  in  reference  to 
4.38 


SPECIAL  STATUTES.     [1  ThoDip.  Corp.  §  590. 


which  had  been  informally  organized  by  reason  of  the  insuffi- 
ciency of  its  certificate  of  incorporation,  and  the  acknowledg- 
ment and  recording  thereof.*  The  test  by  which  to  determine 
the  validity  of  an  act  curing  the  defective  organization  of  a  cor- 
poration, is  to  consider  whether  the  legislature  had  the  power  to 
create  the  corporation  in  the  first  instance ;  since  it  will  not  be 
denied  that  it  has  the  same  power  to  cure  defects  in  the  organi- 
zation of  an  informally  and  irregularly  organized  corporation,  as 
it  has  to  brinor  into  existence  a  new  one.^  Numerous  instances 
are  found  where  the  courts  have  sustained  statutes  curing  irregu- 
larities in  the  votes  or  other  acts  of  municipal  corporations,  or 
the  like,  where  a  statutory  power  has  failed  of  due  and  regular 
execution,  through  the  carelessness  of  officers  or  other  causes.^ 


1  Syracuse  City  Bank  v.  Davis,  16 
Barb.  (N.  Y.)  188.  See  also  People 
V.  Plank  Road  Co.,  86  N.  Y.  1. 

2  Mitchell  V.  Deeda,  49  111.416,419. 

3  Menges  v.  Wertman,  1  Pa.  St. 
218;  Yost's  Report,  17  Pa.  St.  524; 
Bennett  u.  Fisher,  26  la.  497;  Allen  v. 
Archer,  49  Me.  346 ;  Com.  v.  Marshall, 
69  Pa.  St.  328;  State  v.  Union,  33  N. 
J.  L.  350;  State  v.  Guttenberg,  38  N. 
J.  L.  419;  Mutual  Benefit  Life  Ins. 
Co.  V.  Elizabeth,  42  N.  J.  L.  235; 
Rogers  v.  Stephens,  86  N.  Y.  623; 
Unity  V.  Burrage,  103  U.  S.  447; 
Spaulding  v.  Nourse,  143  Mass.  490; 
Tifft  V.  Buffalo,  82  N.  Y.  204;  Citizens' 
Water  Co.  v.  Bridgeport  Hydraulic 
Co.,  55  Conn.  1;  Bridgeport?;.  Rail- 
road Co.,  15  Conn.  475;  Truchelut  w. 
City  Council,  1  Nott  &  McC.  (S.  C.) 
227;  Frederick  v.  Augusta,  5  Ga.  561 ; 
Atchison  v.  Butcher,  3  Kan.  104 ;  Bis- 
sell  V.  Jiffersonville,  24  How.  (U.  S.) 
287,  295;  McMillen  v.  Boyles,  6  Iowa, 
304;  Mattlngly  v.  District  of  Colum- 
bia, 97  U.  S.  687  (ratification  by  Con- 
gress of  assessments  against  prop- 
erty) ;  Lockhart  v.  Troy,  48  Ala.  579 ; 
San  Francisco  v.  Certain  Real  Estate, 
42  Cal.  513;  Emporia  v.  Norton,  13 
Kan.  569  (curing  defects  in  proceed- 
ings to  collect  taxes) ;  Mason  v. 
Spencer,  35  Kan.  512  (curing  defect  in 


mode  of  levying  sewer  tax)  ;  Anderson 
V.    Santa  Anna,  116  U.   S.   356,   364; 
Bolles    V.  Brimfleld,   120  U.    S.   759; 
Williams   v.   Supervisors,   122  U.   S. 
154   (tax  assessments) ;  Otoe  County 
W.Baldwin,  111  U.  S.  1;  Katzenberger 
V.   Aberdeen,   121  U.  S.  172;  State  v. 
Newark,  3  Dutch.  (N.  J.)  185;  New 
Orleans  v.  Clark,  95  U.  S.  644 :  Grenada 
County  V.  Brogden,  112  U.  S.  261  (dis- 
tinguishing Hayes  v.  Holly  Springs, 
114  U.  S.  120)  ;  St.  Joseph  Townp.  v. 
Rogers,  16   Wall.    (U.    S.)  644;  U.  S. 
Mortgage  Co.  v.   Gross,  93  111.   483, 
494.     Compare  Danielly  v.  Cabanness, 
52  Ga.  211;  Pompton  w.  Cooper  Union, 
101  U.  S.  196;  Keithsburg  v.  Frick,  34 
111.  405;  Jasper  County  v.  Ballon,  103 
U.  S.   745;  Copes  v.    Charleston,    10 
Rich.     L.     (S.    C.)    491;     People    v. 
Mitchell,  35  N.  Y.   551;    Thomson  v. 
Lee  County.  3  Wall.  (U.  S.)  327;  Bass 
V.  Columbus,  30  Ga.  845;  Campbell  v. 
Kenosha,  5  Wall.  (U.  S.)   194;  Stines 
V.  Franklin  County,  48  Mo.  167;  Knapp 
V.  Grant,  27  Wis.  147;  Duanesburgh 
V.  Jenkins,  57  N.  Y.  177  (reversing 
s.  c.  46  Barb.  (N.  Y.)  294,  and  distin- 
guishing People  V.  Batchellor,  53  N. 
Y.    128) ;    Kimball   v.    Rosendale,   42 
Wis.   407;    s.   c.   24    Am.    Rep.    421; 
Ritchie  v.   Franklin  County,  22  Wall. 
(U.    S.)    67;     Bradley     v.     Franklin 

439 


1  Thonip.  Corp.  §  590.]     constitutional  restraints. 

But,  keeping  in  mind  the  principle  that  the  legislature  can  only 
validate  where  it  could  authorize^  it  follows  thut  the  legislature 
loses  its  power  to  validate,  after  the  establishment  of  a  con- 
slitulional  ordinance  prohibiting  it  from  authorizing.*  In- 
stances of  curative  acts  in  respect  of  municipal  corporations 
which  have  been  held  void  are,  —  acts  ratifying  void  assessments 
for  local  improvements ;  2  acts  validating  a  tax  upon  property 
not  within  the  corporate  limits  when  levied.^  Instances  of 
curative  acts  which  have  been  held  valid  are,  acts  ratifying 
an  ultra  vires  contract  for  street  improvements,^  and  validat- 


County,  65  Mo.  638;  Lewis  v. 
Shreveport,  3  Woods  (U.  S.),  205; 
Thompson  v.  Perrine,  103  U.  S.  806; 
s.  c.  106  U.  S.  589;  Dows  v.  Elm- 
wood,  34  Fed.  Rep.  114;  Gardner 
V.  Haney,  86  Ind.  17.  As  already 
seen  (ante,  §§  649-551)  this  power 
is  now  witlidrawn  by  many  of  the 
State  constitutions.  See  Marshall 
V.  Silliman,  61  111.  218,  a  case  which 
arose  under  the  present  constitution 
of  Illinois. 

1  Sikes  V.  Columbus,  55  Miss.  115; 
Grenada  County  v.  Brogden,  112  U. 
S.  261;  Hayes  v.  Holly  Springs,  114 
U.  S.  120;  Cairo  &c.  R.  Co.  v.  Sparta, 
77  111.  505;  Kettle  v.  Fremont,  1  Neb. 
329 ;  Re  Sackett  &c.  Streets,  74  N.  Y. 
95;  Jacksonville  v.  Bassnett,  20  Fla. 
525  (legalizing  assessment  of  tax). 
So,  the  legislature  may  ratify  the  title 
to  an  office,  after  which  it  cannot  be 
questioned  in  a  proceeding  by  quo  war- 
ranto. People  V.  Flanagan,  66  N.  Y. 
237.  In  Marshall  v.  Silliman,  61  111. 
218,  and  Wilie  v.  Silliman,  62  111.  170, 
the  Supreme  Court  of  Illinois  held 
that,  under  pretense  of  ratification,  a 
municipal  corporation  could  not  be 
coerced  by  the  legislature  into  the  con- 
tracting of  an  indebtedness.  In  Elm- 
wood  Township  v.  Marcy,  92  U.  S. 
289,  the  Supreme  Court  of  the  United 
States,  three  judges  dissenting,  fol- 
lowed this  decision.  "  Subsequent 
legislative  sanction  within  constitu- 
440 


tional  limits  is  equivalent  to  original 
authority."  Dill.  Mun.  Corp.  (4th  ed.), 
§  544.  The  learned  author  cites  to 
this  truism,  "Wilson  v.  Hardesty,  1  Md. 
Ch.  66;  Jasper  County  v.  Ballou,  103 
U.  S.  745;  Shaw  v.  Norfolk  R.  Co.,  5 
Gray  (Mass.),  180;  Satterlee  v. 
Matthewson,  2  Pet.  (U.  S.)380;  Wil- 
kinson V.  Leland,  2  Pet.  (U.  S.)  627; 
Watson  V.  Mercer,  8  Pet.  (U.  S.)88; 
Charles  River  Bridge  v.  Warren 
Bridge,  11  Pet.  (U.  S.)  420;  Stanley 
V.  Colt,  5  Wall.  (U.  S.)  119;  Croxall 
V.  Shererd,  5  Wall.  (U.  S.)  268; 
Keithsburg  v.  Frick,  34  111.  405.  That 
a  doubtful,  obscure  or  covert  valida- 
tion will  not  be  upheld,  see  Hayes  v. 
Holly  Springs,  114  U.  S.  120. 

2  Baltimore  v.  Horn,  26  Md.  194. 
Comp.  Lenuon  v.  New  York,  55  N.  Y. 
361;  Baltimore  v.  Porter,  18  Md.  284 
(where  the  attempt  was  made  to 
ratify  hy  ordinance  a  void  assess- 
ment). In  People  v.  Lynch,  51  Cal. 
15;  s.  c.  21  Am.  Rep.  676,  and  in 
Schumacher  v.  Tobeman,  56  Cal.  508, 
it  was  held  that  the  legislature  could 
not  legalize  a  void  assessment,  nor  by 
direct  act  make  an  assessment  within 
an  incorporated  city. 

3  Atchison  &c.  R.  Co.  v.  Maquillon, 
12  Kan.  301. 

4  Brown  v.  Mayor,  63  N.  Y.  239. 
See  also  Duanesburg  v.  Jenkins,  57 
N.  Y.  177;  O'Hara  v.  State,  112  N.  Y, 
146. 


SPECIAL  STATUTES.     [1  Thomp.  Corp.  §  591. 

ing  municipal  subscriptions  to  the   stock  of  a  private   corpor- 
ation.^ 

§  591.  What  is  a  "  Local  Law  "  within  the  Meaning  of  such 
a  Prohibition.  —  In  tlie  constitutions  of  some  of  the  States,  as 
already  seen,^  the  prohibition  is  in  form  against  the  passage  of 
local  or  special  laws  relating  to  many  subjects,  among  them  to 
the  subject  of  corporations.  In  the  constitution  of  Georgia,  the 
prohibition  is  against  the  passage  of  local  acts  where  there  is  a 
general  law  embracing  the  same  subject-matter.  A  local  act, 
therefore,  concerning  elections,  etc.,  in  a  particular  county,  to 
determine  whether  municipal  bonds  should  be  issued  was  void, 
there  being  a  general  statute  in  force  on  the  same  subject.'  In 
New  York,  the  prohibition  is  against  the  passage  of  private  or 
local  bills,  granting  to  corporations  the  right  to  lay  down  railway 
tracks,  or  granting  to  them  any  exclusive  privilege,  immunity  or 
franchise  whatever,  —  an  application  of  which  has  already  been 
considered.*  The  Supreme  Court  of  Wisconsin  has  pointed  out 
that  acts  may  be  general  acts  within  the  meaning  of  the  provis- 
ion of  the  constitution  of  that  State  that  ♦*  no  general  law  shall 
be  in  force  until  published,"  and  special  or  local  acts  within  the 

1  Bridgeport  v.    Railroad   Co.,    15  Connell  u.  Connell,  6  Oh.  358;  Good 

Conn.  475;  Winn    v.  Macon,  21    Ga.  v.  Zercher,   12    Oh.  364;  Meddock  v. 

275;  Municipality  v.    Theater  Co.,  2  Williams,  12  Oh.  377,  and  Silliman  ». 

Robb.  (La.)  209.     Proceeding  on  these  Cummins,    13    Oh.    116).      See    also 

or  similar  grounds,  the   courts  have  Dulany  v.  Tilghman,  6  Gill  &  J.  (Md.) 

uphold  special  statutes  curing  mar-  461;  Journeay  v.   Gibson,    56  Pa.  St. 

riages  defectively  celebrated:  Goshen  57;  Grove  v.  Todd,  41  Md.  633;  s.  c. 

V.  Stoniugton,  4  Conn.  209,  221;  s.  c.  20  Am.  Rep.  76;  Montgomery  v.  Hob- 

10  Am.  Dec.  121;  State  v.  Adams,  65  son,    Meigs  (Tenn.),    437.    But    see 

N.  C.  537  (validating  slave  marriages);  Routsong  v.  Wolf,  35  Mo.  174;  Rus- 

Andrews  v.   Page,   3   Heisk.  (Tenn.)  sell  v.  Rumsey,  35  111.  362.     Usurious 

653  (legitimating  childreu).     Compare  contracts  previously  made,  and  which 

Whi'e  V.  White,  105  Mass.  325.    Judi-  under  the  statute  with  regard  to  usury 

cial  sales  defectively  made:  Beach  v.  were    void  in  part.     Savings  Bank  v. 

Walker,  6  Conn.  190, 197.     See  Cooley  Allen,  28  Conn.   97.    Compare  Welch 

Const.   Lim.    (5th  ed.)   459,  and  cases  v.  Wadsworth,  30  Conn.  149. 
cited    in    note   2;    judgments    defec-  ^  Ante,  §  539. 

tively  entered:  Underwood u.  Lilly,  10  ^  Dougherty  County ij.  Boyt,  71  Ga. 

Serg.   &  R.   (Pa.)    101;    certificates  of  484. 

acknowledgment  of  deeds  by   married  *  Ante,  §  586;  Aster  v.  New  York 

women  defectively    drawn:    Tate    v.  &c.  R.  Co.,  113 N.  Y.  93;  20 Northeast. 

Stooltzfoos,  16  Serg.  &  R.  35;  Chest-  Rep.  594. 
nut  V.  Shane,  16   Oh.  599   (overruling 

441 


1  Tliomp.  Corp.  §  593.]     constitutional  restraints. 

meaning  of  a  constitutional  inhibition  against  the  passage  of 
local  laws  containing  more  than  one  subject  and  that  not  ex- 
pressed ill  the  title. ^  It  has  been  held  in  that  State  that  '<  an 
act  to  legalize  and  authorize  the  assessment  of  street  improve- 
ments and  assessments,"  which  in  its  body  related  solely  to  cer- 
tain street  assessments  in  the  city  of  Janesville,  and  undertook 
to  legalize  the  same,  was  a  general  l;iw  within  the  provision 
above  quoted  relating  to  the  publication  of  laws,  so  that  it  would 
not  take  effect  until  published,  but  was  at  the  same  time  a  local 
law  within  the  meaning  of  the  constitutional  inhibition  concern- 
ing the  titles  of  statutes,  and  was  therefore  void  because  the 
subject  of  it  was  not  expressed  in  its  title.^  The  court  held  that 
*'  the  subject  of  a  local  act  cannot  be  expressed  in  the  title 
without  reference  to  the  place  over  which  it  is  to  operate  being 
made  known  therein."  ^  On  the  same  lines  of  reasoning,  the 
same  court  has  held  that  "  an  act  to  incorporate  the  Yellow  River 
Improvement  Company,"  which,  besides  creating  the  corpora- 
tion with  ordinary  corporate  powers,  authorized  it  to  improve  the 
Yellow  River  within  two  specified  counties,  for  the  purpose  of 
facilitating  the  running  of  logs,  etc.,  and,  after  expending  a 
certain  sum  of  money  for  that  purpose,  to  collect  tolls  on  logs, 
etc.,  floated  down  the  river,  was  a  local  act  within  the  meaning 
of  the  constitutional  provision  touching  the  entitling  of  laws; 
but  whether  it  was  a  special  or  private  law  the  court  did  not  de- 
termine.* To  this  principle  the  Supreme  Court  of  Pennsylvania 
have  annexed  the  following  qualification:  *' Whenever  the  pro- 
visions of  an  act  are  compulsorily  binding  upon  every  city  of  the 
particular  classification,  the  legislation  is  general  and  constitu- 
tional. Whenever  the  provisions  are  binding  at  the  option  of  the 
local  authorities,  the  legislation  is  special,  local  and  unconstitu- 
tional." 5 

§   592.    Statute  is   General  when  TJnifornx  in  its  Operation 
upon  All  the  Members  of  a  Particular  Class.  —  Statutes  which 

1  See  Yellow    River    Improvement  ^  Durkee  v.  Janesville,  26  Wis.  697. 

Co.  V.  Arnold,  46  Wis.  214,  222;  Dur-  3  /^^-qt, 

kee  V.  Janesville,  26  Wis.  697;  Mills  v.  *  Yellow  River  Improvement  Co.  v. 

Charleton,   29    Wis.    400;    Phillips  ■».  Arnold,  46  Wis.  214. 

Albany,  28  Wis.  340;    Lavvson  v.  Mil-  «  Readings.  Savage,  120  Pa.  St.  198; 

waukee  &c.  R.  Co.,  30  Wis.  597.  opinion  by  Ermentrout,  J. 
442 


SPECIAL  STATUTES.     [1  Tliomp.  Corp.  §  593. 

are  general  and  uniform  in  their  operation  upon  all  persons  com- 
ing within  the  class  to  which  they  apply,  are  not  obnoxious  to 
constitutional  provisions  against  special  legislation.  Accordingly, 
statutes  which  embrace  all  persons  who  are,  or  may  come  into 
certain  situations  and  circumstances,  and  which  are  *'  general 
and  uniform,  not  because  they  operate  upon  every  person  in 
the  State,  for  they  do  not,  but  because  every  person,  who  is 
brought  within  the  relations  and  circumstances  provided  for,  are 
affected  by  the  law,"  are  not  within  such  a  prohibition. ^  Thus, 
legislation  which  classifies  railroads  and  imposes  restrictions  in 
respect  of  tariffs,  is  valid,  if  it  bears  uniformly  upon  each  class. ^ 

§  593.  Provided  Classification  Natural,  and  not  Arbi- 
trary.—  But  the  proposition  of  the  foregoing  section  is  subject  to 
the  qualification  that  the  classification  has  some  reasonable 
foundation  in  the  nature  of  things  and  is  not  arbitrarily  made  to 
afford  means  of  evading  the  constitutional  inhibition.  In  the 
view  expressed  by  Chief  Justice  Beasley,  something  more  is 
required  to  render  such  legislation  valid  "  than  a  mere  designa- 
tion by  such  characteristics  as  will  serve  to  classify;  for  the 
characteristics  which  thus  serve  as  the  basis  of  classification  mu^t 
be  of  such  a  nature  as  to  mark  the  objects  so  designated  as 
peculiarly  requiring  exclusive  legislation.  There  must  bo  a 
substantive  distinction,  having  a  reference  to  the  subject-matter  of 
the  proposed  legislation, between  the  objects  or  places  embraced  in 
such  legislation  and  the  objects  or  places  excluded.  The  marks 
of  distinction  on  which  the  classification  is  founded  must  be 
such,  in  the  nature  of  things,  as  will,  in  some  reasonable  degree 
at  least,  account  for  or  justify  the  restriction  of  the  legislation."  ^ 
Following  up  the  same  idea,  it  was  said  in  a  later  case  by  Vice- 
Chancellor  Van  Fleet:  "  Legislation  in  respect  to  matters  enu- 
merated in  this  paragraph  of  the  constitution,  affecting  particular 
subdivisions  or  parts  of  the  State  and  not  others,  may  be  valid ; 

1  Little  Rock  &c.  R.   Co.  w.   Hanni-  (Tenn.),  379;  Railroad    Co.  v.   Iowa, 

ford,  249  Ark.  291;  McAunich  i?.  Mis-  94  U.  S.    155;  Thomas  v.  Wabash  &c. 

eissippi  &c.  R.  Co.,  20  la.  342;  Iowa  R.  Co.,  40  Fed.  Rep.  126. 
&c.    R.    Co.    V.   Soper,    39    la.    116;  ^  Dovf  v.   Beidolraan,  49  Ark.  325; 

Chicago  &c.  R.  Co.  v.  Iowa,  94  U.  S.  Railroad  Co.  v.  Iowa,  94  U.  S.  155. 
163;  Humes  v.  Missouri  Pacitic  R.  Co.,  ^  Kidiards  v.  Hammer,  42  N.  J.  L. 

82   Mo.  221;  Davis    v.    State,   3    Lea  435,440. 

443 


1  Thomp.  Corp.  §  594.]     constitutional  restraints. 

but  to  be  valid,  it  must,  as  I  understand  the  adjudications,  rest 
on  some  characteristic  or  peculiarity,  plainly  distinguishing  the 
places  included  from  those  excluded;  while,  if  it  embraced  those 
excluded,  it  would  be  so  inappropriate  to  their  condition  as  to  be 
of  no  advanttige  or  benefit  to  them.  But  legislation  of  this  kind, 
which  is  controlled  in  its  operation  as  to  locality  by  a  mere 
arbitrary  distinction,  having  no  affinity  to  or  connection  with  tiie 
subject-matter  of  the  legislation,  falls  within  the  constitutional 
interdiction,  and  is  invalid."  ^ 

§  594.  Illustration  :  Invalidity  of  Statutes  Operative  only  in 
Cities  having  a  Certain  liumber  of  Inhabitants.  —  It  has  been 
held  in  numerous  instances  that  statutes  which,  by  their  terms,  operate 
onl}^  in  cities,  towns,  or  counties  which  have  a  certain  number  of  in- 
habitants, are  within  this  constitutional  inhibition  against  the  passage  of 
local  and  special  laws.  It  was  said  of  such  a  statute  by  Van  Fleet,  V. 
C. .  in  the  Chancery  Court  of  New  Jersey :  "  It  is  the  law  in  cities  and 
towns  and  villages  ha^^ug  a  population  of  not  more  than  11,000  and  not 
less  than  2,000,  and  no  where  else.  The  question  whether  it  is  effective 
or  not  in  any  particular  place  is  determined  by  the  number  of  its  in- 
habitants and  nothing  else."  And  it  was  held  invaUd,  on  the  principles 
stated  in  the  preceding  section.^  -  -  -  -  In  like  manner,  the 
Supreme  Court  of  Pennsylvania  have  held,  under  a  constitutional  pro- 
vision that  ' '  the  general  assembly  shall  not  pass  any  local  or  special  law 
regulating  the  affairs  of  counties,  cities,  townships,"  —  etc.,  that  an  act 
providing  that,  in  counties  the  population  of  which  exceeds  100,000  and 
falls  below  150,000,  the  fees  belonging  to  certain  county  officials  shaU 
be  turned  over  to  another,  is  unconstitutional,  as  being  an  attempt  to 
legislate  directly  for  certain  particular  counties  selected  from  all  others, 
there  being  but  four  counties  in  the  State  which  could  be  affected  by 
the  act.^    Under  such  a  provision  an  act  providing  for  the  dissolution  of 

1  Atlantic  City  Water  Works  Co.  v.  General  v.  Railroad  Co.,  35  Wis.  425; 
Consumers  Water  Co.,  44  N.  J.  Eq.  Kimball  v.  Rosendale,  42  Wis.  407; 
427,  435.  Stevens  Point  &c.   Co.   v.    Keilly,   44 

2  Atlantic  City  Water  Works  Co.  v.  Wis.  295;  Welker  v.  Potter,  18  Oh. 
Consumers  Water  Co.,  44  N.  J.  Eq.  St.  85;  Lafayette  v.  Jcnuers,  10  Ind. 
427,  435.  70,   80.     As  to  a  constitutional    pro- 

3  McCarthy  77.  Cora.,  110  Pa.  St.  243.  vision  that  there  shall  be  but  one 
Other  decisions  under  similar  con-  system  of  town  and  county  gov- 
stitutional  provisions  are :  Tierney  v.  ernment,  which  shall  be  as  nearly 
Dodge,  9  Minn.  1G6;  «.  c.  12  Minn.  41;  uniform  as  practicable,  see  State  v. 
Virginia  City  t;.  Mining  Co.,  2  Nev.  86;  Dousman,  23  Wis.  541;  State  v.  Rior- 
Von  Phul  V.  Hammer,  29  la.  222 ;  Atty.-  dan,  24  Wis.  iU. 

444 


SPECIAL  STATUTES.     [1  Tiiomp.  Corp.  §  596. 

a  bankrupt  municipal  corporation  has  been  held  void.i  But  an  act 
creating  a  new  class  of  such  corporations,  and  imposing  upon  all  cities 
of  the  class  the  same  powers  and  duties  is  vaUd.^ 

§  595.  Other  Cases  Illustrating  these  Distinctions. —  The  fol- 
lowing cases  have  been  cited  in  illustration  of  the  foregoing  distinctions. ^ 
A  statute  which  would  give  to  all  cities  in  this  State,  situated  on  tide  water 
the  privilege  of  using  such  waters  in  connection  with  their  sewers  ;  *  or 
which  should  give  to  all  the  cities  in  the  State  bordering  upon  tide 
water,  power  to  construct  dikes  or  to  estabhsh  quarantine  regulations  ;  ^ 
or  which  should  provide  that,  in  all  towns  having  volunteer  Jive  depart- 
ments, the  men  should  have  power  to  choose  a  commissioner  to  govern 
them,6  would  be  a  valid  exercise  of  legislative  power.  On  the  other 
hand,  a  statute  which  should  declare  that,  all  cities  containing  a  certain 
number  of  inhabitants  should  have  one  system  for  lajdng  out  streets,  and 
that  those  having  a  smaller  population  should  have  another  ;  '  or  which 
should  delare  that,  in  every  city  in  which  there  are  ten  churches,  there 
should  be  three  commisioners  of  the  water  department  with  certain 
prescribed  duties  ;  ^  or  which  should  confer  upon  cities  having  a  pop- 
ulation of  not  less  than  25,000,  the  power  to  issue  bonds  to  fund  their 
floating  debts,  —  ^  would  be  invalid,  for  the  reason  that  such  statutes 
would  all  be  controlled,  as  to  localities  in  which  they  should  have  effect 
by  a  quality  or  characteristic  which  is  purely  arbitrary,  and  which 
has  no  connection  whatever  with  their  subject-matter.^" 

§  596.  Corporations  Carrying  on  Operations  in  Specific 
tiocalitics. — But  a  constitutional  provision  that  "  corporations  may 
be  formed  under  general  laws,  but  shall  not  be  created  by  special  act 

1  State  V.  Starke,  18  Fla.  255.  ■•  Richards  v.  Hammer,  42  N.  J.  L. 

2  Lake  v.  Florida,  18  Fla.  501.    See      435. 
also  2  Dill.  Mua.  Corp.  (4th  ed.,)  §§  «  Ibid. 

701a,    7016.     Under    a    constitutional  6  ^^derson  v.  Trenton,  42  N.  J.  L. 

provision  that  corporations  shall  not  486. 

be  created  by  special  acts  except  for  ''  Van  Riper  v.  Parsons,  40  N.   J. 

municipal  purposes,  a   board  of  com-  L.  1. 

missioners  charged  with  the  duty  of  »  Richards  v.  Hammer,  42  N.  J.  L. 

tilling   up    certain  slough-ponds  in  a  435. 

city  has    been  held  a  corporation  for  '•♦  Anderson  v.   Trenton,  42  N.  J.  L. 

municipal      purposes,      and     validly  486. 

created.     St.  Louis  v.  Shields,  G2  Mo.  '»  These  illustrations  are    given  by 

247.     See    also    Wharton   v.    Mobile  Van    Fleet,  V.    C,  in    Atlantic    City 

School  Commrs.,  43  Ala.  598.  Water  Works  Co.  v.  Consumers  Water 

•"  Referring  to  the  doctrine  of  ^  493,  Co.,  44  N.  J  Eq.  427 
ante. 

445 


1  Thoinp.  Corp.  §  507,]     constitutional  kesthaints. 

except  for  municipal  purposes,"  has  been  held  not  to  extend  so  far  as 
to  prevent  the  legislature  from  creating,  by  an  act  which  piirports  to  be 
o-cneral  in  its  character,  a  corporation  to  carry  on  operations  in  specific 
localities,  which,  from  the  nature  of  the  case,  could  not  be  carried  on 
elsewhere  in  the  State,  —  as,  for  instance,  a  corporation  for  the  promo- 
tion of  slack- water  navigation  in  certain  counties.  Said  the  court : 
'  •  The  great  purpose  of  the  provision  was  to  introduce  a  system  of  legis- 
lation in  regard  to  the  institution  of  corporations  which  would  exclude 
the  corruption  and  party  favoritism  which  had  too  often  accompanied 
the  method  previously  in  vogue,  and  to  secure,  as  far  as  practicable,  for 
all  the  people  of  the  State,  an  equality  of  opportunity  and  a  guard 
against  sectional  discriminations.  It  was  determined  that  corporations 
of  the  class  in  question  should  owe  their  erection  to  general  laws  and 
not  to  special  acts,  and,  within  this  principle,  that  no  law,  general  in 
form,  should  be  allowed  to  localize  the  specific  work  or  business  of  the 
corporation  within  narrower  bounds  than  it  would  naturally  be  com- 
pelled to  occupy  if  not  thus  localized  by  enactment.  At  the  same  time 
it  was  not  designed  to  hinder  the  confinement  of  the  specific  work  or 
business  of  the  corporation,  by  the  terms  of  the  law,  within  a  given  sec- 
tion, in  any  case  when,  in  consequence  of  natural  conditions,  such  work 
or  business  could  not  be  carried  on  elsewhere."  ^ 

§  597.  Creation  of  a  Park  District  Outside  of  the  Corpo- 
rate tiimits  of  a  City.  —  Under  a  constitution  prohibiting  the  legis- 
lature from  creating  municipal  corporations,  except  cities,  by  special  act, 
and  providing  that  no  city  shall  be  incorporated  with  less  than  5,000 
permanent  inhabitants,  etc.,  it  has  been  held  beyond  the  power  of  the 
legislature  to  incorporate  a  board  of  park  commissioners  and  a  park 
district,  outside  a  city,  for  the  purpose  of  establishing  and  maintaining 
a  public  park  for  the  pleasure  of  the  inhabitants  of  the  city.  The  court, 
speaking  through  Wagner,  J.,  said:  "  By  this  act  there  is  no  municipal 
corporation  chartered  nor  attempted  to  be  chartered.  The  declaration 
that  the  corporation  is  for  municipal  purposes  does  not  make  it  so. 
There  may  be  corporations  for  municipal  purposes,  but  they  must  be 
connected  with  the  municipal  corporation  itself,  and  instituted  for  pur- 
poses of  carrying  out  some  of  the  known  objects  of  the  municipality. 
But  in  the  present  case  a  district  outside  of  the  city  is  incorporated ; 
none  of  the  commissioners  who  have  the  exclusive  management  and  con- 
trol of  it  reside  within  its  boundaries  ;  the  people  who  own  the  lands 
within  it  are  taxed  against  their  consent  by  persons  who  have  no  inter- 
ests in  common  with  them,  and  then  they  are  gravely  told  that  resist- 

^  Attorney-General  v.  McArthur,  38  Mich.  20i,  opinion  by  G-aves,  J. 
446 


SPECIAL  STATUTES.     [1  Thomp.  Corp.  §  598. 

ance  is  useless — that  they  have  been  incorporated  foi'  municipal 
purposes.  If  this  can  be  done,  then  special  acts  of  incorporation  for 
municipal  purposes  may  be  passed  in  the  vicinity  of  all  our  towns  which 
do  not  rise  to  the  dignity  of  cities,  but  are  nevertheless  municipal  cor- 
porations, and  the  farming  community  will  be  made  to  pay  for  whatever 
they  fancy  or  conceive  will  redound  to  their  benefit.  If  the  legislature 
can  do  this,  it  is  difficult  to  set  any  bounds  to  their  power.  The  con- 
stitution never  contemplated  such  an  exercise  of  power,  but  sought,  on 
the  contrary,  to  place  a  prohibition  on  it."  ^ 

§  598.  What  Statutes  have  heen  Held  tiocal  or  Special. — 

Statutes  authorizing  a  certain  school  district  to  issue  bonds  to  erect  a 
scliool  house,  and  setting  aside  funds  to  pay  the  same  ;  ^  authorizing  a 
precinct  to  issue  bonds  to  erect  a  court-liouse  ;  ^  and  extending  the  corporate 
limits  of  a  particular  city  over  land  which  before  its  passage  was  not 
within  such  hmits,^  have  been  held  void,  under  a  constitutional  provis- 
ion forbidding  the  passage  of  special  laws  conferring  corporate  pow- 
ers. -  -  -  -  An  act  purporting  to  authorize  the  establishment  of  a 
single  ferry,  at  a  designated  point  on  a  particular  river,  has  been  held 
void,  under  a  constitutional  prohibition  against  licensing  ferries  by  local 
or  special  laws.  It  was  well  pointed  out  concerning  the  act  that  it  was 
not  only  limited  in  its  application  to  one  ferry,  but  that  one  was  located 
at  a  definite  place ;  and  the  court  observed  that  it  contained  no  feature 
of  an  act  of  general  apphcation,  but  that  its  whole  scope  and  purpose 
were  special. 5  _  _  _  _  The  following  case  was  held  not  to  be  the  case 
of  legislation  affecting  a  particular  class,  within  a  principle  above  ex- 
plained,^  and  the  statute  was  accordingly  held  void :  —  Under  the  general 
corporation  act  of  Illinois,  all  railroad  corporations,  whose  lines  termi- 
nate on  bordering  navigable  streams,  have  power  to  condemn  lands  at 
their  terminus,  in  order  to  reach /ernes.  It  was  held  by  Mr.  District 
Judge  Allen  that  the  proviso  of  a  later  statute,'  limiting  the  right  to  own 
and  use  boats  to  carry  freight  and  passengers,  to  "  such  railroad  com- 
panies as  own  the  landing  for  such  water  craft,"  was  within  the  prohi- 
bition of  the  constitution  of  that  State  against  the  passage  of  special  laws 
granting  special  or  exclusive  privileges  to  corporations ;  and,  further, 
that  the  statute  could  not  be  upheld  on  the  ground  that  it  classified  the 
railroad  companies  whose    roads  terminated  on    bordering  rivers  into 

1  State  V.  Leffingwell,  54  Mo.  458,  "  Dunby    v.  Richardson   County,   8 
472.  Neb.  508. 

2  Clefig      V.     Richardson     County  *  Wyandotte  v.    Wood,  5  Kan.  603. 
School   District,    8  Neb.   178;  School  «  Frye  v.  Partridge,  82  111.  267. 
District   v.  Insurance  Co.,  103   U.    S.  ^  Ante,  §  692. 

707.  '  111.  Act  May  24th,  1877. 

447 


1  Thomp.  Corp.  §  599.]     constitutional  restraints. 

such  as  then  owned  a  landing  place  and  such  as  did  not.^  -  -  -  _ 
On  more  doubtful  grounds,  a  statute  for  the  incorporation  of  street 
raihcays,  in  cities  of  the  second  and  third  class,  has  been  held  void, 
within  a  constitutional  prohibition  against  the  passage  of  local  and  sjie- 
cial  laws, —  the  court  taking  the  view  that  the  act  was  special,  because 
it  related  to  but  a  certain  class  of  street  railway  corporations,  and  that 
it  was  local,  because  confined  to  cities  of  the  second  and  third  classes. ^ 
While  this  holding  may  be  sustained  under  the  stringent  view  taken  by 
the  Supreme  Court  of  Pennsjdvania  of  such  a  constitutional  provision, 
it  is  ob\ious  from  the  instances  collected  in  the  next  section,  that  such 
a  statute  would  be  regarded  as  good  in  several  of  the  other  States 
having  a  similar  constitutional  prohibition. ^  -  -  -  -  A  statute 
authorizing  any  number  of  persons  not  less  than  seven,  a  majority  of 
whom  should  reside  in  the  State,  to  form  a  company  for  the  purpose  of 
constructing  water-works  in  any  city,  town  or  village  in  the  State  having 
a  population  of  not  more  than  150,000  nor  less  than  2,000,  for  the  pur- 
pose of  supplying  such  city,  town  or  village  and  the  inhabitants  thereof 
with  water,  has  been  held  void,  under  a  constitutional  inhibition  against 
passing  private^  local,  or  special  laws,  granting  to  any  corporation,  asso- 
ciation or  individual  any  exclusive  privilege,  immunity  or  franchise 
whatever ;  and  also  under  a  provision  prohibiting  the  passage  of  special 
laws,  conferring  corporate  powers,  but  requiring  the  legislature  to  pass 
general  laws  under  which  corporations  might  be  organized  and  corporate 
powers  of  every  nature  obtained.*  As  this  statute  was  both  local  and 
special,  it  was  held  that  if,  as  decided  in  a  former  case,^  it  invested  a 
corporation  created  under  it  with  an  exclusive  franchise,  it  was  void.^ 

§   599.  Instances  of  Statutes  Held  not  Local  or  Special.  — 

The  following  are  instances  of  statutes  which  have  been  held  not 

1  Thomas  v.  Wabash  &c.  R.  Co.,  40  mechanic  to  a  lien  under  a  general 
Fed.  Rep.  126.  law.     Davis  v.   Clark,  106  Pa.  St.  377. 

2  Weiman  v.  Wilkinsburg  &c.  R.  See  also  Morrison  i;.  Bachert,  112  Pa. 
Co.,  118  Pa.  St.  192.  St.  323,  where  the  court  declared  its 

3  In  Pennsylvania,  it  has  been  held  purpose  "  to  adhere  rigidly  to  that 
that  a  statute  which  undertakes  to  instrument  [the  constitution],  that 
deal  with  mechanics'  liens  in  counties  the  people  may  not  be  deprived  of  its 
whose  population  is  less  than  200,000,  benefits." 

is  void,  as  a  local   laio,— the    court  ^  Const.    N,   J.  Amendment    1875, 

reasoning  that  the   statute    did    not  art.  4,  par.  11,  §  7. 
attempt  to  classify    counties  for  any  ^  Atlantic  City  Water  Works  Co.  v. 

purpose    of    local     government,     but  Atlantic  City,  39  N.  J.  Eq.  367. 
merely  attempted  to  provide  a  lien  in  "  Atlantic  City  Water  Works  Co.  v. 

one  part  of  the     State,    in    circum-  Consumers  Water  Co.,   44  N.  J.  Eq. 

stances  which  would  not  entitle  the  427,  434. 
448 


SPECIAL  STATUTES.     [1  Tliomp.  Corp.  §  599. 

obnoxious  to  constitutional  prohibitions  against  the  passage  of 
special  laws.  An  act  making  it  punishable  for  railroad  em- 
jployes  to  burn,  mutilate,  haul  off,  or  bury  stock  killed  by 
trains;  ^  appropriating  five  thousand  dollars  to  aid  the  Farmers' 
Protective  Association  of  Iowa,  a  corporation  organized  to  pro- 
vide the  farmers  of  that  State  with  barbed  wii^e,  at  the  actual 
cost  of  manufacture,  and  to  defend  suits  for  the  alleo-ed  infrino;e- 
ment  of  patents ;  ^  authorizing  the  board  of  education  of  a  par- 
ticular city  to  issue  bonds  of  the  school  district,  for  the  purpose 
of  purchasing  a  site  for  the  school  buildings^  erect  buildings, 
etc.,  to  an  amount  not  exceeding  $100,000  upon  a  majority  vote 
of  the  electors  of  the  district,  —  the  court  holding  that  this  was 
neither  a  special  law  nor  a  law  conferring  corporate  power ;  ^ 
providing  that  foreign  corporations  created  for  the  purpose  of 
making  and  guaranteeing  bonds  may  be  accepted  as  sureties  by 
the  courts,  etc.,  —  the  court  holding  this  not  unconstitutional  as 
a  special  law  regulating  the  practice  of  the  courts;^  regulating 
rates  of  charges  for  the  carriage  of  passengers  by  railroad  com- 
panies, imposing  a  penalty  for  overcharges,  and  including  in 
such  penalty  a  reasonable  attorney's  fee;^  authorizing  the  or- 
ganization of  annuity,  safe  deposit  and  trust  companies,  and 
granting  to  such  corporations  the  power  to  act  as  guardians  of 
the  estates  oi  insane  persons,  —  such  a  statute  being  a  general 
law  for  the  organization  of  corporations  for  certain  purposes 
and  defining  their  powers;®  exempting  seaside  railroads  from 
the  receivership  imposed  by  the  body  of  the  act  on  railroads 
which  fail  to  run  trains  for  a  given  time, — this  not  being  a 
special  law  conferring  corporate  privileges;  ^  providing  for  the 

1  Bannon  u.  State,  49  Ark.  167.  v.  Insurance  Co.,  103  U.  S.  707;  ante, 

2  Merchants'   Union    Barbed  Wire      §  598. 

Co.  V.  Brown,  64  la.  265.     Tiie  decis-  ■*  Cramer  v.  Tittel,  72  Cal.  12. 

ion  is  a  shameful  one,  as  the  act  ap-  ^  Dow  v.  Beidelraan,  49  Ark.  455; 

propriates   public    money,   raised   by  citinj;  Peoria   &c.   K.  Co.  v.   Duggan, 

taxation,     for    purposes     which     are  109  111.  537;   Kansas  Pacific  R.   Co.  v. 

purely  private  in  their  character.  Vauz,  16  Kan.  583;   Missouri  Pacific  R. 

3  Knowles  v.  Topeka,  35  Kan.  692.  Co.  v.  Abney,  30  Kan.  41. 

This  decision  seems  clearly  unsound.  «  Minnesota   Loan  &  Trust   Co.    v. 

It  is  opposed  to  the  following  cases:      Beebe,  40  Minn.  7;  s.  c.  41  N.  W.  Rep. 
Clegg  V.  Richardson  County    School      232. 

District,  8  Nebr.  178;  School  District  '  Delaware  Bay&c.  R.  Co.  v.  Mark- 

ley,  45  N.  J.  Eq.  139;   16  All.  Rep.  436. 
29  449 


1  Thomp.  Corp.  §  599.]     constitutional  restraints. 

organization  of  loan  associations,  and  enacting  that  no  pre- 
miums, lines  or  interest  in  such  premium  that  may  accrue  under 
the  act  shall  be  deemed  usurious, — this  not  being  a  local  or 
special  law  regulating  the  rate  of  interest  on  money;  ^  requiring 
all  electric  wires,  in  any  city  having  a  population  of  500,000  or 
more,  to  be  placed  under  the  surface  of  the  streets,  and  provid- 
ing for  a  board  of  commissioners  of  electric  sub-ways,  etc.  ;  ^ 
appropriating  money  to  be  expended  in  removing  obstructions 
from  and  improving  the  navigation  of  a  certain  river  which  falls 
into  a  navigable  water  of  the  State,  —  this  not  being  n  private  or 
local  purpose,  requiring  a  two-thirds  vote  under  the  constitution 
of  New  York;  ^  enabling  a  particular  foreign  corporation  to  be 
sued  within  the  State,  —  the  same  not  being  a  private  or  local 
bill  within  the  same  constitutional  provision;*  regulating  the  in- 
spection of  grain  in  a  particular  city,  ^  authorizing  a,  plank  road 
company  to  mortgage  its  road,  — the  same  not  being  a  "  private 
or  special  law  "  providing  for  the  sale  or  conveyance  of  any  real 
estate  belonging  to  any  persons,  but  merely  an  amendment  of  a 
charter  ;^  fixing  the  rate  of  compensation  to  be  paid  by  a  boom  com- 
pany to  the  surveyor-general  of  logs,  for  surveying  logs  coming 
within  its  boom,  at  a  rate  less  than  that  fixed  by  the  general 
law,  the  statute  affecting  equally  the  rights  and  interests  of  all 
owners  of  logs  within  the  designated  territory,  —  this  not  being 
partial  or  unequal  legislation  ;  ^  amending  the  charter  and  enlarg- 
ing the  powers  of  a  corporation  previously  existing ;  ^  conferring 
upon  a  board  of  police  commissioners  the  power  to  appoint  and 
control  the  policemen  of  a  city,  even  though  the  expenses  of  the 
police  establishment  are  defrayed  by  city  taxation.^  _  _  _  _ 
The  constitution  of  Alabama,  in  force  in  1868,  declared  that 
"  corporations  may  be  formed  under  general  laws,  but  shall  not 

^  Winget  V.    Quincy    Building    &c.  ^  Joy  i?.  Jackson  &c.  Co.,  11  Mich. 

Assoc,  128  111.  G7;  s.  c.  21  Northeast.  155. 
Rep.  12.  '  Merrittv.  Knife  Falls  Boom  Corp., 

2  Western  Union  Tel.  Co.  v.  Mayor,  34  Minn.  245;  25  Northwest.  Rep.  403. 
38  Fed.  Rep.  552.  See  also  Augusta  &c.  R.  Co.  v.  Ran- 

3  People  V.  Allen,  1  Lans.  (N.  Y.)  dall,  79  Ga.  304. 

248;  Const.  N.  Y.  1846,  art.  1,  §  9.  »  State  v.  Clark,  23  Minu.  422.     But 

•*  Fall  Brook  Coal  Co.  v.  Lynch,  47  see  ante,  I  585. 
How.  Pr.  (N.  Y.)  520.  *  Ohio    v.    Covington,  29   Ohio   St. 

«  People  V.  Harper,  91  111.  357.  102. 
450 


SPECIAL  STATUTES.     [1  ThoDip.  Corp.  §  600. 

be  created  by  special  act,  except  for  municipal  purposes." 
With  this  constitutional  provision  in  force,  the  legislature  of  Al- 
abama passed  a  special  act  authorizing  the  Wills  Valley  Railroad 
Company  (a  pre-existing  corporation)  to  purchase  the  railroad 
and  franchises  of  the  Northeast  &  Southwestern  Alabama  Rail- 
road Company  (another  pre-existing  corporation),  and,  after 
doing  so,  to  change  its  own  7iame  to  that  of  the  Alabama  &  Chat- 
tanooga Railroad  Company.  The  Supreme  Court  of  the  United 
States  held  that  this  act  was  not  within  the  constitutional  inhi- 
bition. Mr.  Justice  Bradley,  in  giving  the  opinion  of  the  court, 
said:  "  We  are  unable  to  see  anything  in  this  legislation  repug- 
nant to  the  constitutional  provision  referred  to.  That  pro- 
vision cannot,  surely,  be  construed  to  prohibit  the  legislature 
from  changing  the  name  of  a  corporation,  or  from  giving  it 
power  to  purchase  additional  property;  and  this  was  all  that  it 
did  in  this  case.  No  new  corporate  powers  or  franchises  were 
created."  ^ 

§  600.  Special  Statutes  Granting  Exclusive  Privileges, 
Immunities  or  Frauchises.  — In  determining  whether  a  statute 
falls  within  a  constitutional  inhibition  against  the  passage  of 
private,  local  or  special  laws  "  granting  to  any  corporation,  asso- 
ciation or  individual  any  exclusive  privilege,  immunity  or  fran- 
chise whatever,  the  courts  will  not  find  such  grants  in  the  statute 
by  implication ;  for  while  courts  will  resort  to  implications  to 
sustain  a  statute,  they  will  not  to  destroy  it.  If,  therefore,  such 
a  statute  admits  of  two  constructions,  one  of  which  will  render  it 
unconstitutional  and  the  other  not,  that  construction  will  be 
adopted  which  will  render  it  valid,  for  it  must  not  be  presumed 
that  the  lejrislature  intended  to  violate  the  constitution. ^ 


1  Wallaces.  Loomis,  97  U.  S.  146;  tered  by  the  legislature  in  the  valid 

s.  c.  10  Myer  Fed.  Dec,  §  20.     Under  exercise  of  its  powers.     United  States 

the  constitution  of  New  York,  it  was  Trust  Co.  v.  Brady,    20  Barb.  (N.  Y.) 

competent  for  the  legislature  to  create  119. 

corporations  other  than  banks  by  ^  Atlantic  City  Water  Works  u.  Con- 
special  charter.  Const.  N.  Y.,  art.  8,  sumer's  Water  Co.,  44  N.  J.  Eq.  427, 
§  1.  The  United  States  Trust  Com-  437.  This  case  contains  a  curious 
pany  of  New  York  was  held  not  to  be  and  very  doubtful  application  of  this 
a  bank  within  the  meaning  of  this  pro-  principle, 
vision  and   hence  to  have  been  char- 

451 


1  Thomp.  Corp.  §  602.]     constitutional  restraints. 

§  GOl.  Conferring  Certain  Public  Police  Powers  upon  Exist- 
ing- Corporations. —  A  statute  M'hich  confers  certumpolice  powers 
upon  existing  corporations,  to  be  exercised  for  the  public  good^ 
not  for  the  benetit  or  eniokunent  of  such  corporations  or  their 
members,  is  not  obnoxious  to  such  a  constitutional  provision, 
although  it  refers  to  them  in  terms  as  "  existing  corporations," 
since  these  words  may  be  regarded  as  descriptio  personarum. 
The  reason  is  that  the  powers  are  not  corporate  powers  in  a  proper 
sense,  and  are  not  conferred  upon  the  corporations  named 
as  corporations.  It  was  so  held  in  respect  of  an  act  of  the  leg- 
islature "  to  regulate  iho,  practice  of  medicine,''^  which  conferred 
the  power  of  appointing  boards  of  examiners  upon  three  certain 
medical  societies,  therein  named  as  existing  corporations,  and 
which  prohibited  theappoiatmeut  of  such  examiners  by  any  other 
corporation,  society,  person,  or  persons,  and  made  it  a  misde- 
meanor for  any  person  except  an  appointee  of  one  of  the  three 
societies  named  to  sign,  seal  or  issue  a  certificate  purporting  to 
authorize  the  practice  of  medicine.^ 

§  602.  Empowering  Existing  Municipal  Corporations  to 
Subscribe  for  Stock  in  Private  Corporations. — On  the  other 
hand,  where  there  is  a  constitutional  provision  that  corporations 
"  shall  not  be  created  by  special  act,  except  for  municipal  pur- 
poses," it  is  held  not  competent  for  the  legislature  to  pass  a 
special  act  conferring  upon  an  existing  municipal  corporation 
the  power  to  subscribe  to  the  stock  of  a  corporation  created  for 
commercial  purposes,  such  as  a  steam  navigation  company.  With 
such  a  constitutional  inhibition  in  force,  a  special  statute  author- 
izing a  municipal  corporation,  under  certain  conditions,  toloanits 
credit,  etc.,  "  to  any  improvements,"  must  be  restrained  so  as  to 
mean  any  improvement  which  is  the  proper  subject  of  police  and 
municipal  regulation,  such  as  gas,  water,  almshouses,  hospitals 
and  the  like,  and  cannot  be  extended  to  subjects  foreign  to  the 
objects  of  the  corporation,  existing  or  to  be  carried  on  beyond 
its  territorial  limits.  ^  To  construe  such  a  statute  so  as  to  allow 
a  city  to  engage  in  commercial  speculations  would,  it  was  said, 
violate   the    constitutional   prohibition  above  recited,  because  it 

1  Ex  parte  Frazer,  54  Cal.  94.  *  Low  v.  Marysville,  5  Cal.  214. 

452 


TITLES  OF  STATUTES.     [1  Thomp.  Corp.  §  607. 

would  operate   to  grant  to  the  corporation  powers,  by  a  special 
act,  for  other  than  municipal  purposes.^ 


Article  III.     Restraints  as  to  the  Titles  of  Laws. 


Section 

607.  Constitutional  restraints    as    to 

tlie  titles  of  statutes. 

608.  Such  provisions  mandatory. 

609.  Judicial    expressions  as    to  the 

design  of  these  provisions. 

610.  Construed  liberally  in  support  of 

legislation :     general    expres- 
sions of  this  doctrine. 

611.  The  result  of  the  cases. 

612.  Illustrations:  acts  granting  spe- 

cial charters. 

613.  Act  creating  a  corporation,  etc., 

need    not    enumerate    powers 
conferred. 

614.  Acts     "  incorporating  "    railway 

companies  and  providing    for 
municipal  aid. 

615.  Setting  out  in  incorporating  act 

the  entire  constitution  of  the 
company. 

616.  Acts  relating  to  municipal  cor- 

porations. 


Section 

617.  Instance  of   statutes  embracing 

more  than  one  subject. 

618.  Instances  of  statutes  not  embrac- 

ing more  than  one  subject,  and 
hence  valid. 

619.  Instances  of  statutes  containing 

subjects  not  expressed  in  their 
titles. 

620.  Instances  of  statutes  not  subject 

to  the  constitutional  objection. 

621.  General  acts  of  incorporation. 

622.  Illustrations. 

623.  Acts  purporting  to  amend  former 

acts. 

624.  Illustrations    of    the    titles    of 

amendatory  acts. 

625.  Void  as  to  matter  not  expressed  in 

title,  though  valid  as  to  the  rest. 

626.  Distinctions  depending  upon  the 

use  of  the  words  "  subject  " 
and  "  object." 

627.  Long  practical  construction. 


§  607.  Constitutional  Restraints  as  to  the  Titles  of  Stat- 
utes. —  The  constitutions  of  most  of  the  States  contain  provisions 


1  Ibid.  It  is  pointed  out  by  Judge 
Dillon  that  "there  is  no  power  in  a 
municipal  corporation  (even  suppos- 
ing it  to  be  competent  for  the  legis- 
lature to  confer  such  power),  as 
incidental  to  the  usual  grants  of  mu- 
nicipal authority,  to  talie  stock  in  a 
manufacturing  company  located  in  or 
near  the  corporation  (citing  Cook  v. 
Manufacturing  Co.,  1  Sneed  (Tenn.), 
698;  Commercial  Nat.  Bank  v.  lola,  2 
Dill.  (U.  S.)  553,)  or  to  aid  or  engage 
in  other  enterprises  essentially  pri- 
vate." 1  Dill.  Mun.  Corp.  (4th  ed.), 
§  161.  To  the  last  i)oint,  see  Clark  v. 
Des  Moines,  10  Iowa,  V.V.);  Hanson  v. 
Vernon,  27  Iowa,  28;  I'euiisylvania  K. 
Co.  V.  Philadelphia,  47  Pa.  St.  189.    But 


an  act  confirming  a  municipal  tax  as- 
sessed to  aid  in  "  manufacturing  pur- 
poses, and  for  the  better  securing  an 
abundant  supply  of  water  for  the 
city,"  has  been  lield  valid.  Frederick 
V.  Augusta,  5  Ga.  561.  As  already 
seen  (ante,  §  549),  the  power  of  mu- 
nicipalities to  extend  their  aid  to  pri- 
vate corporations  has  been  withdrawn 
by  many  of  the  State  constitutions. 
Nevertheless,  in  some  States  the  power 
still  exists,  and  even  where  it  has 
been  withdrawn  many  undetermined 
questions  remain  whicli  have  arisen 
under  such  municipal  subscriptions 
before  the  power  was  withdrawn. 
Post,  §  1115.  et  seq. 

453 


1  Thomp.  Corp.  §  609.]     constitutional  restraints. 

like  the  following,  which  is  found  in  the  constitution  of  Missouri : 
"  No  bill  .  .  .  shall  contain  more  than  one  subject,  which 
shall  be  clearly  expressed  in  its  title."  ^  Others  contain  a  simi- 
lar provision  restricted  to  private  or  local  bills,  like  the  follow- 
injr,  which  is  found  in  the  constitution  of  New  York:  "No 
private  or  local  bill  which  may  be  passed  by  the  legislature  shall 
embrace  more  than  one  subject,  and  that  shall  be  expressed  in 
the  title."  ^  It  is  perceived  that  these  provisions  require  two 
things,  each  relating  to  a  different  part  of  the  bill:  1.  It  must 
be  single  in  respect  of  its  subject-matter.  2.  That  single  sub- 
ject-matter must  be  expressed  in  its  title.  If,  therefore,  the 
statute  embraces  more  than  one  subject  it  is  void,  whether  or 
not  the  subject  is  expressed  in  its  title.  On  the  other  hand,  al- 
though a  statute  may  embrace  but  one  subject,  it  is  still  void  if 
that  subject  be  not  expressed  in  its  title. 

§  608.  Such  Provisions  Mandatory. —  Such  constitutional 
provisions  are  mandator t/,  and  not  merely  directory  to  the  legis- 
lature ;  the  courts,  and  not  the  legislature,  are  the  final  judges 
of  whether  they  have  been  complied  with;  and  if  a  statute  is 
passed  in  violation  of  such  a  provision,  the  courts  v/ill  set  it  aside 
in  whole  or  in  part,^  according  to  its  nature.*  The  legislature 
cannot  evade  a  constitutional  provision  that  no  private  or  local 
law  shall  be  passed  embracing  more  than  one  subject,  and  that 
expressed  in  its  title,  —  by  declaring  that  such  an  act  is  a  public 
law.^ 

§  609.  Judicial  Expressions  as  to  the  Design  of  these  Pro- 
visions. —  Although  the  design  of  such  a  constitutional  provision 
may  seem  obvious,  a  clearer  understanding  of  the  subject  may 
perhaps  be  had  if  the  discussion  is  prefaced  by  some  judicial 
statements  of  that  design.     The  Court  of  Appeals  of  New  York 

1  Const,  Mo.  1875,  art.  4,  §  28.  where    the    provision  is    held    to  be 

2  Const.  N.  Y.,  art.  3,  §  16.  merely  directory  to  the  legislature,  — 

3  Post,  §§  025,  658.  which   is  tantamount  to    frittering  it 
*  Weaver  V.   Lapsley,  43  Ala.   224;  away  entirely :   Washington  v.  Page,  4 

State  V.  Miller,  45  Mo.  595;  Cannon  v.  Cal.    388;  Pierpont  v.  Crouch,  10  Cat. 

Hemphill,  7  Tex.  184;  People  v.  Flem-  315;  Pim  v.  Nicholson,  6  Ohio  St.  176. 

ing,   7   Col.   230.     To  this   statement  ^  Belleville  &c.  R.   Co.  v.  Gregory, 

exceptiotis  exist  ia  California  and  Ohio,  16  111.  20. 
454 


TITLES  OP  STATUTES.     [1  Thomp.  Corp.  §  609. 

have  said  that  "  the  design  of  the  constitutional  provision  was 
to  prevent  the  uniting  of  various  objects  having  no  necessary  or 
natural  connection  with  each  other,  in  one  bill,  for  the  purpose 
of  combining  various  pecuniary  interests  in  support  of  the  whole, 
which  could  not  be  combined  in  favor  of  either  by  itself."  ^ 
Another  purpose  of  the  provision  has  been  declared  to  be  "  that 
neither  the  members  of  the  legislature  nor  the  public  should  be 
misled  by  the  title,  — not  that  the  latter  should  embody  all  the 
distinct  provisions  of  the  bill  in  detail."  ^  Again,  it  has  been 
said  ;  "  The  constitntional  provision  referred  to  has  been  deemed 
by  statesmen  and  jurists,  conditores  legum^  of  so  much  impor- 
tance that  it  is  found  in  the  fundamental  laws  of  most  of  the 
States.  Its  purpose  is  to  prevent  fraud  and  deception  by  con- 
cealment, in  the  body  of  acts,  of  subjects  not  by  their  titles  dis- 
closed to  the  general  public  and  to  legislators,  who  may  rely  upon 
them  for  information  as  to  pending  legislation.^  Again,  it  has 
been  said  by  the  Supreme  Court  of  Michigan:  "There  was  no 
design  by  this  clause  to  embarrass  legislation,  by  making  laws  un- 
necessarily restrictive  in  their  scope  and  operation,  and  thus 
multiplying  their  number;  but  the  framers  of  the  constitution 
meant  to  put  an  end  to  legislation  of  the  vicious  character  re- 
ferred to,  which  was  little  less  than  a  fraud  upon  the  public,  and 
to  require  that  in  every  case  the  proposed  measure  should  stand 
upon  its  own  merits,  and  that  the  legislature  should  be  fairly 
satisfied  of  its  design,  when  required  to  pass  upon  it."  *  In  like 
manner  it  has  been  said  of  the  same  constitutional  provision  by 
Beasley,  C.  J.,  that  its  purpose  is  plainly  twofold  :  "  First,  to 
insure  a  separate  consideration  for  every  subject  presented  for 
legislative  action  ;  second,  to  insure  a  conspicuous  declaration  of 
such  purpose.  Qy  the  former  of  these  requirements,  every  sub- 
ject is  made  to  stand  on  its  own  merits,  unaffected  by  '  improper 
influences,'  which  might  result  from  connecting  it  with  other 
measures  having  no  proper  relation  to  it;   and,  by  the  latter,  a 

1  Conner    v.  The   Mayor,  5   N.   Y.  People   v.  Commissioners,   47    N.   Y. 
293.  501. 

2  Sun   Mutual  Ins.  Co.  v.    Mayor,  ^  Astor  u.  Arcade  R.  Co.,  113  N.  Y. 
8  N.  Y.  241,  253.     See  also  People  v.  93,  109,  per  Earl,  J. 

Lawrence,    36    Barb.    (N.    Y.)     192;  *  People  v.  Mahauey,  13  Mich.  481, 

Brewster  v.  Syracuse,  19  N.  Y.  UG;      opinion  by  Cooley,  J 

455 


1  Thomp.  Corp.  §  610.]     constitutional  restraints. 

notice  is  provided,  so  that  the  public,  or  such  part  of  it  as  may 
be  interested,  may  receive  a  reasonable  intimation  of  the  mat- 
ters under  legislative  consideration."  ^  The  Supreme  Court  of 
Alabama  have  nUo  said:  "  It  has  been  often  said  in  this  court, 
repeating  the  words  of  other  courts,  that  this  clause  of  the  con- 
stitution is  intended  to  accomplish  but  one  purpose,  the  suppres- 
sion of  a  practice  which  had  been  too  prevalent,  leading  at  times 
to  unfortunate,  if  not  corrupt  legislation,  by  which  several  pro- 
jects or  subjects,  having  no  proper  relation  to  each  other,  were 
combined  in  one  bill,  and  the  supporters  of  each  assisted  in  pass- 
ing all  into  law;  or,  clauses  were  inserted,  of  which  the  title 
gave  no  intimation;  and  the  prevention  of  the  deception  of  the 
legislature,  and  the  people,  by  concealing  under  alluring  titles 
legislation  which,  if  its  real  character  had  been  disclosed,  would 
have  been  condemned."  ^ 

§  610.  Construed  Liberally  in  Support  of  tiegislation  t 
General  Expressions  of  this  Doctrine. — The  courts  everywhere 
agree  in  taking  the  view  that  these  constitutional  restraints  should  not 
receive  a  rigid  and  exact  appUcation,  but  that  they  should  be  construed 
and  applied  hberally  with  the  view  of  supporting,  rather  than  of  over- 
turning, acts  of  the  legislature.^  As  this  is  a  subject  of  great  impor- 
tance, especially  in  connection  with  the  titles  of  statutes  conferring  or 
extending  corporate  powers,  we  shall  take  the  liberty  of  quoting  at  con- 
siderable length  expressions  of  judicial  opinion  confirming  this  view^ 
and  indicating  the  general  lines  of  thought  on  which  the  courts  proceed 
in  applying  such  provisions.  -  -  -  -  "  It  is  settled  by  abundant 
authorities,  resting  on  sound  reason  and  principles,  that  the  title  of 
an  act  is  not  required  to  enumerate  all  the  particulars,  incidents  and 
details  by  which  its  object  is  to  be  carried  out.  The  constitution  re- 
quires only  that  the  title  should  announce  its  general  object.  The  pro- 
visions in  the  body  of  the  act,  such  as  are  ancillary  to  accomplish  the 
purpose  of  the  act  and  come  within  its  purview,  which  are  incidental 
or  germane  thereto,  are  considered  as  covered  by  the  title,  where  its 
language  is  broad  enough  to  include  the  same."  *     -     -     -     -     "  This 

1  Rader  v.  Union  Township,  39  N.  visors,  33  Hun  (N.  Y.),  279;  Blake  v. 
J.  L.  509.  People,  109   111.    504;  Otoe   County  u. 

2  Montgomery  &c.  Assn.  v.  Robin-      Baldwin,  111  U.  S.  1. 

son,   69    Ala.    413,    416,    opinion    by  ^  Mississippi  &c.  R.  Co,  v.  Wooten, 

Brickell,  C.  J.  36  La.  An.  441,  opinion  by  Berraudez^ 

8  Harris  v.  Niagara  County  Super-  C.  J. 
45() 


TITLES    OF    STATUTES.       [1  Thomp.  Coi'p.    §  610. 

provision  of   the  constitution  must  receive  a  fair  and  reasonable  con- 
struction;   one  which   will    repress    the   evil  designed   to  be  guarded 
against,  but  which,  at  the  same  time,   will   not  render  it  oppressive   or 
impracticable."!     ...     -      Such    a     constitutional    provision    has 
been  said  to  have  been  adopted  to  prevent  amendments  to  legislative  en- 
actments, by  which  distinct  and  unconnected  matters   might  be  intro- 
duced ;  hence  it  "  should  not  be  so  construed  as  to  restrict  legislation  to 
such  an  extent  as  to  render  different  acts  necessary,  where  the  whole 
subject-matter  is  connected,  and  may  be  properly  embraced  in  the  same 
act."     And  the  rule  has  been  laid  down  "  that  none  of  the  provisions  of 
a  statute   should    be   regarded    as    unconstitutional,    where   they   all 
relate,    directly   or   indirectly,    to   the   same   subject,    have  a  natural 
connection,  and  are  not  foreign  to  the  subject  expressed  in  the  title."  ^ 
-     -     -     -     Again,  it   has   been   said:    "In  the   construction   of  this 
and  similar   constitutional  provisions,  prescribing  rules  of   legislative 
procedure,  the    observance    of   which   is   essential   to  the  validity  of 
legislative    enactments,  the   courts    have    kept  steadily   in  view  the 
purposes   of  their  adoption,  and  have   avoided   a   closeness   of   con- 
struction tending  to  embarrass  legislation. "  ^     -     -     -     -     The   same 
court  said   in   an  earlier  case :    ' '  The  evil  contemplated  was  not  the 
generahty   and    comprehensiveness    of    titles.     Those    faults    do   not 
tend  to  mislead  or  deceive.     .     .     .     The  particular  subject  selected  by 
the  legislature,  and  put  in  the  title,  must  embrace  every  part  of  the  law. 
The  question  must  always  be,  whether,  taking  from  the  title  the  subject, 
we  can  find  anything  in  the  bill  which  cannot  be  referred  to  that  sub- 
ject.    If  we  do,  the  law  embraces  a  subject  not  described  in  the  title. 
But  this   conclusion   should   never  be  attained,  except  by  argument, 
characterized  by  liberaUty  of  construction  and  freedom  from   all  nice 
verbal  criticism."*     -     -     -     -     And  the  same  court  has  added :   "No 
statute  having  but  one  general  object,  reasonably  and  fairly  indicated 
by  its  title,  has  been  condemned  because  of  the  generahty  of  the  terms 
of  the  title.     Whatever  provisions  that  have,  by  fair  intendment,  a  neces- 
sary or  proper  connection  with   the  subject  expressed  in  the  title,  may 
be  introduced  into  the  body  of  the  enactment.     When  the  generality  of 
the  title  is  not  made  a  cover  for  legislation  incongruous  to,  or  diverse 
from,  the  subject  expressed,  the  spirit  and  purpose  of  the  constitution 

1  Belleville    &c.  R.  Co.  v.  Gregory,  ^  Montgomery  &c.  Asso.  v.  Robin- 
15111.  20,  20,  opinion  by  Caton,  J.             son,   69    Ala.    413,    416,    opinion     by 

2  Phillips  V.  Covington   &c.   Co.,  2       Brickell,  J. 

Mete.  (Ivy.)  219,  222;  McReynolds  v.  <  Ex  parte  Pollard,  40  Ala.  99,  opin- 

Smallhoase,  8   Bush  (Ky.),   447,  453.      ion  by  Walker,  C.  J. 
See  also  Louisville  &c.  Turnp.  Co.  v. 
Ballarii,  2  Melc.  (Ky.)  165. 

457 


1  Thomp.  Corp.  §  610.]     constitutional  restraints. 

are  satisfied."  ^  _  _  _  _  Again,  it  has  been  said :  "It  is  not  in- 
tended that  the  body  of  a  legislative  enactment  shall  be  a  repetition  of 
the  title,  nor  that  the  title  shall  be  a  summary  or  epitome  of  the  body. 
The  expression  in  the  title,  ...  of  the  actual  subject  to  which  the 
body  of  the  act  is  devoted,  is  all  that  is  required.  .  .  .  The  degree 
of  particularity  which  must  be  observed  in  the  expression  of  the  sub- 
ject in  the  title  of  a  legislative  enactment,  must  rest  largely  in  legislative 
discretion.  The  duty  of  the  general  assembly  is  met,  when  the  title 
draws  attention  directly  to  the  subject."  2  _  _  .  _  go,  it  is  said  by 
the  Supreme  Court  of  the  United  States :  "  It  is  not  intended  by  the 
constitution  of  New  Jersey  that  the  title  to  an  act  should  embody  a  de- 
tailed statement,  nor  be  an  index  or  abstract  of  its  contents.  The  one 
general  object,  the  creation  of  an  independent  municipality,  being  ex- 
pressed in  its  title,  the  act  in  question  properly  embraced  all  the  means 
or  instrumentalities  to  be  employed  in  accomplishing  the  ob- 
ject."-^  -  -  -  -  It  lias  been  added  that  "  the  objection  should  be 
serious,  and  the  conflict  between  the  statute  and  the  constitution  plain 
and  unmistakable,  before  the  judiciary  should  disregard  a  legislative  en- 
actment upon  the  ground  that  it  embraced  more  than  one  object,  or  if 
but  one  object,  it  was  not  sufficiently  expressed  in  the  title."  ■*  _  _  _  _ 
The  Supreme  Court  of  Illinois  has  said  that  "  the  court  has  leaned 
rather  in  favor  of  the  vahdity  of  private  acts,  when  the  subjects  of  the 
acts  were  multifarious."  ^  -  _  _  _  The  following  observation  of  an 
eminent  writer  on  constitutional  law  has  been  frequently  quoted:  "  The 
general  purpose  of  these  provisions  is  accomplished  when  a  law  has  but 
one  general  object,  which  is  fairly  indicated  by  its  title.  To  require 
every  end  and  means  necessary  or  convenient  for  the  accomplishment  of 
this  general  object  to  be  provided  for  by  a  separate  act  relating  to  that 
alone,  would  not  only  be  unreasonable  but  would  actually  render  legisla- 
tion impossible. "  ^  -  -  -  -  Again,  the  New  York  Court  of  Appeals 
have  said:  "  There  must  be  but  one  subject,  but  the  mode  in  which  the 
subject  is  treated,  or  the  reasons  which  influenced  the  legislature,  could 
not,  and  need  not  be  stated  in  the  title,  according  to  the  letter  and  spirit  of 

1  Montgomery  &c.  Assn.  v.  Robin-  113  U.  S.  135;  Mahomet  v.  Quacken- 
son,  69  Ala.  413,  417,  opinion  by  Brick-      bush,  117  U.  S.  508. 

ell,  C.  J.  ^  Hope  v.  Gainesville,  72   Ga.  246, 

2  Montsomery  &c.  Assn.   v.  Robin-      250,  opinion  by  Blandford,  J. 

son,  69  Ala.  413,  418,  opinion  by  Brick-  ^  O'Leary  v.  Cook  County,28  111.  534, 

ell,  C.  J.  ^  Cool.  Const.  Lim.  (4th   ed.),  144, 

3  Montclair  v.  Ramsdell,  107  U.  S.  §  2.  Quoted  with  approval  in  Fuller 
147,  155,  opinion  by  Harlan,  J.  See  v.  People,  92  111.  182,  185,  and  in  Ma- 
also  Otoe  County  v.  Baldwin,  111  U.  homet  y.  Quackenbush,  117  U.  S.  508, 
S.  1, 10 ;  Ackley  School  District  v.  Hall,  513. 

458 


TITLES  OF  STATUTES.     [1  Thomp.  Corp.  §  610. 

the  constitution. "  1  _  _  «  _  The  same  court  has  again  said :  "The 
constitution  does  not  require  that  the  title  of  an  act  should  be  the  most 
-exact  expression  of  the  subject  which  could  be  invented.  It  is  enough 
if  it  fairly  and  reasonably  announces  the  subject  of  the  act.  .  . 
A  subject  is  that  of  which  anything  may  be  affirmed  or  predicated,  and 
if  the  various  parts  of  this  act  have  respect  to  or  relate  to  local  improve- 
ments, the  act  is  not  obnoxious  to  the  constitutional  objection  inter- 
posed, and  the  degree  of  relationship,  if  it  legitimately  tends  to  the 
accomphshmeut  of  the  general  purpose,  is  not  material. "  -  -  -  -  - 
In  an  earlier  case  in  the  same  court,  it  was  said:  "  The  different  steps 
hy  which  the  relief  is  to  be  brought  about  are  not  distinct  subjects,  but 
are  minor  parts  of  the  same  general  subject.  The  degree  of  particular- 
ity with  which  an  act  is  to  express  its  subject  is  not  defined  in  the  con- 
stitution and  rests  in  the  discretion  of  the  legislature."  ^  One  of  the 
latest  expressions  on  the  subject  in  the  same  court  is  the  following : 
*'  When  the  subject  is  ex|3ressed,  all  matters  fairly  and  reasonably  con- 
nected with  it,  and  all  matters  which  will  or  may  facilitate  its  accom- 
plishment, are  proper  to  be  incorporated  in  the  act,  and  are  germane  to 
the  title.  The  title  must  be  such,  at  least,  as  fairly  to  suggest  or  give 
a  clue  to  the  subject  dealt  with  in  the  act,  and  unless  it  comes  up  to  this 
standard  it  falls  below  the  constitutional  requirement."*  -  _  _  - 
The  Supreme  Court  of  Pennsylvania  have  said  that  ' '  if  the  title  fairly 
gives  notice  of  the  subject  of  the  act,  so  as  reasonably  to  lead  to  an  in- 
quiry into  the  body  of  the  bill,  it  is  all  that  is  necessary."  5  -  -  -  - 
"With  equal  aptness  the  same  court  has  said  that  ' '  the  title  need  not  be  a 
complete  index  to  the  contents  of  the  bill."  ^  -  -  -  -  At  the  same 
time,  "  it  has  never  been  doubted  that  the  subject  of  proposed  legislation 
must  be  so  expressed  in  the  title  of  the  bill  as  to  give  notice  of  its 
purpose  to  the  members  of  the  legislature  and  others  specially  inter- 
ested." 7     -     -     -     -     Again,    it  was   said  by   the  Supreme  Court  of 

*  Sun  Mut.  Ins.  Co.  v.  Mayor,  8  N.  'Re  Road  in  Phoenixville,  supra; 
Y.  240,  253,  opinion  by  Gardiner,  J             Com.    v.  Green,  58    Pa.  St.    226,233; 

2  Re  Mayer,  50  N.  Y.  504,  opinion  Dorsey's  Appeal,  72  Pa.  St.  192;  Beck- 
by  Church,  C.  J.  crtw.   Allegheny,  85  Pa.  St.    191.     In 

3  Brewster  v.  Syracuse,  19  N.  Y.  Blood  ■;;.  Mercelliott,  53  Pa.  St.  391, 
116.  "  an  act  to  increase  the  boundaries  of 

■*  Astor  V.  Arcade  R.  Co.,  113  N.  Y.  Forrest  County,"  which  required  the 

93,  109,  per  Earl,  J.  addition    of  new  territory,   and   also 

^  Allegheny  County  Home's  Appeal,  provided    for    a    re-location    of    the 

77  Pa.  St.  77.  county  seat,  was  held  to  be  valid;  but 

*  Rogers  v.  Manufacturing  &c.  Co.,  while  that  case  has  not  been  expressly 
109  Pa.  St.  109;  Dorsey's  Appeal,  72  overruled,  it  is  obvious  from  the  man- 
Pa.  St.  102,  195;  Re  Road  in  Phoenix-  ner  in  whicli  it  has  been  subsequently 
ville,   109  Pa.  St.  44,  49.  distinguished   (Ke  Road    in    Pliocnis- 

459 


1  Thomp.  Corp,  §  610.]     constitutional  restraints. 

Illinois  that  "it  is  sufficient  that  the  act  is  fairly  covered  by  its  title. 
The  coustitutiou  does  not  require  that  all  the  legal  effects  of  an  act^ 
such  as  repeals  by  impUcaiion,  should  be  expressly  stated  in  the 
title."  ^  _  -  -  -  The  same  court  has  said  that  its  uniform  rulings 
have  been  that  this  constitutional  prohibition  is  ' '  construed  liberally  in 
favor  of  the  validity  of  euactmeuts  ;  and  the  fact  that  many  things  of  a 
diverse  nature  are  authorized  or  required  to  be  done  is  unimportant ; 
provided  the  doing  of  them  may  fairly  be  regarded  as  in  furtherance  of 
the  general  subject  of  the  enactment;  "  ^  and  the  same  may  be  said  of 
the  provisions  of  a  statute  which  deals  with  several  branches  of  one  and  the 
same  subject-matter.^  Accordingly,  the  question  whether  an  act  em- 
braces more  than  one  subject  is  to  be  determined  by  considering  the 
controlling  purpose  of  the  law,  and  not  by  considering  the  various  pro- 
visions which  are  enacted  for  carrying  the  controlling  purpose  into 
effect.^  In  other  words,  while  the  subject  must  be  expressed,  the  ad- 
juncts to  that  subject,  or  the  modus  operandi,  need  not  be.^  _  _  _  - 
The  Supreme  Court  of  Texas  have  said  that  while  this  provision  is 
mandatory,  yet  "  the  most  liberal  construction  has  been  given  by  the 
Supreme  Court  of  this  State,  in  accordance  with  the  general  current  of 
authority,  to  make  the  whole  law  constitutional,  where  the  part  objected 
to  as  infringing  this  provision  of  the  constitution  could  be  considered 
as  appropriately  connected  with,  or  subsidiary  to,  the  main  object  of  the 
act  as  expressed  in  the  title."  ^  _  _  _  _  The  same  court  has  also 
said  that,  "  so  long  as  the  provisions  are  of  the  same  nature,  and  come 
legitimately  under  one  general  denomination  or  object,  we  cannot  say 
that  the  act  is  unconstitutional. "  '  In  a  later  case  the  same  court,  after 
re\iewing  the  authorities,  say:  "We  deduce  from  the  authorities  the 
following  as  the  principal  test  of  the  validity  of  a  statute  under  this  con- 
stitutional provision :  Does  the  title  fairly  give  such  reasonable  notice 
of  the  subject-matter  of  the  statute  itself  as  to  prevent  the  mischief 
intended  to  be  guarded  against?  If  so,  the  act  should  be  sustained. 
The  reason  of  the  rule  not  applying  to  such  cases,  the  rule  itself  does 
not  apply."  ^    -     -     -     -     It  is  said  by  the  Court  of  Appeals  of  Mary- 

ville,   108    Pa.    St.   44,   49;  Rogers  v.  ^  Bius  v.  Weber,  81  111.  288. 

Manufacturers  &c.  Co.,  Id.   109,  111)  ^  Ottawa  v.  People,  48  111.  233. 

that  it  is  no  longer  regarded  in  that  ^  Giddings  v.  San  Antonio,  47  Tex. 

State  as  sound  law;  and  it  should  not  556. 
be  so  regarded  anywhere.  '  Austin  v.  Gulf  &c.  R.  Co.,  45 Tex. 

1  Mix  V.  Illinois  &c.  R.  Co.,  116  111.  234,  267. 

502,  508;  s.  c.  6  Northeast.  Rep.  42.  »  Stone  v.  Brown,  54  Tex.  330,  344^ 

2  Blake  V.  People,  109  111.  504.  opmion  by  Bonner,  J. 
2  Gunter    v.   Dale   County,  44  Ala. 

639;  Ex  parte  Upshaw,  45  Id..  234. 
460 


TITLES  OF  STATUTES.      [1  Thomp.  Corp.  §  611. 


land  that  if  the  several  sections  of  a  law  "  refer  to  and  are  germane  to 
the  same  subject-matter,  which  is  described  in  its  title  it  is  considered 
as  embracing  but  a  single  subject,  and  as  satisfjdng  the  requirements  of 
the  constitution  in  this  respect."  ^ 

§  611.  The  Result  of  the  Cases. —  Without  quoting  further 
from  judicial  opinions,  we  may  collect  the  conclusion  from 
numerous  cases  that  it  is  not  the  purpose  of  the  constitutional 
provision  to  require  details  and  particulars  to  be  specified  in  the 
title,  nor  the  means  by  which  the  purposes  of  the  act  are  to  be 
accomplished ;  but  that  it  is  its  purpose  to  prevent  the  uniting 
of  different  or  incongruous  subjects  in  one  act,  and  to  require 
the  single  subject  embraced  in  each  act  of  the  legislature  to  be 
fairly  and  reasonably  indicated  by  its  title. ^     Such  a  constitu- 


1  Mayor  v.  Eeitz,  50  Md.  579; 
County  Commissioners  v.  Meekins,  50 
Md.  28,  41 ;  Maryland  Agricultural  Col- 
lege V.  Keating,  58  Md.  580,  584. 

2  Re  Knaust,  101  N.  Y.  188;  People 
V.  Whitlock,  92  N.  Y.  191 ;  Re  Applica- 
tion of  Department  of  Public  Parks, 
86  N.  Y.  439;  Re  New  York  &c. 
Bridge,  72  N.  Y.  527;  Mayor  &c.  u. 
Colgate,  12  N.  Y.  146;  People  v.  Law- 
rence, 41  N.  Y.  137;  Lockhart  u.Troy, 
48  Ala.  579;  Blake  u.  People,  109  111. 
504;  State  v.  Daniel,  28  La.  An.  38; 
Rader  v.  Townsliip  of  Union,  39  N.  J. 
L.  509;  Nuendorff  v.  Duryea,  69  N.  Y. 
557;  Central  Cross-town  R.  Co.  v. 
Twenty-third  Street  R.  Co.,  54  How. 
Pr.  (N.  Y.)  168;  Freeman  v.  Panama 
R.  Co.,  7  Ilun  (N.  Y.),  122;  Green  v. 
Mayor,  R.  M.  Charlt.  (Ga.)  368;  Mar- 
tin V.  Broach,  6  Ga.  21 ;  Johnson  v. 
Higgins,  3  Mete.  (Ky.)  566;  San 
Antonio  u.  Gould,  34  Tex.  49;  Shoe- 
maker V.  Harrisburg,  4  Pa.  County 
Ct.  86;  Joncsboro  v.  Cairo  &c.  R. 
Co.,  110  U.  S.  192;  Neifing  v.  Pontiac, 
56  111.  172;  People  v.  Wright,  70  111. 
388,  396;  People  v.  Brislin,  80  111.  423; 
Guild  V.  Chicago,  82  111.  472;  Fuller 
V.  People,  92  111.  182,  185;  Peoples. 
Briggs,  50  N.  Y.  553;  Re  Mayor,  50 
N.  Y.   504;  Brewster  v.   Syracuse,  19 


N.  Y.  116;  Blood  v.  Mercelliott,  53 
Pa.  St.  391;  Firemen's  Association  v. 
Lounsbury,  21  111.  511;  Phillips  v. 
Albany,  28  Wis.  340;  Santo  v.  State, 
2  la.  209 ;  County  Judge  v.  State,  2  la. 
283;  Walker  v.  Caldwell,  4  La.  An. 
298;  Succession  of  Lanzetti,  9  La.  An. 
329;  Davis  u.  State,  7  Md.  157;  Battle 
V.  Howard,  13  Tex.  345;  Sweet  u.  Buf- 
falo &c.  R.  Co.,  79  N.  Y.  293;  Carothers 
V.  Philadelphia  Co.,  118  Pa.  St.  468;  s. 
c.  12  Atl.  Rep.  314;  David  v.  Portland 
Water  Committee,  14  Or.  98;  Carter 
County  V.  Sinton,  120  U.  S.  517;  Alle- 
gheny County  Home's  Appeal,  77  Pa. 
St.  77  ;  Union  Passenger  Co.'s  Appeal, 
81  Pa.  St.  91.  See  also  Edwards  v. 
Police  Jury,  39  La.  An.  855;  Peop'e  v. 
Goblos,  67  Mich.  475;  State  v.  Palmes, 
23  Fla.  620;  State  v.  Duval  County, 
Id.  483;  People  v.  Henshaw,  76  Cal. 
436;  City  of  Atlanta  v.  R.  Co.,  80  Ga. 
276;  Dolese  v.  Pierce,  124  111.  140; 
Jarrard  v.  State,  116  Ind.  98;  City  of 
Indianapolis  v.  Hueg'e,  115  Ind.  581; 
Sanilac  County  v.  Auditor-General,  68 
Mich.  659;  Graham  v.  Conger,  85 
Ky.  582;  State  v.  Dubois,  39  La.  An. 
676;  People  v.  Kirsch,  67  Mich.  539; 
Boyce  ■;;.  Sebring,  06  Mich.  210;  Wil- 
cox V.  Paddock,  65  Mich.  23;  Gillett 
V.  McLaughlin,  69  Mich.  547;  Meyer 
461 


1  Thomp.  Corp.  §  613.]     constitutional  restraints. 

tional  inhibition  does  not  imply  tliat  no  act  shall  have  any 
operation  beyond  what  is  expressed  in  the  title. ^  And,  in  gen- 
eral, if  the  title  is  not  misleading,  or  the  subject  disguised,  or 
concealed  thereby,  it  is  sufficient.^ 

§  612.  Illustrations  :  Acts  Granting  and  Amending  Special 
Charters.  —  The  very  liberal  manner  in  which  the  courts  have  con- 
strued the  constitutional  proAdsions  under  consideration,  with  the  view 
of  upholding,  as  far  as  possible,  defective  legislation,  will  now  be  illus- 
trated by  a  class  of  cases  where  special  acts  of  the  legislature  were 
under  consideration,  creating  particular  corporations  or  amending  their 
charters.  An  act  to  incorporate  a  particular  railroad  company  need 
not  enumerate  or  suggest  in  its  title  the  various  powers  conferred  upon 
the  company,  in  order  to  be  valid  under  such  a  provision ;  nor  is  it  void  be- 
cause it  authorizes  the  construction  of  branches  which  are  not  suggested 
in  the  title  ;  nor  because  it  authorizes  the  purchase  of  lands,  the  makiug 
of  coal  beds  thereon,  the  purchase  or  lease  of  ferry  franchises,  etc.  In 
these  cases,  it  is  sufficient  that  all  of  the  subsidiary  powers  granted  are 
necessary  to  promote  the  main  object,  the  building  and  equipping  of  the 
main  line  of  railway.  Nor  need  the  name  of  the  railway  company,  as 
recited  in  the  title,  give  the  full  name  of  the  railway  authorized  to  be 
constructed.  It  has  been  suggested  that,  if  such  requirements  were  im- 
posed upon  such  special  legislation,  scarcely  a  railway  charter  of  any 
kind  could  stand.  "The  'Illinois  Central'  gives  no  accurate  idea  of 
the  location  and  extent  of  that  road  and  its  branches  ;  and  the  '  Chicago 
and  Mississippi '  would  apply  equally  to  any  of  the  six  or  seven  roads 
extending  from  Chicago  to  the  Mississippi  river ;  and  the  '  Ohio  and 
Mississippi '  tends  actually  lo  mislead  as  to  the  location  of  that  road, 
for  it  nowhere  touches  the  State  of  Ohio  or  the  river  having  that  name." 
And  it  has  been  added :  ' '  The  names  of  corporations  have  ever  been 
arbitrary  and  fanciful,  and  they  probably  ever  will  be.  They  most 
generally,  it  is  true,  give  some  idea  of  the  purposes  of  the  corporation, 
but  necessarily  in  the  most  general  way."^  -  -  -  -  In  like 
manner  it  has  been  held  that  the  right  to  build  branch  roads  and  to  ex- 
propriate land  for  the  purpose  is  conferred  by  a  charter  which  reads 

V.  Berlandi,  39    Minn.  438;    Baker    v.  2  Fredericks  «;.  Pennsylvania  Canal 

Prewett,  3  Wash.  T.  474,  595.     Cora-      Co.,  109  Pa.  St.  50. 
pare  State  u.  Union,  33  N.   J.  L.  350;  ^  Belleville    &c.    R.    Co.    v.     Gre- 

Stuart  V.  Kinsella,  14  Minn.  524.  gory,   15    111.   20,   28-30,   opinioa    by 

1  Harrington  v.   Wands,  23  Mich.      Caton,  J. 
385.     Compare  Washington  County  v. 
Franklin  R.  Co.,  34  Md.  159. 
402 


TITLES  OF  STATUTES.     [1  Thomp.  Corp.  §  612. 

*'  an  act  to  incorporate  the  Mississippi,  Terre-aux-Bceufs  and  Lake 
Borgne  Railroad  Company,  and  to  define  its  powers  and  author- 
ity." 1  -  -  -  -  The  charter  of  a  railwa;i  corporation  will  not  be 
subject  to  this  constitutional  objection  from  the  fact  that  it  authorizes 
the  construction  of  one  or  more  extensions  of  the  principal  line  even  in 
different  directions,  provided  the  extensions  are  of  such  a  character  as 
not  to  constitute  independent  and  distinct  lines  from  the  main 
road.^  _  _  _  _  "An  act  f  or  the  reh'e/ "  of  a  certain  railroad  com- 
pany has  been  held  sufficiently  broad  as  a  title  to  include  a  provision 
authorizing  the  extension  of  the  road  of  such  company. ^  -  _  _  - 
An  act  incorporating  a  railroad  company  which  states,  among  other 
objects  of  the  corporation,  that  of  "  purchasing  and  navigating  such 
steam  or  sailing  vessels  as  may  be  proper  and  convenient  to  be  used  in 
connection  with  such  road,"  — is  not  unconstitutional  from  the  fact  that 
the  power  conferred  in  the  language  quoted  is  not  expressed  in  its 
title. ^  _  -  -  _  An  act,  the  title  of  which  was  "  an  act  to  make  pro- 
visions for  the  government  of  the  county  of  New  York,"  contained  a 
provision  repealing  in  part  a  former  act  which  exempted  the  real  estate 
of  the  New  York  Hospital  from  taxation.  This  subject  was  not  foreign  to 
the  bill,  within  the  meaning  of  the  constitutional  provision  above  quoted.^ 
So  "an  act  to  incorporate  the  Green  River  Navigation  Company,"  prop- 
erly embraced  the  right  to  chai-ge  tolls  upon  the  vessels  of  other  owners 
and  imposed  on  the  corporation  the  duty  of  keeping  its  locks  and  dams 
in  repair,  etc., — these  being  directly  connected  with  the  object  ex- 
pressed in  the  title,  namely,  the  creation  of  the  particular  corporation.^ 
A  still  looser  construction  of  such  a  constitutional  provision  has  held 
that,  under  the  title  of  "an  act  to  incorporate  the  bank  of  Fulton,"  a 
clause  is  valid  authorizing  the  joinder  in  one  action  of  all  parties  to  a 
note  or  bill,  given  to  be  negotiated  or  actually  negotiated  in  such 
bank,'''  —  a  provision  which  relates  to  the  general  law  of  procedure. 
"  An  act  to  incorporate  the  Northwestern  University ' '  has  been  held  wide 
enough  as  a  title  to  embrace  a  prohibition  against  the  sale  of  spirituous 
liquors  within  four  miles  of  such  university,  under  a  penalty  to  be  re- 
covered by  the  county.  The  court  reasoned  that  "the  object  of  the 
charter  was  to  create  an  institution  for  the  education  of  young  men,  and 

1  Mississippi  &c.  R.  Co.  v.  Wooten,  *  Freeman  v.    Panama    R.    Co.,    7 
36  La.  An.  441,  442.  Ilun  (N.  Y.),  122. 

2  Ross  V.  Cliicago  &c.  R.   Co.,  77  ^  People  v.   Commissioners,   47  N. 
111.    127.     See  also  Ottawa  v.  People,  Y.  501,  505. 

48  111.  233.  c  McReyuolds    v.     Smallhouse,     8 

3  Houston  &c.  Ry.  Co.  v.  Odum,  63      Bush  (Ky.),  447. 

Tex.  343.  '  Davis  v.  Bank  of  Fulton,  31  Ga. 

69. 

463 


1  Thomp.  Corp.  §  613.]     constitutional  restraints. 

it  was  competent  for  the  legislature  to  embrace  within  it  everything 
which  was  designed  to  facilitate  that  object.  Every  provision  which 
was  intended  to  promote  the  well-being  of  the  institution,  or  its  students, 
was  within  the  proper  subject-matter  of  that  law."  i  -  -  -  -  Un- 
der the  title  of  "an  act  to  incorporate  the  Firemen's  Benevolent  Asso- 
ciation, and  for  other  purposes,"  it  has  been  held  competent  to  provide 
that  the  agents  of  all  foreign  insurance  companies  doing  business  in 
Chicago  should  pay  the  asssociation  two  dollars  on  every  hundred  dol- 
lars of  premiums  received  by  them  during  a  j^ear,  —  the  court  saying : 
"  We  think  the  sixth  section  germane  to  the  objects  of  the  bill  and  em- 
braced properly  in  the  same  subject,  the  whole  of  which  is  sufficiently  ex- 
pressed in  the  title. "  2  _  _  .  _  "  An  act  to  incorporate  the  Yellow  River 
Improvement  Company,"  is  a  title  broad  enough  to  include  provisions 
granting  to  the  corporation  the  power  to  run,  drive,  sort  and  stack 
logs  on  the  Yellow  river,  after  the  improvement  thereof,  and  to  charge 
tolls  for  so  doing,  —  such  business  having  a  natural  and  legitimate  con- 
nection with  the  improvement  of  the  river.  ^ 

§  613.  Act  Creating  a  Corporation,  etc.,  Need  not  Enumer- 
ate Powers  Conferred.  —  An  application  of  this  principle,  in 
support  of  which  several  adjudications  may  be  collected,  is  that 
an  act  incorporating  a  company,  or  amending  its  charter,  need 
not  enumerate  in  the  title  all  the  powers  conferred.  Thus,  an 
act  incorporating  a  railroad  company  need  not  express  in  its  title 
any  of  the  powers,  rights,  privileges,  or  immunities  which  the 
charter  is  intended  to  confer.  It  is  reasoned  that  the  charter  of 
a  private  corporation  is  a  contract  as  between  the  State  and  the 
corporation;  and  the  stipulations,  terras,  and  conditions  of  a 
contract  are  to  be  looked  for  in  the  body  of  the  instrument,  not 

1  O'Leary  v.  Cook  County,  28  111.  day  of  September,  1881,"  appropriated 
534,  538.  $5,999,  and   Md.    Acts,    1880,  ch.  432, 

2  Firemen's  Benevolent  Association  with  the  same  title  as  the  foregoing, 
V.  Lounsbury,  21  111.  511.  except  that  1882  was   substituted  for 

3  Yellow  River  Imp.  Co.  v.  Arnold,  1881,  appropriated  $5  to  said  college. 
46  Wis.  214.  The  Maryland  Agricul-  It  was  held  that  the  acts  in  question 
tural  College  was  entitled  to  $(),000  did  not  violate  the  constitutional  pro- 
aunually  from  the  State,  unless  the  vision  that  every  law  shall  embrace 
legislature  should  at  any  time  enact  but  one  subject,  to  be  described  in  its 
otherwise.  A  statute  entitled,  "  An  title,  and  that  the  endowment  of  the 
act  to  make  appropriations  for  the  college  was  reduced  to  the  suras 
support  of  the  State  government  for  named.  Maryland  Agricultural  Col- 
the  fiscal  year  ending  on  the  thirtieth  lege  v.  Keating,  58  Md.  580. 

4G4 


TITLES   OF   STATUTES.       [1  Thomp.  Coi'p.   §  614. 

in  the  title  or  caption. ^  So,  a  penalty  for  running  a  toll-gate 
without  paying  toll,  may  be  included  in  an  act  under  the  title 
*'  An  act  authorizing  the  construction  of  plank,  macadamized  and 
gravel  roads;  "  ^  and  so  may  provisions  for  appointment  of,  and 
reports  by,  inspectors  of  turnpikes.^  So,  the  fact  that  the  limit 
of  the  taxing  power  of  the  State  over  a  railroad  company  is  not 
expressed  or  indicated  in  the  ti  t  le  of  the  act  of  incorporation ,  does 
not  render  that  provision  of  the  charter  unconstitutional.*  So, 
an  act  "  to  establish  a  charter  for  the  city  of  Troy,"  need  not 
enumerate  in  its  title  all  the  powers  intended  to  be  conferred 
upon  the  corporation.^ 

§  614.  Acts  <*  Incorporating  "  Railway  Companies  and  Pro- 
viding for  Municipal  Aid.  —  This  is  illustrated  by  a  collection 
of  cases  embracing  the  decided  weight  of  authority  which  hold 
that  an  act,  which  by  its  title  simply  incorporates  a  railway 
company  or  amends  the  charter  of  an  existing  railway  company, 
may  properly  embrace  in  its  body  a  provision  authorizing  muni- 
cipal corporations  to  subscribe  for  its  stock  and  to  issue  its 
bonds  therefor;  ^  —  though  there  is  some  recent  authority  to  the 
effect  that  such  a  statute,  in  so  far  as  it  embraces  such  a  pro- 
vision for  municipal  aid  is  void,  and  that  the  bonds  issued  in 
pursuance  of  it  are  void.'     The  Supreme  Court  of  Georgia,  in  so 

1  Goldsmith  v.  Rome  R.  Co.,  62  Ga.  Perrin,  30  S.  C.  1;  s.  c.  8  S.  E.  Rep. 
473.  U;   Whitesides  v.  Neely,  30  S.  C.  31; 

2  Hunter  v.  Burnsville  Turnp.  Co.,      s.  c.  8  S.  E.  Eep.  27. 

66  Ind.  213.  '  People     v.    Hammill     (III.),     17 

3  Ibid.  Northeast.  Eep.  799;  Peck  v.  Sau  An- 
^  Goldsmiths.  Georgia   R.  Co.,  62      tonio,  51  Tex.  490;  disapproving  San 

Ga.  485.     Compare  Goldsmith  u.  Rome  Antonio  u.  Lane,  32  Tex.  405;  and  San 

R.  Co.,  Id.  473.  Antonio  v.  Mehaffy,96  U.  S.  312;    Gid- 

s  Lockhart  v.  City  of   Troy,  48  Ala.  dings  v.  San  Antonio,  47  Tex.  648.     In 

670.  conformity  with  the  weight  of  author- 

8  Supervisors  v.  People,  25  111.  181  ity,  as  above  shown,  it  has  been  held 

(overruled  by  People  v.  Hammill  (111.),  that  "  an  act  to  amend  the  charter  of  " 

17  N.  W.  Rep.  799;  Phillips  v.  Coving-  a  bridge  company   is  not  invalid,  al- 

ton  &c.  Co.,  2  Mete.   (Ky.)  219;   Ma-  though  it  authorizes  an  increase  of  its 

hornet  V.  Quackenbush,  117  U.  S.  508;  capital  stock,  and  empowers  a  particu- 

Phillips  V.  Albany,   28   Wis.  340;  Ma-  l;ir  city  to  subscribe  therefor,  and  to 

rion  County  Commissioners  v.  Harvey  issue  its   bonds  in  payment  therefor. 

County  Commissioners,  26  Kan.  181;  Phillips  v.  Covington  &c.  Co.,  2  Mete. 

Abington  ?;.  Cabeen,  100  III.  200;   Hope  (Ky.)  219. 
V.  Gainesville,    72    Ga.  246;  Floyd  v. 

30  465 


1  Thomp.  Cori).  §  61-4.]      constitutional  restraints. 

hokliug,  have  rea-oned  that  an  act  cannot  be  obnoxious  to  such  a 
constitutional  provision,  "  when  it  appears  from  the  whole  act  that 
the  great  purpose  and  object  of  the  legislature  was  to  create  a 
corporation,  to  lay  ouu  and  construct  a  railroad  between  certain 
points,  and  to  carry  out  this  object  and  purpose  certain  means 
and  instrumentalities  were  authorized  by  the  act. 
When  it  is  plain  by  the  act  a  certain  thing  is  to  be  done,  any 
instrumentality  authorized  by  the  act  in  aid  of,  to  conduce  to, 
to  assist  the  one  great  purpose  of  the  act,  is  not  a  different  sub- 
ject-matter, but  is  part  of  the  main  subject-matter;  it  is  a  part 
of  the  '  substantial  unity  in  the  statutable  object,'  and  is  not  un- 
constitutional; "  ^  and  this  quotation  is  a  fair  statement  of  the 
views  of  most  of  the  courts  on  this  subject.  Accordingly,  it  has 
been  held  that  an  act  empowering  a  railroad  corporation  to  ex- 
tend its  road  through  a  certain  county,  and  the  county  to  sub- 
scribe to  its  capital  stock,  embraces  only  one  object. ^  So,  it  has 
been  held  that  a  statute  legalizing  elections  held  in  a  county,  on  a 
question  of  issuing  county  bonds  to  aid  certain  railroad  compa- 
nies, and  authorizing  townships,  lying  on  or  near  a  certain  rail- 
road, to  subscribe  for  its  stock  and  issue  bonds  therefor,  does  not 
conflict  with  such  a  constitutional  provision.^  So,  an  act  "  in 
relation  to"  a  particular  railroad  company,  may  embrace  pro- 
visions validating  town  bonds  previously,  but  irregularly  is- 
sued to  such  company.*  Some  fluctuations  on  this  particular  point 
appear  in  the  decisions  of  the  Supreme  Court  of  Illinois.  Thus,  it 
was  held  by  that  court  in  one  case  that  "  an  act  to  amend  the  char- 
ter of  the  village  of  Lockport,"  was  not  broad  enough  to  embrace 
a  provision  legalizing  certain  appropriations  theretofore  made  by 
the  president  and  trustees  of  the  village  and  certain  orders  drawn 
by  the  clerk. ^  Another  decision  of  the  same  court  held  that 
"  an  act  to  legalize  certain  aids  heretofore  voted  and  granted  to 
aid  in  the  construction  "  of  a  proposed  railroad,  was  not  broad 
enough  to  include  a  provision  authorizing  the  issue  of  bonds  in 
liquidation  of  appropriations  voted  under  a  prior  act,^  which  act 

1  Hope  V.   Gainesville,  72  Ga.  246,  <  Hardenbergh  v.   Vau   Keuren,    4 
250.  Abb.  N.  Gas.  (N.  Y.)  43. 

2  Baltimore  &c.  R.  Co.  v.  Jefferson  ^  Lockport  v.  Gaylord,  61  111.  276. 
County,  29  Fed.  Rep.  305.                                ^  Middleport  v.  ^tna  Life  Ins.  Co., 

3  Unity  V.  Barrage,  103  U.  S.  447.  82  111.  562. 

466 


TITLES  OF  STATUTES.     [1  Tliomp.  Corp.  §  615. 

provided  for  the  collection  of  such  appropriations  by  taxation 
only.  Still  later,  the  court  expressed  itself  as  "  inclined  to 
hold,"  on  the  authority  of  the  case  last  cited,  that  power  could 
not  be  given  to  municipal  corporations  to  subscribe  to  the  stock 
of  a  railroad  company,  in  an  act  the  title  of  which  was  "  an  act 
to  amend  the  charter  "  of  such  company. ^ 

§  615.  Setting-  out  in  Incorporating  Act  the  Entire  Con- 
stitution of  the  Company.— "  Au  act  to  incorporate  the  Mont- 
gomery Mutual  Building  and  Loan  Association,"  has  been  held  not 
obnoxious  to  such  a  constitutional  provision,  although  it  embraced  in 
the  body  of  the  statute  the  constitution  of  the  association,  consisting 
of  eleven  articles  declaratory  of  its  objects,  defining  the  rights  and 
liabiUties  of  its  members,  providing  specially  for  the  management,  loan 
or  investment  of  its  funds,  and  prescribing  the  number,  duties  and 
powers  of  its  officers,  and  although  other  sections  related  to  the  open- 
ing of  the  books  for  subscriptions  to  stock,  the  allotment  of  shares,  the 
election  of  officers,  etc.  Although  the  conclusion  of  the  court  seems 
perfectly  obvious  without  any  discussion, —  yet,  as  this  is  a  type  of  a 
good  many  decisions  upon  this  question,  and  as  this  question  was  evi- 
dently pressed  upon  the  court  with  vigor  and  very  carefully  considered, 
it  seems  appropriate  to  quote  some  of  the  observations  in  its  opinion. 
Brickell,  C.  J.,  said:  '•  The  subject  is  single  —  the  title  with  clearness 
indicates  it,  though  it  may  not  indicate  the  objects  the  incorporation, 
the  body  pohtic,  is  designed  to  accompHsh,  nor  the  powers  with  which 
it  is  to  be  invested,  nor  the  agency  to  be  employed,  nor  the  mode  to  be 
pursued  in  exercising  the  powers.  These  are  incidents  of  necessity 
pertaining  to  corporate  existence  —  parts  of  the  general  subject  ex- 
pressed in  the  title.2  .  .  .  The  objection  urged  to  this  enactment 
is  very  far-reaching,  and,  if  sustained,  would  sentence  to  nullity  in- 
numerable legislative  enactments.  When  the  creation  of  private  cor- 
porations rested  within  legislative  province,  they  were  invariably 
created  by  special  statutes,  having  titles,  declaring  the  subject  to  be  an 
incorporation  of  a  particular  name  and  style.  Many  such  enactments, 
having  such  titles,  were  passed  at  the  same  session  Of  the  general 
assembly  at  which  this  statute  was  passed.  These,  though  corporate 
existence  under  them  has  been  established,  corporate  powers  exercised, 
property  and  rights  actiuired,  liabihties  incurred,  and  for  fifteen  years 

1  Welch   V.   Post,   m  111.  471,  474.  2  citing   Sun  Mutual   Ins.    Co.    v. 

Compare   Mahomet    v.    Quackonbush,  Mayor,  4  Seld.  (N.  Y.)  247;  Brewster 

117  U.  S.  508,  513,  where  the  authority  v.  Syracuse,  19  N.  Y.  116. 
of  this  case  is  questioned. 

467 


1  Thomp.  Corp.  §  617.]     constitutional  rkstraints. 

their  valiclit}^  unquestioned, — if  the  objection  now  urged  were  sus- 
tained, would  be  blotted  from  the  statute  book.  .  .  .  Building  and 
loan  associations  or  societies  have  existed  so  long,  their  organization  as 
corporations  under  general  laws,  or  special  legislative  enactments,  had 
been  so  frequent,  that  it  may  well  be  doubted,  whether  a  more  appro- 
priate title  could  be  selected  for  a  special  enactment  of  incorporation,  a 
title  more  expressive  of  the  subject  of  the  enactment,  than  the  title 
given  to  this  statute.  The  idea  at  once  suggested  is,  that  the  purpose 
of  the  corporation  will  be  the  accumulation  of  funds  for  division  among 
the  members,  the  investment  of  such  funds  until  the  appointed  period 
of  division,  and  enabling  its  members  to  obtain  by  anticipation,  on  such 
terras  as  may  be  prescribed,  the  proportion  to  which,  on  division,  it  is 
contemplated  they  will  be  entitled  to  receive.  This  is  the  subject  of 
the  present  enactment,  and  all  the  provisions  introduced  into  it,  relate 
immediately  to  this  subject."  ^ 

§  616.  Acts  Relating  to  Municipal  Corporations. —  "An  act 

to  incorporate  the  town  of  Munford,"  etc.,  has  been  held  a  sufficient 
title  to  include  a  clause  making  it  a  misdemeanor  to  sell  or  give  away 
spirituous  liquor  within  the  corporate  limits.  ^  "An  act  relating  to 
Weston  Avenue,"  has  been  held  broad  enough  to  authorize  a  convey- 
ance by  a  turnpike  company,  and  the  acceptance  by  the  commissioners 
of  a  park  in  the  city  to  which  the  act  refers,  of  a  portion  of  the  turnpike 
road,  and  to  authorize  the  commissioners  to  improve  the  road  as  an  ap- 
proach to  the  park  and  to  make  provisions  for  the  improvement.  The 
reason  is  that  the  whole  act  relates  solely  to  the  portion  of  the  road 
specified  in  the  title,  and  the  purpose  is  confined  to  that  one  subject, 
which  is  sufficiently  expressed  in  the  title.  ^  An  act  "attaching  certain 
territory  to  the  town  of  Westport,  to  enable  it  to  take  stock  in  a  rail- 
road,"—  has  been  held,  not  void  by  reason  of  failure  to  comply  with 
such  a  constitutional  provision.* 

§  617.  Instances  of  Statutes  Embracing  more  than  One 
Subject.  —  The  following  are  instances  of  statutes  which  have  been 
held  void  because  embracing  more  than  one  subject.  A  statute  amend- 
ing the  charters  of  several  cities ;  ^  incorporating  two  toions  in  different 
parts  of  the  State ;  ^  incorporating  three  distinct  corporations,  or  reviv- 
ing by  name  three  charters  which  had  become  obsolete.''     So  of  an  act 

'  Montgomery  &c.  Assn.  v.  Robin-  *  Henderson  v.  Jackson    County,  2 

son.  69  Ala.  413,  417.  McCrary  C.  Ct.  (U.  S.)  615. 

2  Ex  parte  Moore,  62  Ala.  471.  ^  State  v.  Wright,  14  Or.  365. 

3  People  V.  Banks,  67  N.  Y.  568.  «  King  v.  Banks,  61  Ga.  20. 


468 


'  Exp.  Connor,  51  Ga.  571. 


TITLES  or  STATUTES.     [1  Tliomp.  Corp.  §  617. 

providing  for  the  expenditure  of  the  non-resident  highway  taxes,  for 
the  improvement  of  two  State  roads,  and  for  the  construction  and  im- 
provement of  another  State  road,  —  the  latter  not  being  expressed  in 
the  title.     Here  it  was  said  by  Mr.  Justice  Cooley:   "These   objects 
have  certainly  no  necessar}'^  connection,  and,  being  grouped  together 
in  one  bill,  legislators  are  not  only  precluded  from  expressing  by  their 
votes,  their  opinion  upon  each  separately,  but  they  are  so  united  as  to 
invite  a  combination  of  interests  among  the  friends  of  each,  in  order  to 
secure  the  success  of  all,  when,  perhaps,  neither  could  be  passed  sepa- 
rately."^   The  same  has  been  held  of  an  act  releasing  the  interest  of 
the  State  in  certain  real  estate  to  A.  B.  C.  D.  E.  &  F.,  and  for  other 
'purposes  ;  ^  and  of  an  act  ' '  relating  to  the  M.  Boom  Corporation  ;  ' '  im- 
posing additional  duties  upon  another  and  separate  corporation  ;  ^  "to 
provide  for  the  incorporation  of  merchants'  mutual  insurance  companies, 
and  to  regulate  the  business  of  insurance  by  merchants  and  manufact- 
urers' mutual  insurance  companies,"  — nor  could  the  act  be  maintained 
as  to  one  of  its  objects  and  rejected  as  to  the  other  ',^  "to  release  the 
Fishkill  and  Beekman  Plank-road  Company  from  the  construction  of 
part  of  their  road,  and  for  other  purposes;"  ^  "  to  authorize  the  opening 
and    paving    of  certain    portions  of    Fifteenth,  Sixteenth,  and  Norris 
streets;"^  to  authorize  a  certain  railway  company  "to  declare  divi- 
dends quarterly,  and  to  lay  additional   tracks   of   railway;"'^  "regu- 
lating   appeals  from  justices'  and  police  courts,    and   officers  of   the 
quarterly  coui't."  ^     So,  it  was  held  that  an  act  entitled  "  an  act  to  tax 
and  regulate"  certain  named  foreign  corporations,  could  not,  under 
such  a  constitutional  inhibition,  contain  any  provision  in  relation  to  any 
other  foreign  corporation. ^     It  was  held  by  the  Suprame  Court  of  Cali- 
fornia, in  a  very  doubtful  decision,  that  an  act  "  to  promote  drainage," 
which  provided  for  the  control  of  debris  from  mining  operations  which 
raised  the  natural  bed  of  rivers  and  caused  them  to  overflow  the  sur- 
rounding country,  was  void,  as  containing  more  than  one  subject.^" 

1  People  V.  Denahy,  20  Mich.  350.         relate  to  "  other  purposes,"  was  held 

2  Johnston  v.  Spicer,  107  N.  Y.  185;      valid. 

13  Northeast.  Rep.  753:  9  Cent.  Rep.  <>  Commonwealth    v.    Dickinson,  9 

666;   II  N.  Y.  State  Rep.  436.  Phila.  (Pa.)  561. 

3  Mississippi  &c.  Boom  Co.  v.  '  West  Philadelphia  &c.  R.  Co.  v. 
Prince,  34  Minn.  79;  24  N.  W.  Kep.  Union  &c.  R.  Co.,  !)  Phila.  (Pa.)  495. 
361.  8  Hind  v.  Rice,  10  Bush  (Ky.),  628. 

*  Sliinner  v.  Wilhelm,  63  Mich.  568;  »  Oregon  &  Wash.  Trust  &c.  Co.  v. 

8.  c.  30  N.  W.  Rep.  311.  Rathbuii,  5  Sawyer  (U.  S.),  32. 

5  Fi.shliill    V.    Fishkill    &c.    Plank-  ^°  P<;ople    v.    Parks,    58    Cal.    624; 

Road  Co.,  22  Barb.    (N.  Y.)  634.     The      Doaue  v.   Weil,  Id.  3:54,   Myrick  and 
first  section  of  this  act,  which  did  not      Sharpensteiu,  JJ.,  dissenting. 

469 


1  Thomp.  Corp.  §  GIS.]     constitutional  restraints. 

§  618.  Instances  of  Statutes  not  Embracinjf  more  than  One 
Subject,  and  licnce  Valid.  —  "An  act  to  prevent  the  issue  of 
false  receipts  or  bills  of  lading,  and  to  punish  fraudulent  transfers  of 
property  by  warehousemen,  wharfingers,  and  others,"  is  not  objection- 
able as  embracing  more  than  one  subject.  Its  object  is  to  provide  for 
a  whole  class  of  cases,  and  remedy  an  existing  evil.  The  subjects  have  a 
natural  connection.^  _  .  .  -  Pro\asions  authorizing  a  State  bank  to 
organize  a  national  bank,  providing  for  the  sale  of  the  stock  owned  by  the 
State  in  such  bank,  protecting  the  seminary  and  school  fund,  and 
providing  for  its  safe  investment,  are  properly  included  in  one 
act.-  -  -  -  -  "  An  act  to  revive  and  amend  the  act  to  incorporate 
the  Sugar  River  Valley  Railroad,  approved  March  29th,  1855,  and  to 
authorize  certain  towns  therein  named  to  aid  in  the  construction  of 
said  railroad,"  was  not  obnoxious  to  the  constitutional  inhibition  against 
an  act  containing  more  than  one  subject.  The  act,  in  the  opinion  of  the 
court,  embraced  but  one  general  subject,  and  that  was  the  building  of 
a  railroad,  or  the  creation  of  a  corporation  for  that  purpose,  and  pro- 
\'iding  means  for  the  accomplishment  of  the  object.  Dixon,  C.  J.,  in 
giving  the  opinion  of  the  court,  further  said :  ' '  An  act  might  be  passed 
creating  or  chartering  a  company  in  full,  and  providing  for  municipal 
subscription  to  its  stock,  with  all  their  details  and  particulars,  and  yet  not 
be  obnoxious  to  constitutional  objection  on  this  ground."  3  .  .  .  , 
"An  act  to  revise  the  laws  providing  for  the  incorporation  of 
railroad  companies,  and  to  regulate  the  running  and  management,  and 
to  fix  the  duties  and  liabiKties  of  all  railroad  and  other  corporations 
owning  or  operating  any  railroad  in  this  State,"  — is  not  unconstitu- 
tional as  embracing  more  than  one  subject,  since  its  general  object  is 
to  bring  together  the  legislation  concerning  the  creation  and  manage- 
ment of  railroads.^  _  -  -  -  "An  act  in  relation  to  mortgages 
against  preferred  stock  in,  and  the  deUvery  of  goods  by  railway  com- 
panies," is  not  void  as  embracing  more  than  one  object;  for  the  whole 
title  relates  to  railways.^  .  -  .  -  "An  act  to  regulate  the  use  of  water 
for  irrigation,"  which,  in  addition  to  regulating  the  use  of  such  water, 
contains  a  provision  setthng  priorities  of  right  in  respect  of  the  use  of  the 
same,  has  been  held  not  to  embrace  two  subjects,  within  the  meaning  of 
such  a  constitutional  inhibition.*^    -     -     -     -     "  An  act  to  provide  for  the 

1  State  V.  Miller,  45  Mo.  495.  '=  Attorney-General  y.  Joy,  55  Mich. 

2  State  V.  Bank  of  the  State,  45  Mo.      94. 

528.  ^  Golden    Canal  Co.    v.    Bright,    8 

3  Phillips  V.  Albany,  28   Wis.    340,      Colo.  144.     In  Colorado  it  is  held  that 
356.  *'  in  the   absence  of    express  statutes 

^Toledo    &c.  R.  Co.   v.  Dunlap,  47      to  the  contrary,  the  first  appropilator 
Mich.  456.  of  water  from  a  natural  stream  for  a 

470 


TITLES  OF  STATUTES.     [1  Thomp.  Corp.  §  619. 

transmission  of  letters,  packages,  and  merchandise  ...  by  means 
of  pneumatic  tubes,"  etc.,  has  been  held,  to  embrace  in  its  title  but  one 
subject.^  -  -  -  -  "  An  act  for  the  redress  of  injuries  arising  from 
the  neglect  or  misconduct  of  raih-oad  companies,  or  others,"  which  in  its 
body  provides  a  remedy  against  natural  jpersons  as  well  as  against  corpo- 
rations^ has  been  held  not  obnoxious  to  the  objection  of  relating  to 
more  than  one  subject,^  —  a  conclusion  which  must  be  regarded 
as  doubtful.  -  -  -  -  Nor  is  an  act  void  for  duplicity  of  title  and 
object,  from  the  fact  that  it  provides  for  the  incorporation  of  mutual  fire 
insurance  companies,  and  also  for  the  repeal  of  previous  acts,  which 
would  be  repealed  hy  implication  without  express  mention.^  -  -  -  - 
Nor  is  "  an  act  for  the  organization  of  corporations  for  works  of  public 
improvement  and  utihty,"  subject  to  constitutional  objection  for  this 
reason ;  since  it  embraces  but  one  subject,  the  organization  of  corpo- 
rations of  a  particular  class.* 

§  619.  Instances  of  Statutes  Containing  Subjects  not  Ex- 
pressed in  their  Titles.  —  The  following,  among  many  other  instances, 
of  statutes  which  have  been  held  void  as  containing  subjects  not  ex- 
pressed in  their  titles,  are  given:  —  "  An  act  in  relation  to  streets  vd. 
Union  township  ' '  was  void  because  it  conferred  the  power  to  lay  out  a 
parli.^  So,  of  a  statute  "relative  to  grading,  paving,  curbing  and 
otherwise  improving  the  Troy  Hill  Road  in  the  City  of  Allegheny," 
which  contained  a  provision  relating  to  a  park,  the  court  holding  the 
statute  void  as  to  the  latter  provision.^  So,  of  "an  act  to  restrict  the 
sale  of  personal  property  in  certain  cases,"  which  also  provided  that 
the  willful  destruction  of  personal  property  on  which  there  was  an  un- 
satisfied lien  should  be  punishable  as  a  misdemeanor,'''  So  of  "  an  act 
to  regulate  marks  and  brands,''  which  contained  a  provision  that  any 

beneficial  purpose,  has,  with  the  quali-  ject  that  would    naturally  be  consid- 

ficationcontained  in  the  constitution,  a  ered."     Golden  Canal  Co.  v.  Bright,  8 

prior  right  thereto  to  tlie  extent  of  such  Colo .  144,  1 48. 

appropriation."     Coffin  v.  Left  Hand  ^  Astor  v.  New  Yorli  Arcade  Rail- 
Ditch  Co.,  r,  Colo.  443;  Thomas  V.  Gui-  way  Co.,  48  Hun  (N.  Y.),  5G2. 
raud,  Id.  530.    Quoting  this  language,           ^  Chiles   v.  Drake,   2    Mete.    (Ky.) 
the  court  add:     "  It  requires  no  argu-  146. 

ment  to  demonstrate  that  a   genaral  •"'  Tolford  v.  Church,  66  Mich.  413; 

law,  intended  to  fully  regulate  the  use  33 N.  W.  Rep.  913;  9  West.  Rep.  885. 
of  such  water,  would,  almost  of  neces-  '^  Bridgeford  v.  Hall,  18  La.  An.  211. 

sity,  touch  upon  the  subject  of  priority  '^  Rader  v.  Township  of  Union,  39 

of  right  thereto;  while  of  course  the  N.  J.  L.  509,  514. 

payment    of    expenses    and  costs    in  ^  Dewhurst  v.    Allegheny   City.   95 

•determining    such  priority   of    right.  Pa.  St.  437. 

and  in  regulating  such  use,  is  a  sub-  '  Wall<er  v.  State,  49  Ala.  329. 

471 


1  Thomp.  Corp.  §  619.]     constitutional  restraints. 

person  who,  with  intent  to  defraud,  kills  any  stock  running  at  large, 
whether  branded,  marked,  or  not,  shall,  upon  conviction,  be  deemed 
guilty  of  felony,  etc.^  So  of  "an  act  relating  to  the  llidge  Avenue 
Passenger  Railway  Co.,"  ratifying  \\\q  consolidation  of  the  company  with 
another  company,  and  repealing  the  provisions  in  the  charters  of  the 
two  companies  so  as  to  release  them  from  the  control  of  the  city.^  So 
of  "  an  act  to  facilitate  the  carriage  and  transfer  of  passengers  and 
property  by  railroad  companies,"  which  authorized  all  railroad  com- 
panies having  a  terminus  on  any  navigable  river  bordering  on  the  State, 
to  own  for  theii*  own  use  any  water-craft  necessary  in  carrying  across 
such  river  any  property  or  passengers  transferred  on  their  lines,  and 
provided  ' '  that  no  right  shall  exist  under  this  act  to  condemn  any  real 
estate  for  a  landing  for  such  water-craft,  or  for  any  other  purpose,"  and 
that  the  act  should  apply  only  to  ' '  such  railroad  companies  as  own  the 
landing  for  such  water-craft."  The  title  was  held  misleading,  and  not 
sufficiently  broad  to  include  the  proviso. ^  So  of  "  an  act  authorizing 
the  acquisition  of  turnpikes,  roads,  or  highways,  heretofore  or  hereafter 
constructed  near  or  through  any  borough  or  township  in  this  common- 
wealth, upon  which  tolls  are  charged  the  traveling  public :  "  because  (1) 
its  title  excludes  turnpikes  in  cities,  and  the  body  of  the  act  includes 
them;  (2)  it  is  confined  to  such  turnpikes  as  lie  wholly  within  the 
bounds  of  single  counties ;  and  (3)  the  title  of  the  act  does  not  indicate 
that  counties  are  in  any  way  affected.*  So  of  "  an  act  to  incorporate 
the  village  of  F.,"  in  so  far  as  it  included  provisions  for  dividing  the 
township  of  F.  and  incorporating  the  portions  set  off  as  a  new  town.^ 
So  of  an  act  ' '  to  consolidate  and  amend  the  several  acts  incorporating 
the  city  of  B.,  and  for  other  purposes  therein  mentioned,"  but  confirm- 
ing ' '  all  the  ordinances  of  the  Mayor  and  City  Council  of  the  city  of 
B.  heretofore  passed,  and  not  in  conflict  with  the  constitution,"  etc.*' 
So  of  "  an  act  to  amend  "  the  charter  of  a  city,  in  so  far  as  it  contained 
provisions  legalizing  and  making  valid  past  proceedings  of  the  corporate 
authorities  which  were  not  authorized  by  the  charter.'  So  of  "  an 
act  making  appropriations  for  certain  expenses  of  government,"  in  so 
far  as  it  contained  provisions  authorizing  local  taxation  to  defray  a  part 
of  the  expense  of  building  a  bridge.^     So  of  "  an  act  for  the  incorpora- 

1  State  V.  Silver,  9  Nev.  227.  The  soundness    of    this    decision    is 

2  Philadelphia  tJ.  Ridge  Avenue  Pas-      doubtful. 

Sanger  R.  Co.,  6  Pa.  County  Ct.  283.  ^  Brieswick  v.  Mayor  &c.  of  Bruns- 

3  Thomas  u.  Wabash  &c.  R.  Co.,  40      wick,   51   Ga.  G3;).     Held  void   as  to 
Fed.  Rep.  12G.  the  provision  recited. 

*  In  re  Carbondale  &c.  Road  (Pa.),  ^  Williamson  w.  Keokuk, 44  Iowa, 88. 

13  Atl.  Rep.  913.  *  People  v.  Chautauqua  County,  43 

5  Stuart  V.  Kinsella,  14  Minn.  524.  N.  Y.  10. 
472 


TITLES    OF    STATUTES.       [1  TllOtlip.  Corp.    §   619. 

tion  of  insurance  companies,  defining  their  powers  and  prescribing  theii- 
duties,"  in  respect  of  a  section  which  regulates  the  agencies  of  foreign 
insurance  companies  doing  business  within  the  State. ^  So  also  as  to 
"  an  act  to  regulate  the  manner  of  voting  in  B.  county  on  questions  of 
tax  for  subscriptions  to  railroad  companies."  containing  a  clause  pro- 
viding that  no  tax  should  be  imposed  for  such  purpose  upon  the  prop- 
erty of  those  residing  outside  the  limits  of  a  certain  city,  unless  the  votes 
of  a  majority  of  the  voters  residing  outside  such  Uniits  should  be  cast  in 
favor  of  such  subscription. ^  So  of  "  an  act  to  incorporate"  a  certain 
raihoad  company,  in  so  far  as  it  conferred  upon  the  company  the  power 
to  construct  and  lease  its  road,  and  authorized  other  railroad  companies 
to  accept  such  lease. ^  A  strained  and  doubtful  interpretation  of  such 
a  constitutional  provision  has  resulted  in  the  conclusion  that  a  statute 
expressing  in  its  title  that  its  object  was  to  provide  a  means  for  the  col- 
lection of  claims  for  cattle  and  other  stock,  etc.,  by  railroads,  could  not 
embrace  in  its  body  a  provision  creating  an  absolute  liabihty  on  the  part 
of  railroad  companies  for  the  killing  of  cattle,  which  Kability  did  not  exist 
prior  to  its  passage.'^  So  of  "  an  act  relating  to  the  Mississippi  Boom 
Corporation,"  in  so  far  as  it  contained  a  provision  imposing  additional 
duties  on  another  corporation, — in  effect  amending  its  charter. ^  So 
of  "an  act  to  repeal  certain  acts  therein  named,"  repealing  certain 
special  laws  relating  to  municipal  corporations,  and  then  following 
with  affirmative  legislation.  Such  a  statute  is  void,  both  as  to  the  re- 
pealing portion  and  as  to  the  affirmative  portion,  because  neither  is  ex- 
pressed in  its  title. ^  So  of  a  special  act  of  incorporation,  the  title  of 
which  was  '•  an  act  to  incorporate  the  Manufacturers'  Improvement 
Company,"  the  body  of  which  expressed  the  object  of  the  incorporation 
to  be  to  clear  out,  improve  and  render  navigable  a  certain  stream  and 
its  tributaries.  Here,  the  title  expressed  in  no  sense  the  principal  pui-- 
pose  of  the  act,  since  the  word  ' '  manufacturer ' '  gave  no  clue  to  it. 
The  whole  act  was  ther-^fore  void."  So  of  "  an  act  relating  to  boroughs 
in  the  County  of  Chester,"  which  repealed  certain  pro%-isions  of  a  gen- 
eral act  entitled  "  an  act  regulating  boroughs."  respecting  the  proceed- 
ings for  la3ing  out  and  opening  roads  within  the  boroughs  of  Chester 
County,  the  effect  of  which  was  to  relieve  the  propertj^-owners  in  the 

1  Grubbs  v.  State,  24  Ind.  295.  a  judicial  aberration  that  it  is  scarcely 

2  Kentucky  &c.  R.  Co.  v.  Bourbon,      proper  to  quote  it. 

85  Ky.  98;  s.  c.  2  S.  W.  Rep.  687.  *  Mississippi    &c.    Boom     Co.     r. 

3  Camden  &c.  R.  Co.  v.  May's  Land-      Prince,  34  Minn.  70. 

ing  &c.  R.  Co.,  48  N.   J.  L.  530;  7  Atl.  «  People  v.  Mellen,  32  111.  181. 

Rep.  523;  4  Cent.  Rep.  801.  "  Rogers  v.  Manufacturers' &c.  Co., 

*  Savannah  &c.  R.  Co.  v.  Geiger,  21      109  Pa.  St.  109. 
Fla.  669.    This  decision  is  so  plainly 

473 


1  Thomp.  Corp.  §  620. J     constitutional  restraints. 

boroughs  from  the  burdeu  of  paying  damages  for  roads  opened  in  the 
boroughs,  and  to  shift  that  burden  upon  the  county.^ 

§  620.  Instances  of  Statutes  not  Subject  to  the  Constitu- 
tional Objection.  —  "  An  act  to  provide  for  the  closing  of  the  en- 
trances of  the  tunnel  of  the  Long  Island  Railroad  Company,  in  Atlantic 
JStreet,  in  the  city  of  Brooklyn,  and  restoring  said  street  to  its  proper 
grade,  and  for  the  relinquishment  by  said  company  of  its  right  to  use 
steam  power  within  said  city," — has  been  held  not  obnoxious  to  a 
constitutional  provision  declaring  that  "  no  private  or  local  bill  which 
may  be  passed  by  the  legislature,  shall  embrace  more  than  one  subject, 
and  that  shall  be  expressed  in  the  title."  The  single  special  subject  em. 
braced  in  this  act  was  the  provision  for  changing  a  steam  railroad  and 
tunnel  into  a  surface  horse  raih'oad,  and  the  mere  fact  that  the  owners 
of  the  steam  railroad  and  franchise  were  compensated  for  surrendering 
it,  and  that  the  statute  provided  for  the  raising  of  the  funds  to  make  the 
compensation  did  not  bring  it  within  the  inhibition.  Moreover,  the  title 
of  the  act  was  regarded  as  sufficiently  expressing  the  object,  within  the 
spuit  and  meaning  of  the  constitutional  restriction.  "This  constitu- 
tional restriction,"  said  the  court,  "  does  not  require  that  the  title  of  an 
act  shall  specify  all  its  provisions."  ^  _  .  .  _  "  An  act  requiring 
railroad  corporations,  or  other  persons  operating  and  controlUng  rail- 
roads, to  fence  their  right  of  way  and  raikoad  track,  and  to  construct 
bari'iers  and  cattle  guards  at  certain  public  road  and  highway  crossings, 
and  to  maintain  and  keep  the  same  in  repair,  and  prescribing  remedies 
and  i^enalties  for  failing  to  do  so,"  has  been  held  sufficiently  broad  to 
embrace  a  section  providing  that  gates  at  private  farm  railroad  crossings 
shall  be  constructed  and  maintained  by  the  land-owners.  3  -  -  -  - 
*' An  act  concerning  drainage"  constitutionally  embraces  legislation 
authorizing  a  board  of  drainage  commissioners.^  The  provisions  of  a 
body  of  revised  laws  under  a  title  called  "  Code  of  Civil  Practice," 
subdivision  "  Executions,"  pointing  out  the  duties  of  officers  of  corpora- 
tions in  regard  to  the  payment  of  judgments  against  a  corporation,  and 
declaring  the  consequences  to  the  officers  personally  of  a  failure  to  com- 
ply with  the  requirements  of  the  law,  are  ' '  properly  connected  with  the 
subject  and  title  of  the  enactment  of  which  they  form  part. "  ^  -  -  -  - 
*'  An  act  to  provide  compensation  to  the  owners  of  animals  killed  or  in- 

1  Re  Road  in  Phoenixville,  109  Pa.  ^  Hunt  v.  Lake  Shore  &c.  R.  Co., 
St.  44.                                                             112  Ind.  69,  79;  s.  c.  13  Northeast.  Rep. 

2  People  V.  Lawrence,  41  N.  Y.  137,      263;   11  West.  Rep.  107. 

139.     See  also   People  v.  McCann,  16  *  Ross  v.  Davis,  97  lad.  79;   Wish- 

N.  Y.  58;  Conner  v.  Mayor,  1  Seld.  (N.  mier  v.  State,  Id.  160. 

Y.)  285.  ^  Porter  V.  Thomson,  22  Iowa,  391. 
474 


TITLES    OF    STATUTES         [1  Thoilip.  Coip.   §   620, 

jured  hy  the  cars,  locomotives,  or  other  carriages  of  any  railroad 
companies  in  this  State,"  may  properly  embrace  an  exception  in 
the  case  of  such  railroads  as  are  suitably  fenced.^  _  .  _  - 
"An  act  to  regulate  public  warehouses,  and  the  warehousing  and  in- 
spection of  grain,  and  to  give  effect  to  article  13  of  the  constitution  of 
this  State," — has  been  held  broad  enough  to  include  a  section  pre- 
scribing the  penalty  for  issuing  warehouse  receipts  for  any  property  not 
actually  in  store,  or  for  issuing  fraudulent  receipts,  or  for  not  canceling 
receipts  under  certain  circumstances. ^  -  -  -  -  "  An  act  relating 
to  the  liability  of  railroads  for  damages  by  fire  "  is  a  sufficient  title  to 
include  a  pro^ision  that,  when  it  is  established  that  the  fire  was  set  out 
by  the  operation  of  the  railroad,  it  shall  he  prima  facie  evidence  of  neg- 
ligence on  the  part  of  the  company,  and  that  in  an  action  for  damages 
plaintiff's  contributory  neghgence  shall  be  considered  in  determining  his 
right  of  recovery. 3  _  .  _  _  "  An  act  in  relation  to  a  portion  of  the 
submerged  lands  and  Lake  Park  grounds  Ipng  along  and  adjacent  to  the 
shore  of  Lake  Michigan  on  the  eastern  frontage  of  the  city  of  Chicago," 
has  been  held  sufficiently  expressive  as  a  title  to  include  provisions 
giving  the  city  the  fee  to  certain  partially  submerged  lands,  with  author- 
ity to  sell  the  same,  and  giving  the  fee  of  certain  other  submerged 
lands  to  a  railroad  company,  with  the  right  to  maintain  docks  and 
wharves  thereon.*  -  -  -  -  "An  act  for  the  benefit  of  the  Louis- 
ville and  Oldham  Turnpike  Road  Company,"  authorizes  the  company 
to  borrow  moue}^  and  to  execute  mortgages  to  secure  its  payment ;  the 
second  section  gives  the  directors  power  to  sell  the  road,  right  of  way, 
etc.,  and  apply  the  pi-oceeds  to  the  payment  of  debts  ;  the  third  section 
authorizes  the  chancellor  to  sell  the  road,  etc.,  upon  the  application  of  a 
creditor ;  and  the  fourth  section  subrogates  the  purchaser  to  the  rights 
and  powers  of  the  company.  All  this  relates  to  but  one  subject,  and  that 
is  fully  expressed  in  the  ^ 'tie. ^  -   -    -    -    The  subject  of  an  act  entitled 

1  MadisoQ  &c.  R.  Co.  v.  Whiteneck,  Co.,  124  U.  S.  656;  s.  c.  8  Sup.  Ct  Rep. 
8  Ind.  217.  643;    "to     legalize     the     issuing    of 

2  Sykes  V.  People,  127  111.  117;  s.c.  bonds," — the    object  being  to   raise 
19  N.  E.  Rep.  705.  money  to  pay  bounty  to  volunteers  to 

3  Missouri  «&c.  R.  Co.  v.  Merrill,  40  serve    in    time    of    war:  Coffman    v. 
Kan.  404;  s.  c.  19  Pac.  Rep.  793.  Keiglitly,  24  Ind.  509;  Board  of  Com- 

*  State  V.  Illinois  Central  R.  Co.,  missioners    v.    Bearss,   25  Ind.    110; 

33  Fed.    Rep.  730,  opinion  by  Harlan,  •'  for  the  relief  of   the  creditors  of  the 

J.     Acts  witli  the  following  titles  have  Lockport  &    Niagara  Falls    Railroad 

been  held  not  within  such  a  coustitu-  Company:"  Mosier  v.  Hilton,  15  Barb, 

tional    inhibition:     "To    enable    the  (N.  Y.)  057. 

United  Companies   to  improve  lands  ^  Louisville  &c.    Co.  v.  Ballard,  2 

under  water  at  Kill  von  Kull  and  other  Mete.  Ky.  166. 
places:  "  Hobokenu.  Pennsylvania  R. 

475 


1  Thomp.  Corp.  §  623.]     constitutional  restraints. 

"  An  act  to  provide  for  the  relief  of  the  city  of  Rochester,  and  the  New 
York  Central  and  Hndson  River  Railroad  Company  in  said  city,"  whose 
provisions  relate  to  the  elevation  of  the  company's  tracks,  and  the  closing, 
widening  and  changing  the  grade  of  streets  when  necessary  to  secure 
that  object,  and  to  the  payment  of  costs  and  expenses  thereof,  is  single, 
and  sufficiently  expressed  in  the  title,  ^ 

§  621.  General  Acts  of  Incorporation.  — General  acts  of  in- 
corporation, such  as  have  been  considered  in  a  former  chapter  of 
this  work,2  may  be  validly  passed  under  the  most  general 
titles,  —  such  as  "an  act  concerning  private  corporations,"  — 
and  may  embrace  within  their  provisions  all  matters  germane  to 
the  subject  expressed  in  their  title,  without  coming  in  conflict 
with  constitutional  provisions  such  as  those  under  consideration. 
An  act  under  the  title  just  quoted  may  embrace  within  its  pro- 
visions the  entire  body  of  statute  law  concerning  private  corpo- 
rations: the  purposes  for  which  they  may  be  formed;  the 
manner  of  their  organization ;  their  powers  and  duties ;  the 
grounds  and  manner  of  their  dissolution ;  and  in  addition  thereto, 
it  may  contain  separate  articles  devoted  to  particular  classes  of  cor- 
porations, such  as  insurance  companies,  railroad  companies,  and 
the  like.  In  treating  of  railroad  corporations,  it  may  confer  upon 
them  power  to  condemn  land  for  right  of  way  and  to  receive 
subscriptions  of  municipalities  to  their  stock, — and  all  this 
without  coming  within  such  a  constitutional  inhibition.' 

§  622.  Illustrations.  —  An  act  "to  revise  the  laws  providing  for 
the  incorporation  of  railroad  companies,"  does  not  \dolate  such  a  con- 
stitutional provision,  by  including  the  substantial  pro\isions  of  a  former 
law  which  imposes  a  liabihty  upon  railroad  companies  for  injuries  result- 
ing from  neglecting  to /ence  their  tracks.*  -  -  -  -  "  An  act  to  au- 
thorize the  organization  of  annuity,  safe  deposit  and  trust  companies," 
may  properly  embrace  a  provision  granting  to  such  corporations  the 
power  to  act  as  guardians  of  the  estate  of  insane  persons.^  .  -  -  - 
' '  An  act  to  provide  for  the  incorporation  of  mutual  lire  insurance  oom- 

1  Wilson  V.  New  York  &c.  R.  Co.,  2  *  Continental  Improvement  Co.  v. 
N.  Y.  Supp.  65.  Phelps,  47  Mich.  29!). 

2  Ante,  §  132  et  seq.  ^  Minnesota  Loan  &  Trust  Co.  v. 

3  Marion  County  Comm'rs  v. Harvey  Beebe,  40  Minn.  7;  s.  c.  41  N,  W.  Rep. 
County  Comm'rs,  26  Kan.  181.  232. 

476 


TITLES    OF    STATUTES.       [1  TllOlUp.  Corp.    §    623. 

panies,  and  defining  their  powers  and  duties,"  is  sufficient  to  embrace, 
without  particular  mention,  provisions  for  loinding  up  such  companies 
when  they  become  insolvent,  including  their  examination  by  the  insur- 
ance commissioner,  the  appointment  of  a  receiver,  and  the  assessment 
of  policy-holders  to  pay  Uabilities.  These  are  all  necessarily  incident  to 
the  object  expressed  in  the  title. ^  .  .  .  .  "  Pro\isions  prescrib- 
ing the  examination^  by  proper  State  officers,  into  the  affairs  of  imur- 
ance  companies,  and  imposing  penaZ^i'es  for  false  representations  on  such 
examination,  even  if  made  applicable  to  existing  companies,  may  be  in- 
cluded in  an  act  entitled  ' '  an  act  relative  to  the  organization  and  powers 
of  fire  and  marine  insurance  companies  transacting  business  within  this 
State."  The  court,  speaking  through  Cooley,  C.  J.,  say:  "It  is  by 
no  means  essential  that  every  end  and  means  necessary  or  convenient  for 
the  accompHshment  of  the  general  object,  should  be  either  referred  to 
or  necessarily  indicated  by  the  title.  All  that  can  reasonably  be  re- 
quired is,  that  the  title  shall  not  be  made  to  cover  legislation  incongruous 
in  itself,  and  which,  by  no  fair  intendment,  can  be  considered  as  having 
a  necessary  or  proper  connection."  2  ....  "  An  act  in  relation 
to  the  duties  of  railroad  companies  "  may  properly  embrace  provisions 
in  respect  of  the  liabilities  of  railroad  companies.^ 

§  623.  Acts  Purporting  to  Amend  Former  Acts. — It  may  be 

stated,  as  a  general  proposition,  that  an  act  which  by  its  title 
merely  purports  to  amend  a  former  act,  which  it  recites  by  its 
title,  is  unconstitutional  and  void,  under  the  provisions  which  we 
are  considering,  if  it  introduces  a  subject  not  germane  to  the  title 
of  the  former  act.  The  test  by  which  to  determine  whether  a  par- 
ticular subject  can  be  embraced  within  the  title  "  iin  act  to  amend' ' 
a  former  act,  is  to  consider  whether  the  subject  could  have  been 
embraced  within  the  original  act  under  its  title.  "  If,  under  the 
original  title  of  the  act  incorporating  the  company,  it  would  have 
been  competent  to  confer  upon  the  corporation  the  powers  con- 
tained in  the  amendments,  then  there  can  be  no  doubt  of  the 
power  to  confer  them  upon  it  by  way  of  amendment  to  such  act, 
and  under  the  title  of  '  an  act  to  amend '  the  original  act,  recit- 
ing its   title.     Any  additional  powers  may  be  given  to  the  com- 

1  Wardle    v.  Townsend,  75    Mich.  Potts,  7  Ind.  681;  People  v.  Mahaney, 
385;  s.  c.  42  N.  W.  950.  13  Mich.  495. 

2  People  V.  State  Ins.  Co.,  19  Mich.  ''  McAunich    v.  Mississippi  &c.  R. 
392,  398;  citing  Indiana  &c.  R.  Co.  v.  Co.,  20  Iowa,  338. 

477 


1  Thonip.  Corp.  §  623.]     constitutional  kestuaints. 

pany  under  an  amendatory  act,  which  could  have  been  constitu- 
tionally conferred  under  the  original  act."  ^  It  was  so  held  by 
the  Supreme  Court  of  Iowa,  in  a  case  where  the  act  under  con- 
sideration was  entitled  "  an  act  to  amend  the  act  to  incorporate 
the  city  of  Muscatine."  The  amendatory  act  extended  the  limits 
of  the  city,  and  the  court  held  that  the  law  was  valid,  because 
this  might  have  been  done  under  the  title  of  the  original  act.* 
It  has  also  been  said  that  "  if  the  title  of  the  original  act  is  suffi- 
cient to  embrace  the  provision  in  question,  it  is  unnecessary  to 
inquire  whether  the  title  of  the  amendatory  act  would  of  itself  be 
sufficient."  ^  To  illustrate  this  principle,  it  has  been  held  that, 
where  the  title  of  the  original  act  was  an  act  to  incorporate  the 
Yellow  Kiver  Improvement  Company,  an  amendatory  act  whose 
title  merely  purported  to  amend  the  former  act,  might  embrace 
a  provision  empowering  the  company  to  run  logs  and  lumber  on 
the  river,  after  the  same  had  been  improved  by  it,  and  to  take 
tolls  therefor.  This  was  not  so  disconnected  with  and  foreign  to 
the  business  of  improving  the  river,  as  to  form  a  new  subject 
which  could  not  be  legitimately  connected  with  the  business  of 
the  improvement  company  created  by  the  original  act,  and  which 
miajht  not  therefore  have  been  embraced  under  its  title.  The 
court,  speaking  through  Taylor,  J.,  said:  *' We  are  of  the 
opinion  that  the  title  of  the  act  is  not  so  narrow  and  restricted  as  to 
prevent  the  conferring  of  any  powers  upon  the  company  except 
such  as  relate  strictly  to  the  improvement  of  the  river  and  the 
receiving  of  tolls  for  the  use  of  such  improvement.  It  is  prob- 
ably true  that,  when  the  title  of  an  act  incorporating  a  company 
indicates  the  business  to  be  performed  by  such  company,  it  would 
be  a  violation  of  the  constitutional  provision  in  question  to  pro- 
vide in  the  act  for  the  carrying  on  of  a  business  by  the  corpora- 
tion entirely  disconnected  with  and  different  from  that  indicated 
in  the  title.  The  rule  is,  that  any  business  which  is  properly 
connected  with  the  business  indicated  by  the  title  of  the  act,  may 
be  authorized  to  be  done  by  the  act,  without  violating  the  consti- 
tutional rule  that  it  shall  contain  but  one  subject."  *     An  act  is  not 

1  Yellow  Iliver  Improvement  Co.  v.  ^  Brandon  v.  State,  16  Ind.  197. 
Arnold,  4(j  Wis.  214,    224,   opinion  by  *  Yellow  River  Improvement  Co.  wv 
Taylor,  J.                                                          Arnold,  46  Wis.  214,  225. 

2  Morford  v.  Unger,  8  la.  82. 

478 


TITLES  OF  STATUTES.      [1  Tliomp.  Corp.  §  624. 

necessarily  invalid  because,  being  amendatory  of  a  previous  act, 
the  title  does  not  expressly  so  state. ^ 

§  624.  Illustrations  of  the  Titles  of  Amendatory  Acts. —  A 

recent  case  in  New  York  furnishes  an  excellent  illustration  of  this.  By 
an  act,  a  corporation  had  been  created  whose  business  was  the  trans- 
mission of  letters,  packages  and  merchandise  through  pneumatic  tubes 
under  the  streets  of  New  York  and  Brooklyn.  A  supplementary  act- 
expressing  in  its  title  the  same  pui-pose  contained  in  its  body  provisions, 
which  in  effect  authorized  the  purposes  of  the  corporation  to  be 
changed  to  the  construction  and  maintenance  of  an  underground  steam 
or  horse  railroad.  It  was  held  that  this  was  so  wide  a  departure  from 
the  purpose  of  the  act  as  expressed  in  the  original  title  and  in  the  title 
of  the  amendatory  act,  as  to  render  it  voil.  Earl,  J.,  said:  "  A  title 
purporting  that  an  act  provides  for  pneumatic  transportation  would  not 
be  sufficient  for  an  act  authorizing  the  construction  and  operation  of  a 
horse  railway  or  a  steam  railway ;  as  a  title  purporting  that  an  act 
authorizes  a  hue  of  omnibuses  for  the  transportation  of  passengers, 
would  not  be  sufficient  for  an  act  authorizing  the  construction  of  a  rail- 
way for  the  same  purpose."  ^  _  -  -  -  The  above  proposition  is. 
also  well  illustrated  by  a  case  in  Pennsylvania,  where  the  title  of  an  act 
of  incorporation  of  a  passenger  railway  company  authorized  them  to 
lay  their  tracks  in  a  number  of  designated  streets.  Subsequently,  an 
act  was  passed  entitled  "a  supplement"  [to  the  first  named  act} 
authorizing  the  company  to  declare  di\Tidends  quarterly  and  to  lay  addi- 
tional tracks  of  railway.  It  was  held  that  this  latter  clause  did  not 
warrant  a  provision  in  the  body  of  the  amendatory  act,  authorizing  the 
company  to  extend  its  railway  into  new  territory  not  hitherto  authorized 
to  be  used. 3  -  -  -  -  So,  where  the  title  of  the  original  act  was, 
"an  act  for  the  incorporation  of  manufacturing  companies,"  and  the 
title  of  the  amendatory  act  was,  "  an  act  to  amend  section  1,  of  an  act 
entitled  '  an  act  for  the  incorporation  of  manufacturing  companies,'  '" 
etc.,  and  this  amendatory  act  contained  a  provision  for  the  incorpora- 
tion of  companies  to  carry  on  a  mercantile  business,  it  was  held  that  it 
was  void."*  _  .  _  -  Another  very  apt  illustration  of  this  principle 
is  furnished  by  an  attempt  to  amend  a  statute  of  Michigan,  the  title  of 
which  was  "  an  act  to  authorize  the  formation  of  corporations  for 
literary  and   scientific  purposes."     The   third  section,  in  prescribing 

'  Timra  v.  Harrison,  109  111.  503.  ^  Union  Passenger  R,  Co.'s  Appeal, 

2  Astor  V.  Arcade  R.    Co.,    113  N.  81  Pa.  St.  91. 
Y.  93,  109;    s.  c.  20  Northeast.  Rep.  *  Eaton  v.   Walker,    76  Mich.  579; 

594.  s.  c.  43  N.  W.  Rep.  638. 

479 


1  Thorap.  Corp.  §  624.]     constitutional  restraints, 

what  should  be  set  forth  by  each  society  in  the  articles,  included: 
'•  Third,  The  objects  for  which  it  is  organized,  which  shall  be  only  for 
the  promotion  of  literary  and  scientific  pursuits."  ^  The  second  sec- 
tion, in  giving  general  directions  for  the  agreement  of  incorporation 
contained  a  similar  reference  to  this  purpose.  In  1867  an  act  was 
passed  to  amend  section  2  of  the  above  act  so  as  to  include  ' '  missionary 
and  other  benevolent  purposes."  ^  This  amendment  made  that  section 
read  as  follows:  "  Sec.  2.  Any  number  of  persons,  not  less  than  ten, 
who  shall,  by  articles  of  agreement  in  writing,  associate  themselves  to- 
gether according  to  the  pro\asions  of  this  act,  for  Uterary  or  scientific 
pui'poses,  or  both,  or  for  missionary  or  other  benevolent  purposes,  and 
who  shall  comply  with  the  provisions  of  this  act,  shall,  with  their  suc- 
cessors and  assigns,  constitute  a  body  politic  and  corporate,"  etc.  An 
association  was  organized  under  this  amendatory  act,  the  objects  of 
which  were  thus  expressed  in  its  articles:  "  3,  The  objects  for 
which  this  corporation  is  organized,  are :  to  encourage  total 
abstinence  from  all  intoxicating  beverages,  including  cider,  cordials, 
fermented  and  spirituous  hquors  of  every  kind,  name  and  description ; 
to  provide  relief  in  case  of  sickness  and  accident,  and  for  the  burial  of 
deceased  members  ;  and  to  promote,  foster  and  encourage  literary  pur- 
suits of  any  kind  among  its  members,  including  the  cultivation  of  a  taste 
for  music  and  scientific  acquirements,  and  to  which  end  a  library  shall 
be  procured  and  maintained."  It  was  held  that  the  amendatory  act  was 
not  a  vahd  statute  ;  that  no  action  depending  upon  it  could  be  upheld, 
but  that  the  original  statute  must  be  read  as  though  the  amendatory  act 
had  never  been  passed.  In  delivering  the  opinion  of  the  court,  Camp- 
bell, C.  J.,  said:  "  Our  constitution  is  very  positive  in  its  requirement 
that  '  no  law  shall  embrace  more  than  one  object,  which  shall  be  ex- 
pressed in  its  title.'  ^  The  statute  of  1865  is  confined  by  its  title 
expressly  to  '  literary  and  scientific  purposes.'  The  third  section  de- 
clares that  the  objects  for  which  corporations  are  organized  under  it 
'  shall  be  only  for  the  promotion  of  literary  and  scientific  pursuits.' 
The  title  and  this  section  remain  unchanged,  and  indicate  a  clear  un- 
derstanding that  literary  and  scientific  pursuits  are  not  to  be  confounded 
with  other  matters,  however  proper  and  desirable.  Our  laws  have  al- 
ways distinguished  between  religious  purposes  and  those  of  general 
benevolence,  as  they  have  between  purposes  of  benevolence  and  those  of 
a  different  character.  It  has  been  deemed  expedient  to  provide  differ- 
ent regulations  for  all  these  subjects.  No  one  can  hesitate  to  see  that 
the  purpose  of  the  statute  of  1867  was  to  introduce  an  entirely  new 

1  Sess.  Laws   Mich.   1865,   pp.  725,  2  1  Sess.  Laws  Mich.  1867,  p.  21. 

726.  3  Citing  Const.  Mich.,  art.  4,  §  20. 

480 


TITLES  OF  STATUTES.      [1  Thomp.  Corp.  §  621. 

object  of  legislation  foreign  to  the  existing  statute,  and  incapable,  by 
the  most  hberal  construction,  of  falling  within  its  terms.  This  being 
so,  the  new  law  could  only  have  the  effect  of  bringing  in  an  amendment 
outside  of  the  pui-pose  indicated  by  the  title,  and  inconsistent  with  sec- 
tion three,  which  conforms  to  the  title,  and  which  is  not  amended  or 
repealed.  Such  an  amendment  is  void,  as  within  the  express  prohibi- 
tion of  the  constitution.  It  does  not  seek  to  add  to  literary  and  scientific 
corporations  any  new  incidental  powers  not  inconsistent  with  theu' 
articles.  It  treats  the  whole  matter  added  as  a  new  and  independent 
purpose,  not  requiring  any  connection  with  those  mentioned  in  the 
title,  and  absolutely  repugnant  to  the  third  section,  which  would  neces- 
aarily  be  repealed  as  to  its  third  subdivision,  if  the  amendment  could  be 
upheld.  "1  -  -  -  -  "  An  act  to  amend  the  several  acts  in  relation  to 
the  city  of  Rochester,"  has  been  held  large  enough  as  a  title  to  embrace 
any  matter  relating  to  the  business  and  government  of  that  municipal- 
ity,—  the  court  saying  that  "  when  the  title  of  a  local  or  private  act  ex- 
presses the  general  purpose  or  object,  all  matters  fairly  and  reasonably 
connected  with  it,  and  all  measures  which  will  facihtate  its  accompKsh- 
ment,  are  proper  to  be  incorporated  in  the  act  and  are  gei'mane  to  the 
title."  And  again:  "Where  the  subject  is  general,  comprehending 
all  the  functions  of  the  corporation,  provisions  in  relation  to  any  of  them, 
or  necessary,  or  pertinent  to  accomplish  and  carry  out  any  of  them, 
may  be,  so  far  as  this  constitutional  clause  is  concerned,  incorjDorated 
in  the  bill.  No  one  can  be  misled  by  such  a  title,  and  the  legislators 
and  people  are  alike  notified  of  the  pui'pose  of  the  act."^  -  -  -  - 
Under  "  an  act  to  reorganize  the  Medical  Society  of  New  Jersey,"  the 
powers  of  the  former  society  could  be  repealed  and  new  ones  confer- 
red. •'  -  -  -  -  "  An  act  to  amend  the  charter  of  "  a  railroad  company, 
may  embrace  a  provision  that  ' '  actions  for  injuries  to  stock  and  other 
property  on  said  raikoad  by  the  company  or  its  agents,  must  be  brought 
within  sta;  mowf/is  after  such  injmy," — the  court  saying:  "This  act 
relates  to  but  one  subject,  and  that  is  clearly  expressed  in  the 
title,  and  the  legislation  under  it  is  in  reference  to  the  subject- 
matter  of  the  title,  and  has  a  direct  connection  with  it."  *  -  -  -  - 
' '  An  act  to  amend  an  act  entitled  '  an  act  to  incorporate  the  North- 
western University,'  "  validly  embraced  a  provision  prohibiting  the  sale 
of  ardent  spirits  within  four  miles  of  the  University,  under  a  penalty  to 
be  recovered  by  the  county.^    _    _    _    _    An  act  to  amend  a  certain 

1  People  u.  Father  Matthew  &c.  So-  •*  O'Bannon    v.    Louisville    &c.  R. 
ciety,  41  Mich.  G7,  72.  Co.,  8  Bush  (Ky.),  348,352. 

2  People  V.   Briggs,   50  N.  Y.  653;  *  O'Leary   v.  Cook  County,  28   111. 
opinion  by  Church,  C.  J.  534. 

'  Hill  V.  Morrison,  4G  N.  J.  L.  488. 

31  481 


1  Thonip.  Corp.  §  635.]     constitutiOxNal  kestkaints. 

chapter  of  the  general  statutes  entitled  "  an  act  to  provide  for  the  for- 
mation of  corporations,"  has  been  held  sufficiently  specific  to  embrace 
a  pro^^sion  requiring  thepajanent  of  a/ee  to  the  Secretary  of  State  of  a 
corporation  upon  filing  its  certificate  of  organization.^  _  _  _  _ 
"  An  act  to  amend  an  act  to  create  a  commission  of  arbitration  and 
award,  to  define  the  powers  and  duties  thereof,  and  to  make  appropriation 
to  pay  the  salaries  of  the  judges  thereof,"  which  amended  an  act  creat- 
ing what  is  usually  called  a  supreme  court  commission^  by  merely  adding 
another  duty  to  that  originally  imposed  on  the  so-called  commission  of 
arbitration,  was  not  obnoxious  to  such  a  constitutional  provision.^ 
-  -  -  -  "  An  act  to  amend  the  charter  of  a  city,  changing  the  of- 
fice of  city  attorney  from  an  appointive  to  an  elective  office,  was  held 
properly  to  embrace  this  provision. ^  _  _  _  _  "  An  act  to  amend  the 
charter  "  of  a  certain  turnpike  company,  provided  that  "  the  charter  of 
the  said  turnpike  company  be  and  the  same  is  hereby  repealed  as  fol- 
lows, to  wit,"  —  providing  that  the  company  should  be  relieved  from 
the  provisions  of  a  general  statute  relating  to  the  election  of  officers, 
and  prescribing  the  manner  in  which  the  stock  owned  by  the  society 
should  be  voted.  It  was  held  that  the  subject  of  this  act  was  sufficient- 
ly expressed  in  the  title,  the  word  "  repealed  "  having  been  used  instead 
of  ' '  amended  "  by  an  obvious  mistake :  it  was  an  amendment  accord- 
ing to  legislative  intent.  4  _  _  _  _  An  act  to  amend  the  charter  of 
the  city  of  New  York  ^  has  been  held  broad  enough  to  embrace  a  pro- 
vision prohibiting  aldermen  from  sitting  as  judges  of  Oyer  and  Ter- 
miner and  of  the  Sessions,  and  providing  that  the  remaining  judge  in 
those  courts  should  hold  the  courts  without  the  aldermen.*^  So,  pro- 
visions for  the  extension  of  the  limits  of  a  city  may  be  embraced  under 
the  title  "  an  act  to  amend  the  charter  of  the  city  of,"  etc.''' 

§  625.  Void  as  to  Matter  not  Expressed  in  Title,  though 
Valid  as  to  the  Rest.  —  On  a  principle  elsewhere  more  fully 
stated,^  it  is  the  constant  practice  of  the  courts  to  declare 
statutes  which  contain  matters  not  expressed  in  their  titles,  void 
as  to  such  matters,  though  valid  as  to  the  rest.     In  such  cases 

1  Edwards  v.  Denver  &c.  R.  Co.,  13  *  The  exact  language  of  the  title 
Colo.  59;  s.  c.  21  Pac.  Rep.  1011.  does  uot  appear  to  be  given  in  the  re- 

2  Stone  V.  Brown,  54  Tex.  331,  341.  port. 

3  Powell  V.  Jackson  Common  Conn-  ^  Phillips  v.  Mayor,  1  Hilt.  (N.  Y.) 
ell,  51  Mich.  129;  citing  Pack  v.  Bar-  483. 

ton,  47  Mich.  520.  '  Prescott  v.   City  of    Chicago,  60 

*  Cassell  V.  Lexington  &c.  Turnp.  III.  121. 
Co.  (Ky.),  9  S.  W.  Rep.  502.  «  Post,  §  658. 

482 


TITLES  OF  STATUTES.     [I  Thomp.  Copp.  §  626. 

the   incongruous  matter  is  generally  severable  from  the  other 
matter,  within  the  principle  already  explained.^ 

§  626.  Distinctions  Depending  upon  the  Use  of  the  Words 
<«  Subject  "  and  "  Object."  —  Most  of  the  constitutional  pro- 
visions under  consideration  declare  that  an  act  of  the  legislature 
shall  contain  but  one  "  subject  "  and  that  that  shall  be  expressed 
in  its  title  ;  but  some  of  them  use  the  word  "  object."  A  dis- 
tinction has  turned  on  the  substitution  of  the  word  "  subject" 
instead  of  "  object."  In  a  case  in  the  Supreme  Court  of  New 
York  it  is  said  :  '<  It  must  not  be  overlooked  that  the  constitu- 
tion demands  that  the  title  shall  express  the  subject^  not  the 
object,  of  the  act.  It  is  the  matter  to  which  the  statute  relates 
and  with  which  it  deals,  and  not  what  it  proposes  to  do,  which 
is  to  be  found  in  the  title.  It  is  no  constitutional  objection  to  a 
statute,  that  its  title  is  vague  or  unmeaning  as  to  its  purpose,  if 
it  be  sufficiently  distinct  as  to  the  matter  to  which  it  refers."  ^ 
In  Texas,  under  a  constitutional  provision  using  the  word 
"  object,"  it  was  said  :  "  It  could  not  have  meant  that  the  word 
*  object'  should  be  understood  in  the  sense  of  *  provision;' 
for  that  would  render  the  title  of  the  act  as  long  as  the  act  it- 
self. Various  and  numerous  provisions  may  be  necessary  to  ac- 
complish the  one  general  object  which  an  act  of  the  legislature 
proposes.  Nor  could  it  have  been  intended  that  no  act  of  legis- 
lation should  be  constitutional  which  had  reference  to  the 
accomplishment  of  more  than  one  ultimate  end.  For  an  act 
having  one  main  or  principal  object  in  view,  may  incidentally 
affect  or  be  promotive  of  others;  and  it  would  be  impossible  so 
to  legislate  as  to  prevent  this  consequence.  The  intention 
doubtless  was,  to  prevent  embracing  in  an  act,  having  one  osten- 
sible object,  provisions  having  no  relevancy  to  that  object,  but 
really  designed  to  effectuate  other  and  wholly  different  objects, 
and  thus  to  conceal  and  disguise  the  real  object  proposed  by  the 
provisions  of  an  act,  under  a  false  or  deceptive  title."  ^  It  may 
be  doubted,   however,  whether  any    sound   distinction    can    be 

1  Mississippi    &c.    Boom     Co.    v.  in    Stone    v.   Brown,    54    Tex.     330, 

Prince,    34    Minn.    79;    Dewhurst  u.  341. 

Alle<iheny  City,  95  Pa.  St.  437.  3  Tadlock  v.  Eccles,   20  Tex.  782, 

2    Tcople  V.  Lawrence.  3fi  Barb.  (N.  79'-';  s.  c.  73  Am.  Dec.  213,  opinion  by 

Y.)    ]89,   192.     Quoted  with  approval  Wheeler,  J. 

483 


1  Thomp.  Corp.  §  627. J     constitutional  hkstraints. 

drawn  upon  the  use  of  either  of  these  words  instead  of  the 
other ;  for  it  is  perceived  that  those  courts,  in  whose  consti- 
tutions the  word  "  subject"  is  used,  take  the  same  view  of  the 
meaning  of  the  provision  as  that  above  stated  by  the  Texas  court. 

§  627.  Liong  Practical  Construction.  —  The  maxim  com- 
munis  error  facit  jus,  has  been,  in  substance,  applied  in  the  solu- 
tion of  this  question,  and  it  has  been  held  that  a  long  practical  con- 
struction of  an  important  statute,  in  which  it  has  been  acquiesced 
in  as  valid,  will  bar  any  mere  technical  objection  to  its  consti- 
tutionality, based  on  a  want  of  precision  in  setting  forth  its  pur- 
pose in  its  title.  In  so  holding  it  was  said  by  Graves,  J.:  "  It 
is  now  more  than  ten  years  since  the  act  was  passed  and  dove- 
tailed into  our  system  of  important  statutes.  The  people  and 
the  government  have  acquiesced  in  it,  as  a  piece  of  legislation 
lawfully  enacted,  and  interests  of  vast  maguitude  have  mean- 
while sprung  forth  and  flourished  under  it.  The  whole  country 
has  acted  on  the  faith  that  it  originated  legitimately  and  con- 
stituted a  valid  statute;  and  if  we  were  satisfied  that  the  legisla- 
ture stumbled  and  overlooked  something  which  a  nice  regard 
for  the  clause  referred  to  would  have  prompted,  wo  should  deem 
it  our  duty  to  yield  to  the  long  practical  construction  and 
acquiescence,  and  decline  to  set  up  a  view  which  would  reach 
back  and  overturn  the  statute,  and  uproot  and  destroy  an  array 
of  interests  it  would  be  difficult  to  either  measure  or  number."  ^ 

Article  IV.     Restraints  as  to  the  Mode  op  Passing  Laws. 

Section  Section 

632.  Constitutional  provisions  requlr-      636.  Whether  parol  evidence  admissi- 

ing    assent    of    two-thirds   of  ble  on  the  question. 

each  house.  637.  Signed  by  the  governor  or  no  law. 

633.  Whether  provisions  as  to  pass-       638.  Constitutional  provisions  requir- 

ing bills   directory  or  manda-  ing  amendments  of  charters  to 

toiy.  be  submitted  to  a  vote  of  the 

634.  Whether  courts  will  go  behind  people. 

the  enrollment.  639.  That  no  law  shall  create,  renew 

635.  Presumptions  in  favor  of  regu-  or  extend  the  charter  of  more 

larity  of  passage.  than  one  corporation. 

1  Continental  Improvement  Co .  v.  application  of  the  maxim,  communis 

Fhelps,  47  Mich.  299,  303.     As  to  the  error  facit  jus,   see   Cole  v.  Skrainka, 

extent  to  which  courts  can  go  in  the  37  Mo.  App.  427,  dissenting  opinion. 
484 


MODE  OF  PASSING  LAWS.     [1  Thomp.  Corp.  §  632. 

§  632.  Constitutional  Provision  Requiring  Assent  of  Two 
Thii-ds  of  each  House.  — A  constitutional  provision  that  "  the 
legislature  shall  pass  no  act  of  incorporation,  unless  with  the 
assent  of  at  least  two-thirds  of  each  house,"  was  held  by  Mr. 
Justice  McLean  at  circuit  not  to  restrict  the  legislature  from 
creating  more  than  one  corporation  in  the  same  act ;  but  in  his 
view  the  legislature  might  establish  an  indefinite  number  of 
corporations  in  the  same  act,  as  well  as  a  limited  number.^  This 
view  was  denied  by  the  Supreme  Court  of  Michigan,  and,  it 
beino"  a  question  of  the  interpretation  of  the  constitution  of 
that  State,  the  view  of  the  State  court  prevailed.^  Such  a 
provision  existed  in  the  constitution  of  New  York.  It  was  at 
first  held  that  it  did  not  apply  to  public  corporations,  but  that  it 
applied  only  to  private  corporations,  such  as  banking  institutions, 
etc.^  But  this  doctrine  was  denied  and  overruled  in  subsequent 
cases.*  In  another  case  two  members  of  the  Court  of  Errors  of 
New  York  advanced  the  opinion  that  this  constitutional  provision 


1  Falconer  v.  Campbell,  2  McLean 
(U.  S.),  195. 

2  The  Michigan  Banking  Law  of 
1837  was  held  to  be  unconstitutional 
after  many  banks  had  been  organ- 
ized under  it  and  after  many  rights 
had  thereby  become  vested,  on  the 
ground  that  it  had  been  enacted  in 
violation  of  a  constitutional  provision 
of  that  State  that  "the  legislature 
shall  pass  no  act  of  incorporation 
unless  with  the  assent  of  at  least  two- 
thirds  of  each  house."  Green  v.  Graves, 
1  Dougl.  (Mich.)  351;  Farmers  &  Me- 
chanics Bank  v.  Troy  City  Bank,  Id. 
457.  Mr.  Justice  McLean  at  circuit 
twice  held  the  same  statute  to  be 
valid,  —  once  in  his  very  elaborate 
judgment  in  Falconer  v.  Campbell,  2 
McLean  (U.  S.),  195,  and  again  in 
White  V.  How,  3  McLean  (U.  S.),  HI- 
But  the  Supreme  Court  of  Michigan 
finally  declared  it  unconstitutional 
and,  the  Federal  court  being  bound  by 
the  State  decision  in  respectof  the  in- 
terpretation of  its  own  constitution, 
Mr.  Justice  McLean  subsequently  in 


Nessmith  v.  Sheldon,4  McLean  (U.  S.), 
375,  declared  the  act  unconstitutional, 
and  his  decision  was  affirmed  on 
error  in  7  How.  (U.  S.)  812. 

3  People  V.  Morris,  13  Wend.  (N. 
Y.)  325. 

*  In  People  v.  Purdy,  2  Hill  CN.  Y.), 
31,  43,  the  act  in  question  was  one 
taking  from  the  aldermen  of  the  city 
of  New  York  certain  judicial  powers 
exercised  by  them  individually.  Cowen, 
J.,  was  of  opinion  that  the  act  did  not 
interfere  with  any  corporate  powers, 
and  therefore  did  not  require  a  two- 
thirds  vote  for  its  passage;  Nelson, 
C.  .J.,  adhered  to  his  opinion  in  People 
V.  Morris,  supra,  that  the  constitu- 
tional inhibition  did  not  apply  to 
■nmnicipal  corporations ;  and  Bronson, 
J.,  dissented.  This  case  was  reversed 
in  the  Court  of  Errors,  sm6  nom.  Purdy 
V.  People,  4  Hill  (N.  Y.),  384,  and  the 
doctrine  of  People  v.  Morris  was  there 
finally  overthrown.  See  also  DeBow 
V.  People,  1  Denio  (N.  Y),  9,  12  (over- 
ruled in  Gifford  v.  Livingston,  2  Denio 
(N.  Y.),  381). 

485 


1  Thomp.  Corp.  §  632.]     constitutional  restraints. 

did  not  reach  private  corporations^  such  as  banks,  provided  they 
were  created  under  general  laws  which  authorized  everybody  to 
form  corporations.^  Tlie  struggle  finally  ended  with  a  decision 
in  the  Court  for  the  Correction  of  Errors,  decided  by  a  vote  of 
fifteen  members  against  seven,  in  which  it  was  resolved,  on  the 
authority  of  the  case  of  Warner  v.  Beers,^  that  the  statute  was 
valid  and  constitutionally  enacted,  although  it  may  not  have  re- 
ceived the  assent  of  two-thirds  of  the  members  elected  to  each 
branch  of  the  legislature,  and  that  the  decision  in  that  case  was 
conclusive.^ 


1  Warner  v.  Beers,  23  Wend.  (N. 
y.)  103.  But  this  view  was  thought 
to  be  opposed  to  the  subsequent  de- 
cisions of  the  Court  of  Errors.  Purdy 
V.  People,  supra.  See  the  observations 
of  Brouson,  C.  J.,  in  DeBowu.  People, 
1  Denio  (N.  Y.),  9. 

2  23  Wend.  (N.  Y.)  103. 

3  Gifford  V.  Livingstone,  2  Denio 
(N.  Y.),  380,  402.  See  also  Thomas 
V.  Dakin,  22  Wend.  (N.  Y.)  9;  Hunt  v. 
Van  Alstyne,  25  Id.  605;  Bank  of 
Watertown  v.  Watertown,  Id.  686; 
Curtis  V.  Leavitt,  17  Barb.  (N.  Y.)  309; 
Palmer  v.  Lawrence,  I  Seld.  (N.  Y.) 
389.  Decisions  tinder  obsolete  constitu- 
tions, special  statutes,  etc.:  Many  decis- 
ions in  the  earlier  courts,  or  in  the 
less  authoritative  courts,  or  in  cases 
under  obsolete  constitutional  provis- 
ions, or  under  special  and  peculiar 
statutes,  have  been  collected  by  the 
writer;  but  the  limits  of  space  allowed 
to  him  will  not  permit  a  statement  of 
them  in  detail;  nor  is  it  thought  that 
it  would  be  useful  to  make  such  a 
statement.  They  will  be  referred  to 
with  the  greatest  brevity,  — indexed,  so 
to  speak.  A  statute  was  held  not  un- 
constitutional as  being  a  private  bill 
granting  to  a  corporation  the  right  to 
lay  down  tracks,  —  the  right  already 
existing, — nor  as  being  an  "exclu- 
sive privilege,"  in  People  v.  Long 
Island  R.  Co.,  60  How.  Pr.  (N.  Y.) 
395.     The  charter  of  the  State  Bank 

486 


of  Alabama  was  not  unconstitutional, 
by  reason  of  the  fact  that  the  remedy 
for  and  against  the  bank  was  not  re- 
ciprocal ;  that  all  debtors  must  be  sued 
in  the  county  in  which  the  bank  was, 
and  that  the  president  was  authorized 
by  the  charter  to  create  a  certificate 
to  be  used  as  evidence  in  its  favor: 
Lyon  V.  State  Bank,  1  Stew.  C^^l^") 
442,  467.  The  original  charter  granted 
to  the  Bank  of  Illinois  in  1816  was 
constitutional,  the  court  proceeding 
upon  the  view  that  the  power  of  legis- 
lation is  inherent  in  a  State  legisla- 
ture, and  is  plenary,  except  in  so  far 
as  the  constitution  is  restrictive  upon 
it:  People  v.  Marshall,  6  111.  672. 
The  Illinois  act  of  1835,  extending  the 
charter  of  the  same  bank,  was  also 
constitutional :  Ibid. ;  Wilmans  v.  Bank 
of  Illinois,  6  111.  667.  The  proviso  to 
the  third  section  of  the  Illinois  act  of 
1857,  amending  the  general  banking 
law,  was  constitutional,  although  not 
submitted  to  a  vote  of  the  people: 
Smith  V.  Bryan,  34  111.  364.  The  pro- 
viso was  "that in  presenting  notes  or 
bills  for  payment  under  this  section, 
the  party  presenting  shall  not  be  re- 
quired to  present  or  receive  payment 
for  each  bill  separately,  but  the  whole 
amount  presented  shall  be  treated  as 
though  it  were  a  single  obligation  of 
that  amount."  This  proviso  was  re- 
garded as  merely  declaratory  of  the 
common  law:  Reapers'  Bank  v.  Wil- 


MODE  OF  PASSING  LAWS.     [1  Thomp.  Coip.  §  634. 

§  633.  Whether  Provisions  as  to  Mode  of  Passing  Bills  Di- 
rectory or  Mandatory. — In  one  or  two  States  constitutional  provis- 
ions as  to  the  mode  of  passing  acts  of  incorporation  are  held  to 
be  directory.^  Thus,  the  provision  of  a  State  constitution,  that, 
when  a  bill  is  presented  for  an  act  of  incorporation,  it  shall  be 
continued  until  another  election  of  members  of  the  assembly 
shall  have  taken  place,  and  public  notice  of  the  pendency  there- 
of is  given,  is  directory  to  the  assembly,  and,  in  the  absence  of 
anj' clause  forbidding  the  enactment  without  observing  the  direc- 
tions, does  not  affect  the  corporators,  unless  the  State  itself  inter- 
venes.^ But  this  is  contrary  to  the  general  American  doctrine. 
As  already  seen,  constitutional  provisions  restraining  the  pas- 
sage of  private  special  or  local  laws  creating  corporations, 
amending  corporate  charters,  or  granting  or  extending  corporate 
powers  and  privileges,  are  almost  universally  held  to  be  manda- 
tory.' We  have  seen  that  the  same  rule  prevails,  except  in  two 
or  three  States,  in  respect  to  constitutional  provisions  that  an  act 
shall  embrace  but  one  subject  which  shall  be  expressed  in  its 
title.  The  same  rule  prevails  generally  in  respect  of  other  con- 
stitutional directions  and  requirements  concerning  the  passage  of 
laws.* 

§   634.  Whether  Courts  will  go  Behind  the  Enrollment. — 

In  considering  this  question  the  courts  have  had  to  determine, 
first,  whether  they  would  go  behind  the  fact  of  the  enrollment 
of  the  bill  in  the  office  of  the  Secretary  of  State.  Some  of 
them,  proceeding  with  a  just  delicacy  in  regard  to  the  faith  and 
credit  which  is  to  be  given  to  the  acts  of  a  co-ordinate  branch  of 
the  government,  have  held  that  they  would  not  look  beyond  the 
fact  of  the  signing  and  enrollment  of  the  bill.  The  meaning  of 
this  is  that  \hQ  presumption  which  springs  from  the  fact  of  the 

lard,   24   111.   433;  s.   c.   76  Am.  Dec.  >  Compare  «n«e,  §  608. 

755.    Compare  Bank  of   Republic  v.  ^  McClinch  v.  Sturgis,  72  Me.  288. 

Hamilton,   21  111.  53.     An  act  creat-  »  Ante,  §  673.     See  a  learned  note 

ing  a  private    banking    corporation,  on  this  question  by  W.  W.  Thornton, 

was  not  a  "  bill  of  a  general  charac-  l*:sq.,  in  2G  Am.  L.,  Reg.   (a.  s.,)  304, 

ter,"  which,  under  art.  2,  §  21,  of  the  n;  also  learned  note   In  85   Am.  Dec. 

former  constitution,  of  Tennessee  re-  356,  discussing  the  subject  at  length, 

quired  the  calling  of    the  ayes  and  with  an  exhaustive  list  of  authorities, 

noes  on  its  final  passage :  Ferguson  u.  ■*  Ante,  §  608. 
Miners &c.  Bank,  3  Sueed  (Tenn.),  609. 

487 


1  Thomp.  Coi'i).  §  635.]     constitutional  restraints. 

bill  being  signed  and  enrolled  is  conclusive,  and  that  the  couits 
will  not  look  either  to  the  journals  of  the  houses  of  the  legisla- 
ture, or  hear  any  evidence  for  the  pur[)ose  of  overthrowing  that 
presumption.^  Other  courts  have  held  thtit  it  is  competent  for 
the  courts  to  go  behind  the  official  enrollment  and  publication  of 
the  statute,  and  look  to  the  journals  of  the  two  houses  of  the 
legislature  for  the  purpose  of  ascertaining  whether  the  statute 
was  passed  in  conformity  with  the  requirements  of  the  constitu- 
tion, and  that  they  may  declare  it  to  be  no  law  if  they  find  that 
it  was  not  so  passed.^ 

§  635.  Presumptions  in  Favor  of  Regularity  of  Passage.  — 

But  even  under  this  rule,  the  courts  will  indulge  in  every  reason- 
able prefiumption  in  support  of  the  validity  of  an  act  of  the  legis- 
lature, which  has  been  duly  authenticated,  enrolled  and  published. 
The  publication  of  an  act  in  the  volume  of  session  laws  of  the 
year,  verified  by  the  Secretary  of  State,  creates  a  presumption 
that  it  became  a  law  pursuant  to  constitutional  requirements.^ 


»  Whited  V.  Lewis,  25  La.  An.  568; 
Danielly  v.  Cabiniss,  52  Ga.  211 ;  Ter- 
ritory V.  Clayton,  5  Utah,  598;  18  Pac. 
628  Exp.  Wren,  G3  Miss.  512  (overruling 
Brady  v.  West,  50  Miss.  68)  ;  Jones  v. 
Hutchinson,  43  Ala.  721;  Common- 
wealth V.  Jackson,  5  Bush  (Ky.),  680; 
Evans  v.  Browne,  30  Ind.  514;  Paine 
V.  Lake  Erie  &c.  R.  Co.,  31  Ind.  283; 
Broadax  v.  Groom,  G4  N.  C.  244  (PJ"!- 
vate  act.) ;  Usener  v.  State,  8  Tex. 
App.  177  (overruled  by  Hunt  V.  State, 
22  Tex.  App.  396)  ;  People  v.  Commis- 
sioners of  Highways,  54  N.  Y.  276; 
Ryan  v.  Lynch,  68  111.  160.  Compare 
Jordan  v.  Wapello  Circ.  Ct.,  69  Iowa, 
177;  s.c.  28,  N.  W.  Rep.  548. 

2  Hunt  V.  State,  22  Tex.  App.  396; 
(disapproving  Blessing  v.  Galveston, 
42  Tex.  641 ;  Usener  v.  Stale,  8  Tex. 
App.  177)  ;  State  v.  Robinson,  20  Neb. 
96  (journals  made  competent  evi- 
dence by  statute)  ;  State  v.  Brown,  20 
Fla.  407;  Brown  v.  Nash,  1  Wy.  Ter. 
85;  Berry  v.  Baltimore  &c.  R.  Co.,  41 
Md.  446;  Post  v.  Supervisors,  105  U. 
488 


S.  667;  Smithee  v.  Garth,  33  Ark.  17; 
Osburn  v.  Stanley,  5  W.  Va.  85 ;  Gard- 
ner V.  The  Collector,  6  Wall.  (U.  S.) 
499;  Ryan  V.  Lynch,  68  111.  160  (stat- 
ute held  not  void  because  not  read  on 
three  different  days  in  the  senate  and 
not  passed  by  a  vote  of  the  ayes  and 
noes);  Smithee  v.  Campbell,  41  Ark. 
471  (statute  held  void  because  never 
formally  passed  by  the  senate) .  It  is 
competent  for  the  Supreme  Court  of 
Missouri  to  examine  into  the  sufficiency 
of  the  preliminary  proceedings  of  the 
general  assembly,  in  order  to  determine 
the  validity  of  an  amendment  of  the 
constituiion.  State  v.  McBricIe,  4  Mo. 
303.  The  journals  of  the  houses  of 
the  legislature,  though  not  evidence 
of  the  meaning  of  a  statute,  are  ad- 
missible to  identify  a  bill  referred  to 
in  a  subsequent  act.  Southwark 
Bank  v.  Commonwealth,  27  Pa.  St. 
446. 

3  Bound  V.   Wisconsin  Central   R. 
Co.,  45  Wis.  543. 


MODE  OF  PASSING  LAWS.     [1  Thomp.  Coip.  §  636. 

The  courts  must  receive  a  law,  so  published,  as  having  been  duly 
passed,  unless  the  contrary  is  clearly  made  to  appear.^  In  favor 
of  the  regularity  of  the  passage  of  a  law,  the  courts  will,  if 
necessary,  presume  that  a  motion  to  reconsider  prevailed;  ^  that 
it  was  duly  referred  to  the  appropriate  committees;^  and  that  it 
was  passed  by  a  majority  of  all  the  members  elected,  where  that 
is  the  constitutional  requirement.*  They  will  presume,  in  the 
silence  of  the  record,  that  it  received  the  constitutional  major- 
ity, where  the  record  shows  that  it  was  signed  in  open  session ;  ^ 
and  that  it  was  read  three  times  on  three  different  days,  as  re- 
quired by  the  constitution,^  although  this  involves  a  presumption 
that  a  rule  was  suspended  by  the  requisite  two-thirds  vote.'  It 
is  but  a  different  expression  of  this  rule  to  say  that  the  courts 
will  not  declare  that  the  published  statute  is  not  a  valid  law, 
from  the  mere  fact  that  the  journals  of  the  legislature  fail  to 
show  a  strict  observance  of  the  formalities  prescribed  by  the  con- 
stitution for  the  enactment  of  laws.^  In  line  with  this  view,  an- 
other court  has  reasoned  that  it  must  clearly  appear  that  it  was 
not  enacted.^ 

§  636.  Whether  Parol  Evidence  Admissible  on  the  Ques- 
tion. —  One  court  has  even  gone  so  far  as  to  hold  that  they  will 
not  only  look  merely  to  the  journals  of  the  two  houses,  but  that 
they  will  hear  other  competent  evidence,  for  the  purpose  of  as- 
certaining whether  a  law  was  duly  passed.^"  But  if  this  means 
that  the  journals  of  the  two  houses  can  be  contradicted  by  parol 
evidence,  it  is  contrary  to  all  principle  ;  for  it  sinks  the  records  of 
a  co-ordinate  branch  of  the  government  to  a  lower  level  than 
that  occupied  by  the  records  of  the  judicial  courts,  or  even  a 
constable's  return.  On  the  other  hand,  if  it  means  that  the  re- 
citals on  those  records  can  be  varied  or  explained  by  parol  evi- 
dence, it  introduces  a   rule  which  in  many  cases  is  denied  in 

1  Hensoldt  v.  Petersburg,  63111. 157.      Fed.  Rep.  730;  Glidewell  v.  Martin,  51 

2  State  V.  Algood,  87  Tenn.  163;  10      Ark.  559;  s.  c.  11  S.  W.  Rep.  882. 

S.  W.  Rep.  310.  '  State  v.  Peterson,  38  Minn.  143; 

3  Day  Laud  &c.  Co.  v.  State,  68  Tex.  s.  c.  36  N.  W.  Rep.  443 ;  Same  v.  Ole- 
526;  s.c.  4  8.  W.  Rep.  805.  son,  W.  150;  Suine  t;.  SMnnerud,7d.  229. 

*  People  V.  Chenango,  10  N.  Y.  317.  «  State  v.  Mead,  71  Mo.  206;  Bless- 

5  WiUiams  v.  State,  6  Lea  (Tenn.),  ing  v.  Galveston,  42  Tex.  641. 
549,  9  State  V.  Brown,  20  Fla.  407. 

6  State  V.  Illinois  Central  R.  Co.,  33  '"  Fowler  v.  Pierce,  2  Cal.  165. 

489 


1  Thomp.  Corp.  §  636  ]     constitutional  restraints. 

respect  of  private  contracts  and  writings.  It  is  therefore  ut- 
terly impossible  to  uphold  the  decision  above  alluded  to,  hold- 
ing tluit  an  act  was  void,  which  was  passed  on  the  last  day 
of  the  session,  was  presented  to  the  governor  on  the  same 
day,  and  purported  to  have  been  approved*  on  the  same  day, 
on  the  strength  of  its  being  shown  by  parol  evidence  that  it 
was  not  approved  on  that  day,  but  on  the  next  day.^  The  Su- 
preme Court  of  Ohio  have  considered  this  question  in  a  very 
elaborate  opinion  by  Minshall,  J.,  in  which  the  decisions  upon 
the  admissibility  of  parol  evidence  to  affect  the  authenticity  of 
a  statute,  appearing  by  the  journals  of  the  legislature  to  have 
been  duly  passed,  are  reviewed,  and  in  which  the  court  reaches 
the  conclusion  that,  out  of  a  multitude  of  decisions,  not  one 
is  found  in  which  any  court  has  assumed  the  office  of  going  be- 
hind the  proceedings  of  the  legislature,  as  recorded  in  the  jour- 
nals required  to  be  kept,  for  the  purpose  of  ascertaining 
whether  a  law  has  been  constitutionally  enacted;  and  the 
court  accordingly  hold  that  the  authenticity  of  a  statute  can- 
not be  impeached  by  parol  evidence,  where  it  is  enrolled 
and  attested  as  required  by  the  constitution. ^  The  Su- 
preme Court  of  Michigan  have  reached  the  same  conclusion, 
and  have  gone  further,  and  held  that  the  court  will  not  allow 
parties,  interested  in  nullifying  legislative  action,  to  stipulate  or 
agree  or  admit  by  their  pleadings,  that  a  statute  was  not  properly 
or  constitutionally  passed,  unless  the  informality  is  shown  by 
the  printed  journals  or  the  certificate  of  the  secretary.^  It  is 
difficult  to  understand,  on  principle,  the  ruling  of  the  Court  of 
Appeals  of  New  York  to  the  effect  that  the  certificate  of  the 
presiding  officers  of  the  two  houses  of  the  legislature,  that  three- 
fifths  of  the  members  were  present  at  the  passage  of  a  bill,  may 
be  supplied,  by  parol  evidence,  where  it  is  omitted,  on  the  theory 
that  the  certificate  is  only  presumptive  evidence  of  the  fact.* 

1  Fowler  tJ.  Pierce,  2  Cal.165.  Seealso  »  Att.-Gen.  v.  Rice,  64  Mich.  385 ;  s. 
Berry  u.  Baltimore &c.R.Co.,41Md.446.      c.  31  N.  W.  Rep.  203;  26  Am.  L.  Reg. 

2  State  V.  Smith,  44  Ohio  St.  348;      (n.  s.)  299;  s.  c.  sub.  nom.  People  v. 
s.  c.  7  Northeast.  Rep.  447;  12  North-      Rice,  7  West.  Rep.  642. 

east.  Rep.  829;  4  West.  Rep.  101.     To  *  People  v.  Chenango,  10  N.  Y.  317. 

this   statement    the    learned      judge  The  decision  is  tantamount  to  holding 

should   have  noted  the  exception  of  that  par  )1   evidence  may  be  heard  for 

the  California  case  cited  above.  the  purpose  of  sustaining  the  validity 
490 


MODE  OF  PASSING  LAWS.     [1  Thomp.  Coi'p.  §  637. 

§  637.  Signed  by  the  Governor,  or  No  Law.  —  Where  the  con- 
stitution requires  that  bills  shall  be  signed  by  the  governor,  and 
especially  where  he  possesses  a  limited  veto  power,  he  is  thereby 
made  a  part  of  the  legislative  department  of  the  government ; 
and  this  is  in  analogy  to  the  British  constitution,  under  which  the 
legislature  consists  of  the  king,  the  lords  and  the  commons.^  In 
order  to  the  formal  passage  of  a  law,  the  concurrence  of  the 
three  branches  of  the  legislature,  —  the  governor,  the  senate  and 
the  house  of  representatives,  is  therefore  usually  regarded  as 
necessary.  From  this  it  follows  that,  although  a  bill  may  have 
passed  both  branches  of  the  legislature,  yet  unless  signed  by  the 
governor  it  is  no  law.^ 


of  a  statute.  But  it  should  seem  that 
a  statute  is  an  instrument  of  such  a 
solemn  character,  that  its  validity, 
like  that  of  a  judgment  of  a  court* 
ought  to  be  proved  by  the  record  only, 
and  that  parol  evidence  ought  to  cut 
no  figure  either  in  supporting  or  in 
overturning  it.  The  better  view  is 
that,  while  the  courts  may  look  behind 
the  enrollment,  and  into  the  legislative 
journals,  to  ascertain  whether  an  act 
was  passed  in  accordance  with  consti- 
tutional requirements,  it  cannot  act 
on  anything  not  found  in  the  journals, 
nor  presume  that  any  such  require- 
ment has  been  omitted,  unless  the  fact 
affirmatively  appear  in  the  journals* 
People  V.  McElroy,  72  Mich.  446;  40 
N.  W.  Rep.  750.  When  the  fact  of  the 
passage  of  an  act  over  the  governor'' s  veto 
appears  from  the  published  journals  of 
the  legislature,  its  validity  cannot  be 
questioned  because  of  the  failure  of 
the  clerk  of  the  house  and  secretary 
of  the  senate  to  certify  to  its  jjassage 
before  termination  of  their  official 
functions.  Houston  &c.  Co.  v.  Odura, 
53  Tex.  343.  As  to  mistakes  in 
enrolled  laws,  it  seems  to  be  a  sound 
view  that  if  it  clearly  appear,  from  all 
the  sources  of  interpretation,  that  a 
provision  of  a  statute  was  inserted 
through  inadvertence,  it  will  be  disre- 
garded.    Pond  V.  Madc^oec,  38  Cal.  672. 


Compare  Jones  v.  Hutchinson,  43 
Ala.  721 ;  Walnut  v.  Wade,  103  U.  S. 
683  (word  dropped  from  title  while 
on  Its  passage) ;  Williams  v.  State,  6 
Lea  (Tenn.),  549  (mistake  in  the 
number  of  the  bill) ;  Dow  v.  Beidel- 
man,  49  Ark.  325;  5  S.  W.  Rep.  297 
(mistake  in  enrollment  discovered 
after  adjournment  and  corrected) ; 
Ayers  v.  Trego,  37  Kan,  240;  s.  c.  15 
Pac.  Rep.  229  (irregularities  of  title 
as  shown  by  house  journal)  ;  State  v. 
Robertson  (Kan.),  21  Pac.  382  (dis- 
crepancies as  shown  by  house  jour- 
nal —  correction  of  omission  not 
appearing).  In  each  of  the  cases 
just  cited  the  statute  was  upheld. 
Passage  of  amendatory  acts:  Mor- 
rison V.  St.  Louis  &c.  R.  Co.,  96  Mo. 
602;  9  S.  W.  Rep.  626.  Amending 
bills  on  their  passage:  People  v. 
Chenango,  10  N.  Y.  317;  Smithee 
V.  Campbell,  41  Ark.  471.  A  .statute 
without  an  enacting  claiise  is  void. 
State  V.  Patterson,  98  N.  C.  660.  Joint 
resolution  not  a  law :  Field  v.  Auditor, 
83  Va.  882;  s.  c.  3  S.  E.  Rep.  707- 
Declaration  of  legislature  as  to 
emergency  conclusive:  Day  Land  &c. 
Co.  v.  State,  68  Tex.  526;  4  S.  W.  Rep. 
865. 

1  1  Bla.  Com.,  p.  153. 

2  Fowler  «.  Pierce,  2  Cal.  165;  Hunt 
V.  State,   22   Tex.    App.  396;  3  S.  W. 

491 


1  Tliomi).  Corp.  §  C39.]     constitutional  restraints. 

§  638.  Constitutional  Provisions  Requiring  Amendments 
of  Charters  to  be  Submitted  to  a  Vote  of  the  People. —  Con- 
stitutioniil  provisions  have  existed,  during  the  period  when  it  was 
supposed  to  be  necessary  to  restrain  the  multiplication  of  banks, 
prohibiting  the  legislature  from  creating  banking  corporations 
without  submitting  the  act  to  a  vote  of  the  people.  Such  was 
the  provisions  of  the  original  constitution  of  Illinois. ^  This  pro- 
vision did  not  prevent  the  legislature  from  amending  the  general 
banking  law  of  1851,  without  submitting  the  amendment  to  a 
popular  vote.^  On  the  contrary,  the  banking  law  of  Wisconsin, 
which  was  held  to  be  in  the  nature  and  to  have  the  force  and 
effect  of  a  constitutional  provision,^  could  not  be  amended  with- 
out a  vote  of  the  people.* 

§  639.  That  no  Law  shall  Create,  Renew  or  Extend  the 
Charter  of  More  than  one  Corporation.  — The  former  constitu- 
tion of  Pennsylvania^  provided  that  no  law  should  create,  renew 
or  extend  the  charter  of  more  than  one  corporation.  Whether 
this  provision  is  anything  more  than  in  the  nature  of  a  direction 
to  the  legislature  has  been  doubted,  and  doubts  have  been  ex- 
pressed whether  the  courts  have  a  judicial  veto  over  the  legisla- 
ture, so  to  speak,  which  would  authorize  them  to  pronounce  a  law 
void  for  the  reason  that  it  had  been  enacted  in  violation  of  this 
provision.  It  was  observed  by  Black,  J.:  "It  is  not  asserted 
that  the  legislature  had  no  jurisdiction  of  the  subject-matter,  or 
that  the  law,  if  carried  out,  would  interfere  with  any  right  made 
inviolable  by  the  constitution,  but  merely  that  the  two  houses  of 
assembly  neglected  a  form  of  proceeding  which  the  constitution 
prescribes.  The  objection  goes,  not  to  the  nature,  and  essence, 
and  character  of  the  law  itself,  but  to  the  behavior  and  conduct 
of  the  legislative  bodies  who  passed  it."  However  this  may  be, 
the  court  construed  the  provision  as  meaning  that  to  create,  re- 
Rep.  233;  State  V.  Glenn,  18  Nev.  34.  »  111.  Const.  1819,  art.  10,  §  5; 
Compare  Taylor  v,  Wilson,  17  Neb,  88.  Scate's  Comp.  111.  Stat.  71. 
Bill  signed  by  the  governor  by  mis-  ^  Smith  v.  Bryan,  34  111.  364. 
take  immediately  notified  to  speaker  ^  State  v.  Hastings  12  Wis.  47. 
of  house  and  read  aloud,  and  bill  *  Van  Steenwyck  v.  Sackett,  17 
held  no  law:  Peoples.  Hatch,  19  111.      Wis.  645. 

283.  5  Peun.  Const,  of  1838,  art.  1,  §  25. 

492 


DELEGATION    OF   LEGISLATIVE    POWER.         [1  Thomp.  Corp.   §  64:3. 

new  or  extend  a  charter,  moans  to  make  a  charter  which  never 
existed  before,  to  revive  and  restore  one  which  has  expired,  or 
to  increase  the  time  for  the  existence  of  one  which  would  otlier- 
wise  reach  its  limits  at  an  earlier  period.^ 


Article  V.     Various  Other  Restraints   and  Provisions. 


Section 

643.  Objections  on  the  ground  of  dele- 

gations of  legislative  power. 

644.  Grounds  on  which  this  question 

to  be  determined. 

645.  Proliil)ition  against  the  delegation 

of  municipal  powers  to  special 
commissions,  private  corpora- 
tions, etc. 

646.  Further  of  this  subject. 

647.  May  grant  exclusive  privileges  in 

the  absence  of  constitutional 
restraint. 

648.  Rule  under    constitutional  pro- 

hibitions. 

649.  Further  of  this  subject. 

650.  Holdings  under  other  constitu- 

tions. 

651.  Rights  which  the  legislature  can- 

not bargain  away. 


Section 

652.  Prohibition      against      granting 

charters  of  incorporation  to 
churches  or  religious  denomi- 
nations. 

653.  Corporations  in  aid  of  rebellion. 

654.  Estoppel  to  raise  question  of  con- 

stitutionality of  act  creating 
corporation. 

655.  Validity  of  a  statute  allowing  a 

depositor  to  appoint  a  person 
to  whom  his  deposit  shall  be 
paid  after  his  death. 

656.  Unconstitutional  law  may  operate 

as  a  legislative  license. 

657.  Charters  exempting  corporations 

from  general   laws. 

658.  Statutes  may  be  valid  in  part  and 

void  in  part. 

659.  Illustrations. 


§  643.  Objections  on  the  Ground  of  Delegations  of  Legis- 
lative Power.  —  The  power  to  enact  laws  is  a  public  trust  com- 
mitted by  our  constitutions.  Federal  and  State,  to  a  particular 
branch  of  the  government,  and  it  is  clear  that  the  body  to  which 
it  has  been  delegated  cannot  cast  it  off  by  delegating  it  to  some 
other  body.  It  is  therefore  a  general  maxim  of  American  con- 
stitutional law  that  the  legislative  power  of  a  State  cannot  be 
delegated  by  the  legislature  to  any  other  body,  except  within 
the  limits  prescribed  or  permitted  by  the  constitution.^     In  the 


1  Cleveland  v.  Erie,  27  Pa.  St.  380, 
388. 

2  Houghton  77.  Austin,  47  Cal.  64G; 
Bartow.  Hirarod,  8  N.  Y.  483;  Bank 
&c.  V.  Rome.  18  N.  Y.  38;  Starin  u. 
Genoa,  23  N.  Y.  439;  Clarke  v.  Roches- 
ter, 28  N.  Y.  605;  Thorne  v.  Cramer, 
15  Barb.  (N.  Y.)  112;  Bradley  v.  Bax- 


ter, Id.  122;  Parker  v.  Com.,  6  Pa.  St. 
507;  Commonwealth  v.  Jud-jje  &c.,  8 
Pa.  St.  391;  Commonwealth  ».  Locke, 
72  Pa.  St.  491  (overruling  6  Pa.  St. 
507);  State  i;.  Wilcox,  45  Mo.  458; 
State  V.  Weatherby,  45  Mo.  17;  Rice^v. 
Foster,  4  Harr.  (Del.)  479;  State  v. 
Copeland,  3  R.  I.  33;  Cincinnati  &c.  R. 
493 


1  Thomp.  Corp.  §  643.]     constitutional  restraints. 

view  of  many  courts,  this  principle  forbids  that  the  legislature 
should  enact  a  law  to  take  effect  only  upon  approval  by  vote  of 
the  people  of  the  State,  or  of  any  territorial  division  or  district  of 
the  State. ^  But  in  the  view  of  other  courts,  it  is  competent  for 
the  legislature  to  submit  to  a  vote  of  the  people  of  particular  lo- 
calities the  question  whether  they  will  adopt  particular  police  reg- 
ulations,2suchas  regulations  suppressing  the  sale  of  intoxicating 
drinks,  prohibiting  animals  from  running  at  large,  or  the  like. 
Nor  does  this  principle  extend  so  far  as  to  prevent  the  legisla- 
ture from  delegating  to  municipal  corporations,  municipal 
boards,  and  other  public  corporations  or  ^wasz-corporations,  cer- 
tain portions  of  the  legislative,  judicial  and  even  executive 
power  of  the  State,  to  be  exercised  strictly  for  the  purposes  of 
local  government  and  administration.^     In  some   of    the   cases 


Co.  V.  Clinton,  1  Ohio  St.  77;  People  v. 
Collins,  3  Mich.  343 ;  Santo  v.  State,  2 
la.  165;  Geebrick  v.  State,  6  la.  491; 
State  V.  Beneke,  9  la.  203;  State  v. 
Weir,  33  la.  134 ;  State  v.  Pond,  93  Mo. 
606;  Laramertv.  Lidwell,  62  Mo.  188; 
Maize  v.  State,  4  Ind.  342 ;  Meshmeier 
V.  State,  11  lud.  482;  Groesch  v.  State, 
42  Ind.  547;  State  v.  Swisher,  17  Tex. 
441;  State  v.  Parker,  26  Vt.  357;  State 
V.  Young,  29  Minn.  551 ;  s.  c.  9  N.  W. 
Rep.  737;  recognized  in  State  v. 
Chicago  &c.  R.Co.,  38  Minn.  281;  s.c. 
37  N.  W.  Rep.  782,  787;  Winters  v. 
Hughes,  3  Utah,  443;  Brown  v. 
Fleischner,  4  Oreg.  132;  Boyd  v.  Bry- 
ant, 35  Ark.  69 ;  Fell  v.  State,  42  Mary- 
land, 71;  State  v.  O'Neill,  24  Wis.  149; 
Commonwealth  v.  Bennett,  108  Mass. 
27. 

1  Exp.  Wall.,  48  Cal.  279,  313;  Lam- 
mert  w.  Lidwell,  62  Mo.  188;  Santo  v. 
State,  2  Iowa,  165;  State  v.  Beneke,  9 
Iowa,  203;  Barto  v.  Himrod,  8  N.  Y. 
483;  States.  Copeland,  3  R.  I.  33;  Peo- 
ple V.  Collins,  3  Mich.  343.  Nor  can 
the  legislature  submit  the  question  of 
the  repeal  of  a  law  to  the  decision  of 
the  people.  Geebrick  v.  State,  5  Iowa, 
491;  State  ??.  Weir,  33 /d.  134. 

2  Louisville  &c.  R.  Co.  v.  Davidson, 

494 


1  Sneed  (Tenu.),  637;  State  v.  O'Neill, 
24  Wis.  149.  The  Supreme  Court  of 
Wisconsin  has  taken  the  view  that  a 
law,  though  affecting  the  whole  people 
of  the  State,  is  not  invalid  because  it 
is  enacted  to  take  effect  only  on  ap- 
proval by  a  popular  vote.  The  legis- 
lature may  make  such  regulations  and 
conditions  as  it  pleases  in  regard  to 
the  taking  effect  or  operation  of  laws. 
They  may  be  absolute,  or  conditional 
and  contingent;  and  if  the  latter,  they 
may  take  effect  on  the  happening  of 
any  event  which  is  future  and  uncer- 
tain, such  as  a  vote  of  the  people  in 
favor  of  a  law.  Smith  v.  Janesville, 
26  Wis.  291. 

3  The  common  case  of  the  creation 
of  municipal  corporations  by  acts  of 
the  legislature,  is  an  instance  of  this. 
Another  instance  is  found  in  a  holding 
that  the  legislature  may  delegate  to 
village  hoards  the  power  to  grant 
franchises  for  the  collection  of  wharf- 
age for  the  use  of  piers  on  navigable 
waters.  Faruum  v.  Johnson,  62  Wis. 
620.  So,  it  is  no  objection  to  the  con- 
stitutionality of  the  Illinois  statutes 
providing  for  drainage  districts,  etc., 
tiiat  the  county  court  is  invested  with 
power  to  fiad  the  facts  necessary  ta 


DELEGATION   OF   LEGISLATIVE   POWER.       [1  Thomp.  Corp.   §  GM. 

cited,  the  practical  impossibility  of  the  legislature  discharging 
this  duty  in  respect  of  all  the  railroads  in  the  State,  without  re- 
maining continuously  in  session,  has  been  pointed  out.^ 

§  644.   Grounds  on  which  this  Question  to  be  Determined.  — 

But  it  is  clear  that  the  question  whether  the  power  is  legislative 
in  its  nature  or  not,  cannot  be  determined  upon  the  consideration 
whether  its  exercise  is  convenient  or  practical.  Fourteen  years 
ago  it  was  held  by  the  Supreme  Court  of  the  United  States,  in  a 
succession  of  decisions,  that  the  power  was  legislative  in  its  na- 
ture, and  that,  if  erroneously  or  oppressively  exercised  by  the 
legislature,  the  only  remedy  was  by  the  people  at  the  polls.^ 
But  those  holdings  lead  the  question  into  this  diflaculty,  that  if  it 
is  a  legislative  power,  it  cannot  be  delegated,  under  the  principle 
above  stated,  but  can  only  be  discharged  by  the  legislature,  al- 
though in  order  to  discharge  it,  it  is  necessary  for  that  body  to 
remain  continuously  in  session.  An  escape  from  this  conclusion 
is  reached  by  adopting  the  conception  that  it  is  a  legislative  power 
if  the  legislature  sees  fit  to  retain  or  exercise  it,  but  that  it  may 
be  regarded  as  a  judicial  power  for  the  purpose  of  being  com- 
mitted by  the  legislature  to  permanent  commissioners,  which  shall 

the  creation  of  the  corporations;  for  Whorter  v.  Pensacola  &c.   R.  Co.,  24 

in  such  a  case  the  legislature,  not  the  Fla.  417;  s.  c.    5    South.    Rep.    129; 

court,      creates      the     corporations.  People  w.  Harper,  91  III.  357;  Georgia 

Blake  v.    People,    109    111.  504;  ante  Railroad  Co.   v.  Smith,    70   Ga.   694; 

§    110.     Giving    the    State    board    of  Tilleyu.  Savannah  &c.  R.  Co.,  4  Woods 

agriculture     discretion      in      issuing  (U.  S.),  427;  s.  c.   5  Fed.   Rep.   656. 

licenses  for  phosphate  mining,  is  not  Compare  Stone  v.  Yazoo  &c.  R.  Co., 

unconstitutional,  as  a    delegation  of  62  Miss.  607;  Stone  u.  Farmers' &c.  R. 

the  legislative  power  to  the  board.  Co.,  116  U.  S.  307  (where  the  subject 

Port    Royal   Min.  Co.   v.  Hagood,  30  of  the  delegation  of  legislative  power 

S.   C.   519;  s.   c.  9  S.  E.  Rep.  686.     A  was  not  discussed) ;  State  w.  Medical 

statute  creating  a  board  of  railroad  Examiners,  34   Minn.  387 ;  s.  c.  26  N. 

and    warehouse    commissioners,     and  W.  Rep.   123;   Hildreth  v.   Crawford, 

clothing  them  with  the  power  of  de-  65  Iowa  339;  s.  c.  21  N.  W.  Rep.  667. 

termining  what  are  reasonable  rates  But  see  Chicago  &c.  R.  Co.  v.  Miuue- 

of  railway  transportation,    has  been  sota,  134   U.  S.  418;  s.  c.  10  Sup,  Ct. 

held  by  several  uf  the  State  courts  not  Rep.  462,  702. 

a    delegation    of    legislative    power.  i  See  especially  the  language  of  the 

State  V.   Minneapolis  &c.   R.  Co.,   40  courtin  Tilley  v.  Savannah&c.  llCo.,  4 

Minn.  166;  s.   c.  41  N.    W.  Rep.  465;  Woods  (U.  S.)  427. 

State  V.  Chicago  &c.  R.  Co.,  38  Minn.  2  Munn    v.  Illinois,  94    U.  S.  113; 

281;  s.  c.   37  N.    W.  Rep.    782;     Mc-  Peik  v.  Railway  Co.,  94  U.  S.  16t. 

4;)5 


1  Thorap.  Corp.  §  644:.]     constitutional  restraints. 

exercise  it  in  proceedings,  judicial  in  their  nature,  upon  notice 
and  the  hearing  of  evidence.  Tliis  seems  to  be  the  conception  of 
the  Supreme  Court  of  the  United  States  in  its  hitest  obscure  de- 
liverance upon  this  question,  in  an  opinion  by  Mr.  Justice  Blatch- 
ford,  reversing  the  Supreme  Court  of  Minnesota  in  one  of  the 
cases  before  cited. ^  The  court  there  hold  that  the  power,  when 
exercised  by  such  a  board  as  the  Railway  and  Warehouse  Com- 
mission of  the  State  of  Minnesota,  must  be  exercised  upon  the 
principles  \\]}onvf\\\ch.  judicial  power  alone  can  be  exercised,  that 
is,  upon  the  giving  of  notice  and  the  hearing  of  evidenc/O,  — 
otherwise,  it  involves  the  deprivation  of  property  without  due 
process  of  law,  and  violates  the  fourteenth  amendment  to  the 
constitution  of  the  United  States.  Beyond  all  question  the  de- 
cision is  a  sound  and  wholesome  one,  in  so  far  as  it  decides  that 
a  railway  and  warehouse  commission  must,  in  fixing  the  rates  to 
be  charged  for  railway  and  warehouse  service,  act  judicially,  that 
is,  upon  notice  and  the  hearing  of  evidence,  and  that  they  cannot 
bya  mere  ex  parte  declaration,  fix  a  rate  of  charges  which  shall  be 
conclusive,  and  which  shall  cut  off  all  inquiry  as  to  its  reasonable- 
ness. But  the  decision  is  weakened,  not  only  from  the  fact  that 
three  members  of  the  court  dissented,  but  from  the  further 
fact  that  it  was  a  decision  rendered  in  a  mere  moot  case.  Ac- 
cording to  the  statement  of  the  facts  in  the  opinion  of  the  court, 
given  by  Mr.  Justice  Blatchford,  there  was  a  formal  complaint 
of  the  rates  charged  by  the  railway  company;  there  was  a  noti- 
fication of  that  complaint  by  the  commission  to  the  railway  com- 
pany ;  there  was  a  time  and  place  set  for  a  hearing  of  the  matter ; 
the  complainant  and  the  railway  company  appeared,  the  latter  by 
its  duly  authorized  attorney,  and,  after  an  investigation,  the  com- 
mission ordered  the  rate  to  be  chansred.  There  is  no  suscojestion 
in  the  opinion  of  the  court  that,  in  this  investigation,  the  railway 
company  was  deprived  of  any  right,  such  as  it  would  have  had 
in  an  ordiniiry  judicial  proceeding  in  the  courts,  or  even  that  the 
court  excluded  any  evidence  which  it  tendered.  It  should  be 
further  stated  that  the  Supreme  Court  of  Minnesota  has  never 
held   that  the    commission  could  proceed  ex  parte  and  without 

1  Chicago  &c.  R.  Co.  v.  Minnesota,  134  U.  S.   418;    s.  c.  10  Sup.  Ct.  Rep. 
462,  702:  41  Alb.  L.  J.  325. 
496 


DELEGATION   OF   LEGISLATIVE   POWER.        [1  Thomp.  Corp.   §  644. 

giving  notice  to  the  railway  company  to  be  affected,  or  without 
the  hearing  of  evidence.  In  its  original  opinion  upon  this  ques- 
tion ^  that  court  holds  that  the  committing  of  such  an  office  to 
the  railway  and  warehouse  commission  is  not  a  delegation  of  leg- 
islative power  ;  and  that  its  decision  fixing  a  rate  for  a  particular 
railway  is  conclusive.  But,  although  the  act  under  which  the 
commission  proceeds  does  not  provide  for  the  giving  of  notice 
and  for  an  opportunity  to  the  railway  company  to  be  heard,  the 
Supreme  Court  of  Minnesota  nowhere  says  that  the  commission 
can  proceed  without  giving  notice  or  without  affording  an 
opportunity  to  the  company  to  be  heard.  As  the  commis- 
sion did  not  assume  to  do  this,  no  such  question  was  before 
the  court. ^  There  is  no  implication  in  the  language  em- 
ployed by  the  Supreme  Court  of  Minnesota  that,  under  the  act, 
the  commission  is  empowered  to  proceed  ex  parte  and  without 
notice,  unless  it  could  be  drawn  from  the  use  of  the  words  "  dis- 
cretionary "  and  "administrative."  The  mere  fact  that  the 
statute  does  not  provide  for  the  giving  of  notice  and  an  oppor- 
tunity to  the  railway  company  to  be  affected  to  be  heard  in 
opposition  to  a  change  of  rates,  is  no  argument  against  its  validity, 
unless  the  highest  court  of  the  State,  whose  statute  it  is,  declares 
that  it  authorizes  the  commission  to  proceed  without  notice  ;  and 
then  the  statute  cannot  be  declared  void  for  that  reason,  unle>^s  in 
a  case  where  the  commission  have  proceeded  without  notice. 
The  mere  fact  that  the  statute  is  silent  on  the  question  of  giving 

1  State  V.  Chicago  &c.  R.  Co.,  38  road  problem,  it  is  that  mere  abstract 
Mian.  281;  s.  c.  37  N.  W.  Rep.  782.  laws  against  unequal  charges  are  of 

2  In  the  course  of  its  opinion,  given  little  or  no  value;  hence  modern  leg- 
by  Mitchell,  J.,  the  Minnesota  court  islation  has  usually  taken  the  form  of 
say:  "  If  such  a  power  is  to  be  exer-  creating  boards  of  commissioners,  en- 
cised  at  all,  it  can  only  be  satisfac-  trusted  with  general  supervision  over 
torily  doue  by  a  board  or  commission,  railroads.  Almost  all  efficient  legis- 
constantly  in  session,  whose  time  is  lation  on  the  subject  is  under  such 
exclusively  given  to  the  subject,  and  commissioners,  vested  with  discre- 
who  after  investigation  of  the  facts,  tionary  administrative  powers,  more 
can  fix  rates  with  reference  to  the  or  less  extensive.  Our  legislature  has 
peculiar  circumstances  of  each  road,  gone  a  step  further  than  most  others, 
and  each  particular  kind  of  business,  and  vested  our  commission  with  full 
and  who  can  change  or  modify  these  power  to  determine  what  rates  are 
rates  to  suit  the  ever-varying  condi-  equal  and  reasonable  in  each  particu- 
tions    of    traffic.     If   experience    has  lar  case." 

proved  anything  in  the  so-called  rail- 


32 


497 


1  Thomp.  Corp.  §  646.]     constitutional  restraints. 

notice  and  affording  the  railway  company  an  opportunity  to  be 
heard,  affords  no  excuse  for  its  overthrow  by  a  judicial  fulmina- 
tion,  especially  in  a  case  where  the  company  was  notified  and  was 
heard.  Where  such  a  statute  is  silent,  the  implication  always  is 
that  the  tribunal  will  not  violate  those  principles  of  common 
right  which  are  embodied  in  the  American  constitutions  and  in 
the  common  law,  by  proceeding  without  notice.^ 

§  G45. —  Prohibition  against  the  Delegation  of  Municipal 
Powers  to  Special  Commissions,  Private  Corporations,  etc. — 

Provisions  from  the  constitutions  of  some  of  the  States  have 
been  already  set  out,^  prohibiting  the  legislatures  from  delegat- 
ing to  any  special  commission,  private  corporation  or  associ- 
ation, any  power  to  make,  supervise  or  interfere  with  any  munic- 
ipal improvement,  money,  property  or  effects,  or  to  perform 
any  municipal  function  whatever.  Such  an  inhibition  does  not 
prevent  the  legislature  from  creating  a  permanent  board  of  puh- 
lic  works  for  a  particular  city,  the  members  of  which  are  to  be 
appointed  by  the  governor  with  the  advice  and  consent  of  the 
senate,  charged  with  duties  and  endowed  with  powers  relating  to 
the  expenditure  of  city  funds,  the  payment  and  cancellation  of 
outstanding  city  warrants,  and  the  making  of  public  improve- 
ments. Such  board  is  not  a  "  special  commission,"  but  a  per- 
manent department  of  the  city  government.^ 

§  646.  Further  of  this  Subject. —  It  has  been  already  point- 
ed out  that  it  is  not  a  delegation  of  legislative  power  for  the 
legislature  to  prescribe  the  terms  and  conditions  upon  which  cor- 
porations maybe  organized  by  the  voluntary  action  of  individuals, 
and  to  vest  in  the  judicial  courts,  or  in  ministerial  officers,  the 
duty  of  deciding  whether  those  terms  and  conditions  have  been 
complied  with.*     We  shall  further  see,  in  a  future  chapter,  that 

1  Kay  Co.  v.  Barr,  67  Mo.  290.  of    Minnesota     (Minn.    Laws      1883, 

2  Ante,  §  583.  ch.     73),   providiag    for    the    incor- 

3  Re  Senate  Bill,  12  Colo.  188;  s.  c.  poration  of  villages  on  petition  to 
21  Pac.  Rep.  481.  Compare  Dunn  v.  the  judge  of  the  District  Court,  and 
Wilcox  County,  85  Ala.  144;  Metropol-  empowering  the  court  to  act  in  the 
itan  Police  Board  u.  Wayne  County,  68  premises,  etc.,  has  been  held  uiicon- 
Mich.  576.  stitutional    iu    delegating    legislative 

*  Antt,  §§  36,  37,  110.    A   statute     powers  to  a  tribunal  not  entitled,  un- 
498 


GRANTS  or  EXCLUSIVE  PRIVILEGES.     [1  Thouip.  Corp.  §  647. 

the  power  to  confer  franchises  upon  corporations  of  a  particular 
kind,  such  as  gas  companies,  street  railway  companies,  water 
supply  companies,  and  the  like,  is  in  many  cases  delegated  by 
the  legislature  to  municipal  corporations,  and  that  this  delegation 
of  power,  when  authorized,  or  in  some  opinion,  when  not  re- 
strained by  the  constitution,  is  upheld.^ 

§  647.  May  Grant  Exclusive  Privileges  in  the  Absence  of 
Constitutional  Restraint.  —  In  the  absence  of  any  constitutional 
prohibition,  it  is  a  sound  conclusion  that  the  legislature  of  a 
State  has  the  power  to  grant  an  exclusive  privilege  to  a  corpora- 
tion, in  consideration  of  the  performance  by  it  of  public  serv- 
ices. Such  legislation  is  not  unconstitutional  from  the  circum- 
stance that  it  may  create  what  is  ordinarily  called  a  monopoly? 
In  the  absence  of  any  constitutional  restraint,  the  legislature  may 
therefore  confer  upon  a  private  corporation  the  exclusive  privi- 
lege of  laying  down  gas  pipes  and  of  manufacturing,  distributing 
and  vending  illuminating  gas  in  a  city,^  or  the  exclusive  privilege 
of  erecting  or  maintaining  a  system  of  water  works  and  of  supply- 
ing the  city  and  its  inhabitants  with  water.*  Such  grants  are 
customarily  conferred  upon  corporations  concurrently  with  their 

der  the  constitution,  to  exercise  them.  741.  A  condition  in  a  legislative  grant, 
State  V.  Simons,  32  Miuu.  540.  that  the  grantee  should  obtain  the 
1  Post,  Ch.  117.  The  legislature  of  consent  of  a  third  party,  before  en- 
Louisiana  granted  to  a  company  the  joyraent,  is  not  a  delegation  of  legis- 
exclusive  privilege  of  supplying  the  lative  power,  and  will  not  render  the 
inhabitants  of  a  city  with  water,  by  act  unconstitutional.  Morgan?;.  Mon- 
a  charter  which  provided  that  nothing  mouth  Plank-Road  Co.,  26  N.  J.  L.  99. 
therein  should  be  "  so  construed  as  to  -  Re  Philadelphia  &c.  R.  Co.,  6  Whart. 
prevent  the  city  council  from  granting  (Pa.)  25;  State  v.  Milwaukee  Gas 
to  any  person,  contiguous  to  the  river,  Light  Co.,  29  Wis.  454;  State  Tel.  Co. 
the  privilege  of  laying  pipes  to  the  u.  Alta  Tel.  Co.,  22  Cal.  398.  Contra, 
river,  exclusively  for  his  own  use."  It  Norwich  Gas  Light  Co.  v.  Norwich 
was  held,  that  the  power  conferred  on  City  Gas  Co.,  25  Conn.  19.  Compare 
the  city  council  was  not  legislative,  but  San  Francisco  v.  Spring  Valley  Water 
administrative,  and  an  ordinance  of  Works,  48  Cal.  49.'?,  515. 
the  city,  permitting  one  to  liiy  pipes  ^  LouLsville  Gas  Co.  v.  Citizens 
for  his  own  use  is  a  license,  whose  Gas  Co.,  115  U.  S.  683;  New  Or- 
validity  in  no  way  depends  on  the  leans  Gas  Co.  u.  Louisiana  Light  Co., 
constitution  or  laws  of    the  United  115  U.  S.  650. 

States.    New  Orleans    Water- Works  *  New  Orleans  Water  Works  Co.  u. 

Co.  V.  Louisiana  Sugar  Refining  Co.,  Rivers,  115  U.  S.  674. 
126  U.    S.    18;    s.   c.    8    S.    Ct.    Rep. 

499 


1  Thomp.  Corp.  §  018.]     constitutional  ukstraints. 

creation;  but  it  has  been  held  that,  in  the  absence  of  any 
constitutional  restraint,  an  existing  corporation  may  receive 
from  the  legislature  a  direct  grant  of  special  privileges  and 
franchises.^  Reasoning  upon  this  subject,  the  Supreme  Court 
of  Pennsylvania  have  said:  "It  seems  scarcely  necessary 
to  say  that  monopolies  are  not  prohibited  by  the  constitution ; 
and  that  to  abolish  them  would  destroy  many  of  our  most 
useful  institutions.  Every  grant  of  privileges,  so  far  as  it  goes, 
is   exclusive;    and  every  exclusive  privilege  is  a  monopoly."^ 

§  648.  Rule  under    Constitutional  Prohibitions.  —  By  the 

constitution  of  Kentucky  it  is  declared  that  "  no  man  or  set  of 
men  are  entitled  to  3xclusive,  separate  public  emoluments  or 
privileges  from  the  community,  but  in  consideration  of  public 
services."  It  is  because  of  this  obligation  to  render  public 
services  that  the  legislature  has  power  to  make  a  grant  of  exclu- 
sive privileges.  The  power,  therefore,  does  not  extend  to  the 
making  of  a  grant  of  exclusive  privileges  to  a  merely  private 
corporation  which  renders  no  public  services.  Accordingly,  a 
charter  provision  allowing  such  a  corporation  to  charge  a  greater 
rate  of  interest  than  allowed  by  the  general  statutes  of  the  State 
to  other  persons  was  held  void.^  In  a  later  case  the  same  court 
say:  *'  When  the  citizen  undertakes  to  discharge  a  duty  to  the 
public  that  the  State  is  under  an  obligation  to  discharge,  and  in 
consideration  for  the  undertaking  an  exclusive  privilege  is  granted, 
the  grant  is  constitutional,  because  in  consideration  of  public 
service."  The  court  instances  the  exclusive  right  to  keep  a 
ferry,  to  construct  and  operate  highivays,  etc.,  as  among  the 
exclusive  privileges  which  the  constitution  empowers  the  legisla- 

1  California  State  Tel.  Co.  v.  Alta  illuminating  gas.  The  court  say  that 
Tel.  Co.,  supra.     But  see  ante,  I  578.  it  is  a  monopoly,  and  that,  although 

2  Re  Philadelphia  &c.  R.  Co.,  6  they  have  in  that  State  no  direct  con- 
Whart.  (Pa.)  25,  opinion  by  Gibson,  J.  stitutional  provision  against  a  mouo- 
Conirary  to  the  principle  stated  in  the  poly, —  yet  the  whole  theory  of  free 
text,  and  on  grounds  which  do  not  government  is  opposed  to  such  grants, 
seem  to  be  tenable,  it  has  been  rea-  Norwich  Gas  Light  Co.  v.  Norwich 
soned  by  the  Supreme  Court  of  Errors  City  Gas  Co.,  25  Conn.    19. 

of  Connecticut,  that  the  legislature  of  ^  Gordon  v.  Winchester  &c.  Asso., 

that  State  hasnopowerto  grant  toone  12  Bush  (Ky.),  110;  s.  c.  23  Am.  Rep. 

party  the  exclusive   right  to  u~e  the  713. 
Streets  of  a  city  for  the  distribution  of 

500 


GRANTS  OF  EXCLUSIVE  PRIVILEGES.     [1  Thomp.  Corp.  §  648. 

ture  to  grant. ^  In  another  case  in  Kentucky,  which  affords  a 
good  illustration  of  this  principle,  the  State  had  improved  the 
navigation  of  a  river,  by  locks,  so  as  to  render  its  navigation 
practicable.  The  keeping  of  the  locks  in  repair  had  become  a 
drain  on  the  revenue  of  the  State.  The  State  therefore  leased 
the  works  to  a  private  corporation,  which  it  authorized  to  collect 
toUs  for  the  use  of  the  navigation.  It  was  held  that  the  under- 
taking of  the  lessee  to  keep  the  improvements  in  repair  was  a 
sufficient  consideration  for  the  giant  of  the  powers  con- 
ferred by  the  legislature,  and  that  the  act  was  not  in  viola- 
tion of  the  provision  of  the  constitution  of  Kentucky  under 
consideration.^  But  the  Court  of  Appeals  of  that  State  were 
equally  divided  upon  the  question  whether  the  above  constitu- 
tional provision  forbade  the  legislature  to  grant  to  a  private 
corporation  the  exclusive  privilege  of  manufacturing  and 
distributing  illuminating  gas,  for  public  and  private  use,  in  one 
of  the  cities  of  the  State,  by  means  of  pipes  and  mains  laid 
under  the  streets  and  other  public  ways  of  such  city.  On 
other  grounds,  the  court  reversed  a  decree  refusing  an  injunc- 
tion against  a  newly  created  gas-light  company  in  such  munici- 
pality, to  restrain  an  elder  company  which  had  received  such  a 
errant  of  exclusive  rights  from  asserting  against  it  the  exclusive 
rights  defined  in  its  charter.^  But  this  decree  was  in  turn  re- 
versed  by  the  Supreme  Court  of  the  United  States  on  error,  and  the 
court,  deeming  the  question  on  which  the  State  conrt  was  equally 
divided  an  important  one,  proceeded  to  decide  it,  by  holding,  by 
analogy  to  previous  decisions  of  the  Court  of  Appeals  of  Ken- 
tucky, that  the  supplying  of  gas  to  a  city  and  its  inhabitants  for 
illuminating  purposes  by  means  of  pipes  under  the  streets,  is  a 
franchise  belonging  to  the  State,  and  that  the  services  performed, 
as  the  consideration  for  the  grant  of  such  a  franchis*e  to  a 
private  corporation,  are  services  of  a  public  nature.  Such  pul)lic 
services,  the  court  hold,  authorize  the  legislature,  under  the 
constitution     of     Kentucky,    to     grant    exclusive    privileges.* 

1  Cora.  V.  Whipps,  80  Ky.  269.  ■*  Louisville   Gas   Co.    v.    Citizens' 

2  McKeynolds    v.      Smallliouse,     8  Gas  Co.,   115    U.    S.    683.     See    also 
Bush  (Ky.),  447.  Cora.  v.    Bacon,  13   Bush  (Ky.),    210; 

3  Citizens  Gas-Light  Co.  v.  Louis-  O'llara  v.   Lexington    &c.    R.  Co.,  1 
ville  Gas  Co.,  81  Ky.  263.  Dana  (Ky.),  232;  Gordon  v.  Winches- 

501 


1  Thomp.  Corp.  §  619.]     constitutional  restraints. 

Such  a  grant,  being  in  the  nature  of  a  contract^  provided  it  is 
validly  made  in  the  first  instance,  cannot  bo  impaired  by  subse- 
quent legislation  granting  the  same  privilege  to  a  newly  created 
corporation.^ 

§  649.  Further   of   this    Subject.  —  One   court  has   taken 
what,  after  a  reconsideration  of  the  subject,  seems  to  the  writer 
a  refined  distinction,  in  so  far  as  it  holds  that,  under  the  consti- 
tutional provision  ^  that  "  no  title  of  nobility,  hereditary  emolu- 
ment, privilege,  or  distinction,  shall  be  granted,"  it  is  beyond 
the  power  of  the  legislature  to  grant  to  a  private  corporation 
the  exclusive  privilege  of  making  and  vending  gas  within  the 
limits  of  a  city;  but  that  the  legislature  can,  by  a  charter  granted 
to  the  city,  vest  in  the  city  such  an  exclusive  control  over   its 
streets  and  alleys  as  will  enable  it  to  confer  upon  such  a  private 
corporation  the  exclusive  right  to  use  them  for  laying  gas  pipes 
therein.^     The  court  draw  a  distinction  between  conferring  the 
exclusive  privilege  of  vending  an  article  of  manufacture  which 
creates  a  monopoly,  contrary  to  the  principles  of  the  common 
law,  and  the  power  which  a  municipal  corporation  has  over  the 
•use  of  its  highways,  where  the  care  and  reparation  of  them  have 
been  exclusively  committed  to  it  for  the  benefit  of  the  pub- 
lic.    The  decision  results  in  the  solecism  that  what  the  legislature 
cannot  grant  directly  it  can  grant  indirectly,  by  conferring  the 
power  upon  the  municipal  corporation  to  grant  it.     The  gas  com- 
pany claiming  the  exclusive  privilege,  did  not  of  course  take  so 
absurd  a  position  as  to  claim  that  the  legislature  could  create  a 
monopoly  in  the  mere  vending  of  illuminating  gas,  provided  it 
could  be  conducted  to  the  purchasers  or  consumers  by  any  other 
means  than  the  use  of  the  public  streets.     The  exclusive  right  to 
use  the*  public  streets  for  the  laying  of  gas  mains  therein,  was 
the  thing  struggled  for;   and  so  much  of  the  opinion  as  dwelt  on 
the  inability  of  the  legislature  to  grant  an  exclusive  privilege  to 
vend  illuminating  gas  was  an  unnecessary  discussion. 

ter,  12  Bush   (Ky.),  110,  114  (views of  Gas  Co.  v.  Citizens  Gas   Co.,  115  U. 

Cofer,  J.) ;  Com.   v.  Wliipps,   80   Ky.  S.  683. 

269.  2  Const.  Mo.  1820,  art.  12,  §  20. 

1  New  Orleans  Gas  Co.  U.Louisiana  ^  st.   Louis   Gas  Light  Co.   v.   St. 

Light  Co.,  115  U.    S.  650;  Louisville  Louis  Gas, Fuel  &c.  Co.,  16  Mo.  App.  52. 
502 


GRANTS    OF    EXCLUSIVE   PRIVILEGES.       [1  Thomp.  Coip.    §  650. 

§  650.  Holdings  under  Other  Constitutions. — The  consti- 
tution of  New  York  (amendment  of  1875),  forbids  the  legisla- 
ture from  passing  any  special  act  granting  to  any  corporation 
the  right  to  lay  down  railway  tracks,  or  any  exclusive  privilege, 
immunity  or  franchise.  It  has  been  held  that  a  statute  amend- 
ing the  charter  of  an  underground  railroad  company  authorizing 
it  to  widen  its  excavation  and  to  change  its  motive  power,  was 
not  the  grant  of  an  exclusive  privilege  within  this  inhibition.' 
The  provision  of  the  present  constitution  of  Illinois^  against 
«'  granting  to  any  corporation,  association,  or  any  individual,  any 
special  or  exclusive  privilege,  immunity  or  franchise  whatever," 
has  been  held  to  extend  only  to  the  passing  of  special  or  local 
laws  for  such  purposes.  Accordingly,  a  statute  regulating  the 
public  warehouses  and  the  warehousing  and  inspection  of  grain, 
was  not  in  contravention  of  this  constitutional  provision. "^  The 
constitution  of  Tennessee  forbade  perpetuities  and  monopolies. 
Tiie  Supreme  Court  of  Tennessee  have  reasoned,  upon  ancient 
authority,  that  a  monopoly  is  an  exclusive  right  granted  to  a  few, 
of  something  which  was  before  of  common  right.  Lord  Coke's 
definition,  adopted  by  the  Supreme  Court  of  the  United  States  in 
a  celebrated  case,*  was  approved  by  the  Tennessee  court.  Ac- 
cordingly, the  court  held  that  the  right  to  erect  water-ioorks  in  a 
city  involving  the  privilege  of  taking  up  the  pavements  of  the 
streets,  of  occupying  the  streets  with  water-mains,  and  of  doing 
such  other  things  as  were  necessary  and  proper  in  completing 
works  for  the  distribution  of  water  to  the  inhabitants,  was  ex- 
clusive in  the  city,  until  the  legislature  took  it  away  and  conferred 
it  on  a  private  corporation.  But  the  court  reasoned  that,  while 
it  was  an  exclusive  privilege,  it  was  not  a  monopoly  in  the  sense 
of  the  constitutional  prohibition.  The  court  accordingly  upheld 
the  exclusive  right  of  the  private  corporation  to  supply  the  in- 
habitants of  the  city  with  water. ^  In  Louisiana  the  constitu- 
tionality of  a  statute  giving  to  a  private  corporation  the  exclusive 

1  Astor^.  New  York  Arcade  R.  Co.,  ^  Munn  v.   People,  69  111.  80;    s.  c. 
48  Hua  (N.   Y.),  5G2;    s.  c.    1    N.  Y.      amrmed,  94  U.  S.  113. 

Supp.  174;  Bailey  u.  New  York,  I  N.Y.  <  Charles  River  Bridge  v.  Warren 

Supp.  304.     Compare  Astor  v.   New  Bridge,  11  Pet.  (U.  S.)  707. 

York  Arcade  R.  Co.,  113  N.  Y.  93.  «  Memphis  v.  Memphis  Water  Co., 

2  Const.  111.  1870,  art.  4,  §  22.  5  Ileisk.  (Tenn.)  495. 

503 


1  Tliomp.  Corp.  §  652.]      constitutional  hestraints. 

right  to  keep  a  slaughter-house,  and  also  the  exclusive  control  and 
supervision  over  the  inspection  of  all  animals  slaughtered  for 
market  in  the  city  of  New  Orleans,  and  at  the  same  time  pro- 
hibiting any  other  person  from  the  business  of  purchasing  or 
slaughtering  live  stock  or  selling  the  meats  thereof  in  the  markets 
of  the  city,  was  sustained  against  the  objection  that  it  violated  a 
clause  of  the  constitution  of  that  State  which  provides  that  all 
persons  shall  enjoy  the  same  civil,  political  and  public  rights  and 
privileges.^  It  was  also  sustained  in  the  same  court,  against  the 
objection  that  it  violated  the  fourteenth  amendment  to  the  con- 
stitution of  the  United  States,  and  that  it  interfered  with  com- 
merce among  the  States  ;  "^  and  the  decision  in  this  aspect  was 
affirmed  by  the  Supreme  Court  of  the  United  States.^ 

§  651.  Rights  which  the  Legislature  Cannot  Bargain 
Away.  — There  are,  however,  rights  of  so  high  a  nature  that  the 
legislature  cannot  bargain  them  away.  Of  this  nature  is  the 
power  of  eminent  domain,^  the  police  power  of  the  State,  to  be 
exercised  for  the  public  health  and  public  morals,^  and  the  power 
of  taxation.  These  several  subjects  will  be  considered  in 
their  appropriate  places  in  future  chapters. 

§  652.  Prohibition  against  Granting  Charters  of  Incorpo- 
ration to  Churches  or  Religious  Denominations.  —  The  consti- 
tution of  Virginia  contains  this  prohibition:  "The  general 
assembly  shall  not  grant  a  charter  of  incorporation  to  any 
church  or  religious  denomination,  but  may  secure  the  title  to 
church  property  to  an  extent  to  be  limited  bylaw."  ^  This  pro- 
vision was  considered  by  the  Court  of  Appeals  of  West  Virginia 
as  not  extending  so  far  as  to  prohibit  the  legislature  of  Virginia 
from  incorporating  the  individuals  composing  the  "  executive 
committee  of  publication,"  commonly  called  "  the  Presbyterian 
Committee    of  Publication,"  by  the  name  and  style  of  "the 

1  State  V.  Fagan,  22  La.  An.  545.  ^  Butchers'  Union   Co.  v.  Crescent 

2  Ibid.  City  Co.,  Ill  U.  S.  746;  New  Orleans 

3  Slaughterhouse  Cases,  16  Wall.  Gas  Co.  v.  Louisiana  Light  Co.,  115 
(U.  S.)  36.  U.  S.  650. 

*  Cooley  Const.  Lim.  (3d  ed.)  525;  ^  Const.  Va.  1867,  art.  5,  §  17. 

Hyde  Park  v.  Oakwoods  Cemetery  As- 
sociation, 119  111.  141. 
5U4 


CHARTERS  TO  RELIGIOUS  DENOMINATIONS.      [1  Thomp.  Corp,  §  652, 

Trustees  of  the  Presbyterian  Committee  of  Publication."  Such 
act  of  incorporation  was  not  deemed  an  evasion  or  violation  of 
the  above  prohibition,  because  the  publication  committee  was 
not  the  church,  but  merely  the  hand  or  servant  of  the  church,  so 
to  speak,  whose  orders  it  obeyed,  and  whose  work  in  the  matter 
of  distributing  the  religious  literature  of  the  church,  it  carried 
on.  The  court  laid  needless  stress  on  the  fact  that  the  incorpo- 
ration of  this  committee  did  not  amount  to  an  incorporation  of 
the  church  itself.^  The  constitution  of  Missouri  contains  this 
provision:  *' No  religious  corporation  can  be  established  in  this 
State,  except  such  as  may  be  created  under  a  general  law  for  the 
purpose  only  of  holding  title  to  such  real  estate  as  may  be  pre- 
scribed by  law  for  church  edifices,  parsonages  and  cemeteries."  ^ 
A  corporation  organized  for  the  purpose  of  raising  funds  for  the 
establishment  of  Catholic  colonies  was  held  not  to  be  within  this 
provision.^  In  considering  what  is  a  religious  corporation,  within 
the  meaning  of  this  statute,  the  definition  given  in  a  New  Yorkcuse 
that  a  religious  society  is  "  a  voluntary  association  of  individuals  or 
families,  united  for  the  purpose  of  having  a  common  place  of  wor- 
ship, and  to  provide  a  proper  teacher  to  instruct  them  in  religious 
doctrines  and  duties,  and  to  administer  the  ordinances  of  bap- 
tism," etc.,  has  been  rejected.*  On  the  other  hand,  it  has  been 
said:  '*  It  is  impossible  to  consider  our  constitution  as  requiring 
that  all  these  elements  and  conditions  shall  enter  into  the  composi- 
tion of  '  a  religious  corporation,'  in  order  to  bring  it  within  the 
constitutional  inhibition.  It  plainly  intends  to  forbid  the  creation 
of  any  corporation  (other  than  those  which  are  expressly  ex- 
cepted), whose  purposes  are  directly  and  manifestly  ancillary  to 
divine  worship  or  religious  teaching.  This  does  not  mean  that  a 
corporation,  created  for  educational  or  benevolent  purposes, 
may  not  hold  prayers  or  impart  religious  instruction  to  its  pupils 
or  votaries,  without  a  forfeiture  of  its  charter  or  a  violation  of 
the  law.  A  distinction  must  be  observed,  between  what  the 
members  or  servants  of  a  corporation  may  lawfully  do,  as  not 
being  forbidden  by  any  moral  or  civil  precept,  and  such  things 

1  Wilson  V.  Perry,  29  W.  Va.  169,  ^  St.  Louis   Colonization  Associa- 
Green,  J.,  dissenting.                                    tion  v.  Hennessey,  11  Mo.  App.  555. 

2  Const.  Mo.,  art.  2,  §  8.  ^  Ba[)tist  Cliurch    v.    Witherell,  3 

Paige  (N.  Y),  301. 


1  Thomp.  Corp.  §  653.]     constitutional  restraints. 

as  inhere  in  the  declared  purposes  and  objects  for  which  the  cor- 
poration was  created.  '  The  leading  purpose  of  an  associatioa 
is  the  purpose  which  determines  its  character.'  ^  The  constitu- 
tional provision  under  consideration  does  not,  in  any  degree, 
abridge  religious  freedom;  but,  on  the  contrary,  secures  its  uni- 
versality, by  withholding  special  powers  and  privileges  from  any 
one  denomination  of  religionists,  or  its  adjuncts  or  coadjutors." 
The  court  accordingly  held  that  the  decree  of  incorporation  was 
rio^htly  refused,  since  the  corporation  would  be  a  religious  cor- 
poration within  the  prohibition  of  the  constitution,  and  a  busi- 
ness corporation  for  pecuniary  gain,  within  the  prohibition  of 
the  statute.  The  court  further  said :  "  The  leading  purpose  of  the 
intended  corporation  is,  the  healing  of  physical  and  mental  dis- 
eases. But  all  the  healing  is  to  be  accomplished  by  the  sup- 
posed efficacy  of  a  religious  tenet.  Take  away  the  religious 
agency,  and  there  is  literally  nothing  left,  whereby  the  corpora- 
tion may  effect  its  purposes.  Religion  is  its  motive  power,  and 
quite  as  essential  to  all  its  work,  as  money  to  a  banking  corpora- 
tion, or  a  railway  cars  and  locomotives  to  a  railway  company. 
If  this  does  not  make  it  a  religious  corporation,  within  the  con- 
stitutional meaning,  then  nothing  short  of  a  church  regularly  or- 
dained for  public  worship  can  come  within  the  constitutional 
intent."  Finding  that  it  had  in  it  an  element  of  pecuniary  profit, 
the  court  also  held  that  its  incorporation  was  rightfully  refused, 
under  the  provisions  of  a  statute  of  Missouri  ,2  which  directed 
that  "  no  association,  society  or  company  formed  ...  for 
pecuniary  profit  in  any  form  .  .  .  shall  be  incorporated 
under  this  article."  ^ 

§  653.  Corporations  in  Aid  of  Rebellion —  Acts  of  State 
letrislatures  creating  corporations  for  purposes  in  aid  of  the  late 
rebellion  have  been  declared  void.  Thus,  a  statute  of  South  Car- 
olina, incorporating  a  company  for  the  purpose  of  exporting 
produce  and  importing  arms,  munitions  of  war,  and  other  com- 

1  Quoting  from  Sheren  v.  Menden-  of  New  Hampshire  to  autliorize  towns, 
hall,  23  Miim.  93.  etc.,  to  make  provisions  for  religious 

2  R.  S.  Mo.  1879,  §  978.  teachers:   Hale  v.  Everett,  63  N.  H.  9. 

3  Re  St.  Louis  Institute  of  Chris-  Very  long  opinion,  in  which  the  sub- 
tian  Science,  27  Mo.  App.  633,  opinion  ject  was  evidently  intended  to  be 
by  Lewis,  P.  J.     Power  of  legislature  "  exhausted." 

506 


ESTOPPEL  :  CONSTITUTIONALITY.     [1  Thomp.  Corp.  §  654. 

modities,  with  i)ower  to  sue  and  be  sued,  and  make  by-laws  not 
inconsistent  with  the  constitution  and  laws  of  the  State  and  the 
Confederate  States,  was  held  to  be  null  and  void,  as  against  pub- 
lic policy,  and  to  vest  the  company  with  no  power  to  make  con- 
tracts and  sue  thereon  in  its  corporate  name.^  On  like  grounds, 
a  charter  granted  by  one  of  the  so-called  Confederate  States  to  a 
corporation,  during  the  civil  war,  organized  to  provide  charitably 
for  the  Confederate  soldiers,  was  held  void.^ 

§  654.  Estoppel  to  Raise  Question  of  Constitutionality  of 
Act  Creating  Corporation. —  It  has  been  held  that,  in  an  action 
by  an  incorporated  bank,  the  debtor  of  the  bank  cannot  set  up 
the  defense  that  the  incorporation  of  the  bank  was  a  violation  of 
the  constitution.  "  After  having  borrowed  the  paper  of  the  in- 
stitution, both  public  policy  and  common  honesty  required  that 
the  borrowers  should  repay  it.  It  is  therefore  unnecessary  to  de- 
cide whether  the  incorporation  of  the  bank  was  a  violation  of  the 
constitution  or  not."  ^  With  a  barbaric  adhesion  to  technicality 
and  a  low  sense  of  justice,  the  early  Supreme  Court  of  Michigan 
held  that,  the  general  banking  law  of  that  State  *  being  uncon- 
stitutional and  void,  in  so  far  as  it  purports  to  confer  corporate 
powers,  no  foreclosure  could  be  had  of  a  mortgage  executed  to 
a  bank  organized  under  its  provisions.^  In  the  first  case  in  which 
the  same  court  held  this  law  unconstitutional  and  void,  the  ques- 
tion arose  on  a  demurrer  to  a  declaration  by  a  receiver  of  one  of 
the  banking  associations  thereby  created  on  a  promissory  note, 
and  the  court,  on  the  ground  that  the  banking  association  had 
never  been  incorporated  under  a  formal  law,  sustained  the  de- 
murrer and  the  rascal  was  allowed  to  escape  the  payment  of  his 
note.^  The  calamities  which  were  produced  by  these  stupid  de- 
cisions are  within  the  memory  of  persons  still  living.  Mr. 
Justice  McLean,  in  a  case  before  him  at  circuit,  was  not  able  to 
discover  any  way  out  of  this  difficulty.  The  action  was  a  bill 
in  equity  to  make  responsible,  under  the  general  banking  law  of 

1  Chicora  Company  v.  Crews,  6  S.  *  Mich.  Stat.  1837,  p.  76. 

C.  243.  '^  Hurlbut     v.    Britain,   2     Doug. 

2  Trustees    of    N.    C.    Endowment      (Mich.)  191. 

Fund  V.  Satchwell,  71  N.  C.  111.  «  Green  v.  Graves,  1  Doug.  (Mich.) 

3  Snyder     v.  State     Bank,    I    111.      351. 
(Breese)  122. 

507 


1  Thomp.  Corp.  §  656.]     constitutional  restraints. 

Michigan,  the  directors  and  stockholders  of  one  of  the  banks,, 
organized  under  that  law,  which  had  become  insolvent.  The 
Supreme  Court  of  Michigan  having  declared  the  law  unconstitu- 
tional, and  the  Federal  court  being  bound  on  this  question  to  fol- 
low the  State  court,  the  learned  justice  found  it  "  difficult  to  find 
any  principle  on  which  the  obligations  of  such  associations  can  be 
enforced."  "  They  have,"  said  he,  "  no  standing  within  the 
protection  of  the  law,  they  having  been  established  in  defiance  of 
its  prohibitions.  As  between  the  individuals  concerned,  as  yar- 
ticeps  criminisy  the  law  could  give  no  aid ;  and  it  is  not  perceived 
how  an  individual  can  become  indebted  to  the  bank,  or  have 
a  claim  on  it,  without  being  involved  in  its  illegality."  He 
therefore  sustained  the  demurrer  to  the  bill.^  The  Supreme  Court 
of  New  York  seems  to  have  had  the  same  trouble  in  respect 
of  the  New  York  banking  law  of  1838.  The  court,  following  its 
previous  decision, ^  held  that  the  act  was  unconstitutional,  and 
therefore,  in  an  action  of  assumpsit  on  a  promissory  note,  by  a 
bank  created  under  the  act,  gave  judgment  in  favor  of  the  defend- 
ant; but  the  Court  of  Errors,  being  of  opinion  that  the  act  was 
constitutionally  passed,  reversed  this  judgment.^ 

§  655.  Validity  of  a  Statute  Allowing  a  Depositor  to  Ap- 
point a  Person  to  wlioni  Iiis  Deposit  shall  be  Paid  after  his 
Death.  —  It  is,  of  course,  no  objection  to  the  validity  of  a  statute  in- 
corporating a  saving  fund  society,  and  providing  that  a  book  shall  be 
kept  at  the  office  in  which  every  depositor  shall  be  at  liberty  to  appoint 
some  person  to  whom,  at  his  death,  his  deposit  shall  be  paid,  if  not  other- 
wise disposed  of  by  will,  that  it  is  contrary  to  the  statute  of  wills.  As  one 
act  of  the  legislature,  both  being  within  its  constitutional  power,  is  as  good 
as  another,  it  is  no  objection  to  the  validity  of  such  a  statute  that  it  is 
contrary  to  another  statute,  or  that  it  creates  an  exception  to  it.* 

§  656.  Unconstitutional  Law  may  Operate  as  a  Legislative 
License.  —  Where  certain  persons  had  been  indicted  for  setting  up 
and  carrying  on  a  lottery,  and  they  justified  under  a  statute  incorporat- 

1  Nessmith  v.  Slieldon,   4  McLean  ion,  sub  nom.    Nessmith  v.  Sheldon,  7 

(U.   S.),   377.     This  decision  was    af-  How.  (U.  S.)    7\2;  ante,  ^ 

firmed,  as  to  the  point  that  it  was  the  ^  Debowv.  People,!  Denio  (N.Y.),  9. 

duty  of  the  Federal  to  follow  the  State  3  Gifford  v.  Livingstone,   2    Denio 

court,  by  the  Supreme   Court  of  the  (N.  Y.),  380. 

United  States,  on  a  certificate  of  divis-  ^  Knorr's  Appeal,  89  Pa.  St.  93. 
508 


VALID  IN  part:  void  IN  PART.     [1  Thoiiip,  Coi'p.  §  658. 

ing  them  as  a  company  for  that  purpose,  "  to  raise  funds  for  the  com- 
mon school  system  of  Alabama,"  the  court  reached  the  conclusion  that 
although  their  act  of  incorporation  was  void,  as  being  in  conflict  with 
the  clause  of  the  constitution  which  prohibited  the  legislature  from 
creating  corporations  by  special  act,  except  for  municipal  purposes,  — 
yet  that  it  might  operate  as  a  legislatiA^e  license  to  carry  on  the  lottery, 
and  would,  in  some  way  or  other,  estop  the  State  from  punislnng  the 
corporators  for  carrying  it  on.  The  court  had  no  difficulty  in  finding 
that  the  defendant  ' '  acted  in  good  faith  and  verily  believed  he  was  doing 
what  the  State,  by  the  statute,  clearly  authorized  him  to  do."^ 

§  657.  Charters  Exempting  Corporations  from  General 
ll<aws.  —  A  constitutional  pro\ision  empowering  the  legislature  to  grant 
' '  such  charters  of  incorporation  as  they  may  deem  expedient  for  the 
public  good,"  has  been  held  not  to  empower  them  to  grant  a  charter 
of  incorporation  exempting  the  corporation  from  the  usury  laws 
of  the  State,  by  authorizing  it  to  issue  its  mortgage  bonds,  bearing  a 
higher  rate  of  interest  than  that  fixed  by  general  law.  Notwithstanding 
such  a  charter  provision,  a  bill  in  equity  was  entertained,  brought  by 
general  creditors,  the  object  of  which  was  to  confine  the  bondholders  of 
the  corporation  to  the  rate  of  interest  prescribed  by  the  general  law  of 
the  State,  and  to  subject  the  surplus  to  the  payment  of  the  debts  of 
the  complainants,  and  a  decree  granting  this  relief  was  affirmed.  The 
bill  was  well  brought  as  to  such  of  the  complainants  as  were  judg' 
ment  creditors. ^ 

§  658.  Statutes  may  be  Valid  in  Part  and  Void  in  Part. — 

It  is  a  principle  of  constitutional  law  that  a  statute  may  be 
valid  in  part  and  void  in  part.  If  a  provision,  which  is  not  ob- 
noxious to  any  constitutional  objection,  is  found,  even  in  the 
same  section,  with  another  provision  which  is  repugnant  to  the 
constitution,  the  provision  which  is  in  itself  valid  must  be  sus- 
tained, unless  the  two  are  so  united  that  it  must  be  presumed 
that  the  legislature  would  not  have  adopted  the  one  without  the 
other. ^  An  appropriate  case  for  the  application  of  this  princi- 
ple is  where  the  objects  of  the  statute  which  are  held  to  be 
unconstitutional,    and   those    parts   of  it   which   are    valid,  arc 

1  Brent  v.  State,  43  Ala.  297.  The  »  Robinson  v.  Bidwell,  22  Cal.  379; 
decision  is  destitute  of  eitlier  legal  or  People  v.  Nally,  49  Cal.  482;  Ex  parte 
moral  sense.  Frazer,  54  Cal.  94;  Com.  v.  Ilitchings, 

2  McKiuney    v.    Memphis   Overton  6  Gray  (Mass.),  485. 
Hotel  Co.,  12  Heisli.  (Tenn.)  104. 

509 


1  Thomp.  Corp.  §  659.]     constitutional  kestraints. 

wholly  independent  of  each  other,  so  that  the  latter  may  be 
carried  into  effect  without  reference  to  the  former. ^  When  the 
parts  of  a  statute  are  so  mutually  connected  and  dependent,  as 
conditions,  considerations  or  compensations  for  each  other,  as  to 
warrant  a  belief  that  the  legislature  intended  them  as  a  whole, 
and  that,  if  all  could  not  be  carried  into  effect,  the  legislature 
would  not  have  passed  the  residue,  independently,  if  some  parts 
are  unconstitutional  and  void,  all  the  provisions,  which  are  thus 
dependent,  conditional,  or  connected,  must  fall  with  them.^ 

§  659.  Illustrations.  —  It  has  already  been  seen  that  if 'a  part  of  a 
statute  is  not  expressed  in  the  title,  and  such  part  is  severable  from  the 
rest,  it  may  be  declared  void,  and  the  rest  allowed  to  stand,  under  a 
constitutional  provision  that  an  act  shall  contain  but  one  subject,  which 
shall  be  expressed  in  its  title. ^  _  -  -  .  go,  if  we  refer  to  some  of 
the  principles  discussed  in  the  preceding  article  in  regard  to  restraints 
upon  the  enacting  of  laws,  we  shall  find  that  where  it  is  ascertained 
from  the  journals  of  the  two  houses  of  the  legislature  that  a  particular 
amendment  to  a  bill  was  not  passed  in  conformity  with  the  requirements 
of  the  constitution,  but  that  the  bill  without  the  amendment  was  passed, 
the  courts  may,  it  has  been  held,  sever  the  amendment  from  the  bill  and 

1  Warren  V.  Mayor  of  Charlestown,  v.   Sargent,   36   Cal.  379;    Nelson    v. 

2  Gray  (Mass.),  98;  French!?.  Tesche-  People,  33  111.  390;  McCulloch  v. 
maker,  24  Cal.  518,  648;  Ex  parte  State,  11  Ind.  424;  Santo  v.  State,  2 
Frazer,  54  Cal.  94;  St.  Louis  v.  St.  Iowa,  165;  Fisher  u.  McGin,  1  Gray 
Louis  R.  Co.,  14  Mo.  App.  221 ;  Harris  (Mass.),  1;  Matter  of  DeVauceue, 
V.  Niagara  County  Supervisors,  33  31  How.  Pr.  (N.  Y.)  289;  State  v. 
Hun  (N.  Y.),  279;  Tripp  v.  Overocker,  Copeland,  3  R.  I.  33;  State  v.  Snow, 
7  Col.  72;  Gunnison  County  Comm'rs  3  R.  I.  62. 

W.Owen,  Id.   467;  Peoples.  Jobs,  Id.  ^  Warren    v.    Mayor  &c.,  2    Gray 

475;  Franklin  Co.  v.  Nashville  &c.  R.  (Mass.),  84;  Commonwealths.  Clapp, 

Co.,    12   Lea  (Tenn.),    521;   South    &  5 /(^.  97;  Commonwealths.  Hitchings, 

North  Ala.   R.  Co.  v.  Morris,  65  Ala.  Id.  482;  Commonwealth  v.  Pomeroy, 

193;  States.   Clark,  54  Mo.  17;    Rood  Id.  486;  Slauson  s.   Racine,  13   Wis. 

V.  McCargar,   49  Cal.  117;   Mobile  &c.  398;  Campau  s.  Detroit,  14  Mich.  276; 

R.  Co.  V.  State,  29  Ala.  573;  People  v.  San    Francisco     v.      Spring      Valley 

Hill,  7   Cal.  97;  Lathrop   v.  Mills,  19  Water  Works,    48  Cal.   493;  State  v. 

Cal.  513;  Robinsons.  Bidwell,  22  Cal.  Pugh,    43    Ohio    St.    98;   O'Brien    s. 

379;  Campbell  s.  Union  Bank,  7  Miss.  Krenz,  36  Minn.  136;  Hinze  s.  People, 

(6  How.)   625;     Exchange     Bank    v.  92  111.  406;  Eckhart  s.  State,  5  W.  Va. 

Hinds,  3  Ohio  St.   1;   State  s.  Com-  515. 

missioners,  5/d.  497;  Bank  of  Hamil-  ^  Ante,     §625;     People    s.    Hall,    8 

tons.   Dudley,  2   Pet.    (U.    S.)    526;  Colo.  485. 
Duer  s.   Small,  4  Blatchf.  263;  Mills 
510 


VALID  IN  part:  void  IN  PART.     [1  Thomp.  Corp.  §  659. 

declare  the  amendment  void  and  the  rest  of  the  law  valid. i  -  -  -  - 
A  general  act  authorizing  the  formation  of  corporations  may,  like  any- 
other  statute,  be  valid  in  part  though  void  in  part.  For  instance, 
although  a  statute  authorizing  the  creation  of  rafting  or  boom  compa- 
nies, may  be  invahd  in  so  far  as  it  gives  a  corporation  the  right  to  take 
exclusive  possession  of  a  public  navigable  stream  and  bar  the  rights  of 
all  others  therein,  yet  in  so  far  as  it  merely  provides  for  the  formation 
of  corporations  with  the  power  to  make  contracts,  it  is  constitutional  and 
vahd.2  -  -  -  -  By  analogy  to  the  rule  that  a  statute  may  be  valid 
in  part  and  void  in  part,  it  has  been  held  that  an  order  of  court  made  in 
pursuance  of  such  a  legislative  authorization,  organizing  a  corporation 
for  the  purpose  provided  by  a  general  law,  is  valid  to  the  extent  of  the 
pro\dsions  of  that  law,  and  void  only  so  far  as  it  confers  powers  or  priv- 
ileges in  excess  of  those  authorized  by  the  statute. ^  -  -  -  -  As  an 
illustration  of  the  principle,  it  has  been  held  that  a  portion  of  a  section 
of  a  general  statute  regulating  the  incorporation  of  cities,  which  pre- 
scribes the  form  of  judgment  to  be  rendered  on  appeal,  may  be  judi- 
cially stricken  out  as  unconstitutional,  without  impamng  the  rest  or 
without  impairing  the  rights  of  suitors.*  -  -  -  -  Appljdng  this 
principle,  it  has  been  held  that  a  statute  imposing  a  tax  on  telegraphic 
messages  being  invalid  as  to  interstate  messages,  the  whole  statute  must 
fall.  5 

1  Berry  v.  Baltimore  &c.  R.  Co.,  41  part.  The  Supreme  Court  of  Texas 
Md.  446.  has  been    called    upon  to  hold    that 

2  Ames  V.  Port  Huron  &c.  Co.,  6  where  there  is  an  irreconcilable 
Mich.  266.  The  court  do  not  decide  conflict  between  two  provisions  of  a 
that  the  statute  is  void  even  in  the  constitution,  the  more  comprehensive 
particular  case.  and  specific  provision  should  control. 

3  Heck  u.  Ewen,  76  Tenn.  97.  Gulf  &c.  R.  Co.  v.  Rambolt,  07  Tex. 
*  Allen  V.  Silvers,  22  Ind.  491.  654.  It  is  scarcely  necessary  to  say 
«  Western  Union  Tel.   Co.  v.  State,      that  an  unconstitutional  statute  ac- 

62  Tex.  630.  A  more  difficult  question  quires  no  force  by  being  subsequently 
is  presented  where  the  court  cannot  incorporated  in  a  revision  of  the  stat- 
sustain  some  part  of  the  constitution      utes.    Cock  v.  Stewart,  85  Mo.  575. 


Itself  without  disregarding  some  other 


511 


1  Thomp.  Corp.  §  665.]     national  corporations. 


CHAPTER     XIII.i 


NATIONAL    CORPORATIONS. 


Section 

665.  Definition  —  division  —  introduc- 

tion. 

666.  Within     the    states:      historical 

sketch :  national  banks. 

667.  Transcontinental  railway  compa- 

nies. 

668.  Maritime   Canal  Company  of  Ni- 

caragua. 

669.  Other  corporations  chartered  by 

congress. 

670.  Formation  of  national  corpora- 

tions. 

671.  Power    of     congress    to    confer 

franchises  on  them:  exemp- 
tion from  state  control  and 
taxation. 

672.  Power     to      confer      right      of 

eminent  domain  within  the 
state. 


Section 

673.  May  confer  on  federal  courts  ex- 

clusive jurisdiction  of  suits  by 
and  against. 

674.  Protection  under  the   fourteenth 

amendment. 

675.  Status  of  national  corporations 

within  the  states:  jurisdiction 
over  them. 

676.  Further  of  this  subject. 

677.  How  dissolved. 

678.  Power    of    congress    to    revoke 

their  charters. 

679.  Effect  of  reservation  of  right  to 

amend. 

680.  Not  dissolved  by  state  action. 

681.  Corporations   of   the  territories. 

682.  Corporations  of  the  District  of 

Columbia. 

683.  State  corporations  holding  fed- 

eral franchises. 


§  665.  Definition  —  Division  —  Introduction.  —  The  term 
national  corporation,  as  used  in  this  chapter,  means  a  corporation 
existing  under  a  franchise  conferred  by  the  national  government. 
A  corporation  existing  under  a  franchise  conferred  by  a  State  of 
the  Union  is  not  within  the  definition.  National  corporations 
may  be  divided  with  convenience  into  two  classes:  1.  Those 
authorized  to  act  within  the  States.  2.  Those  authorized  to  act 
within  the  territories  and  the  District  of  Columbia.  Some  cor- 
porations fall  within  both  classes.  Coiporations  of  the  first 
class,  of  which  national  banks  and  the  Pacific  Railway  Companies 
are  examples,  are  of  general  interest,  both  from  the  legal  ques- 


1  This  chapter  was  written  by  Rus- 
sell H.  Curtis,  Esq.,  of  the  Chicago 
bar,  and  was  first  published  in  21  Am. 
Law  Rev.  258.     It  is  now  republished, 
512 


with  the  consent  of  its  original  publish- 
ers and  of  Mr.  Curtis,  after  a  revision 
of  the  text  and  notes  by  him,  to  bring 
them  down  to  date. . 


HISTORICAL  SKETCH.      [1  Thomp.  Coip.  §  666. 

tions  to  which  they  give  rise,  their  wide  territorial  distribution, 
their  wealth,  and  the  possible  consequences  of  their  increase  in 
the  future.  The  capital  stock  of  the  more  noticeable  of  them  is 
now  worth  on  the  market,  in  round  numbers,  $600,000,000.^ 
Yet  they  have  received  hitherto  from  writers  on  leo-al  topics  but 
little  attention.  They  are  alluded  to  in  the  standard  text-books 
on  corporations,  but  they  are  not  treated  as  a  class  of  corpora- 
tions by  themselves. 

§  666.  Within  the  States :  Historical  Sketch ;  National 
Banks.  —  It  is  not  difficult  to  enumerate  the  principal  national 
corporations  which  have  been  authorized  to  act  within  the  States, 
for  such  corporations  have  been  important  at  almost  all  periods 
since  the  formation  of  the  Federal  government.  In  1791,  the 
first  Congress  which  sat  under  the  constitution  incorporated  the 
earliest  bank  of  the  United  States. ^  The  corporate  existence 
of  this  bank  expired,  according  to  the  limitation  contained 
in  its  charter,  in  1811.  In  1815  a  bill  to  incorporate  a  na- 
tional bank  was  passed  by  Congress,  but  was  vetoed  by  Presi- 
dent Madison.'^  In  1816,  Congress  incorporated  the  second 
bank  of  the  United  States.*  Its  franchises  expired  by  the 
limitation  contained  in  its  charter,  on  March  3,  1836.  The 
famous  controversy  between  President  Jackson  and  the  bank, 
over  the  question  of  the  renewal  of  its  charter,  culminated  three 
years  earlier,  when  the  President  secured  a  Secretary  of  the 
Treasury  who  would  obey  his  orders  to  withdraw  from  the  bank 
the  public  funds. ^  The  opinion  held  by  that  secretary  con- 
cerning the  rights  of  this  national  corporation,  was  not,  it  has 
been  supposed,  the  least  of  the  causes  which  led  to  his  appoint- 
ment to  the  office  of  Chief  Justice  of  the  United  States  Supreme 
Court.  In  1841,  Congress  passed  a  bill  to  incorporate  a  national 
bank,  but  it  was  vetoed  by  President  Tyler.^  In  1863,  Congress 
for  the  first  time  authorized  the  formation  of  national  banks  by 

1  This   stiiteraent   was   true   at  the  ■»  3  U.  S.  Stat.  2M>. 

date  when  this  chapter  was  first  writ-  ^  Tyler's  Life   of   Taney,  pp.    205, 

ten,  namely,  January,  1887.  206. 

2  1  U.  S.  Stat.  191.  MO  Congressional  Globe,  337. 

3  Annals  of    Congress,  13th    Con- 
gress, vol.  3,  p.  208. 

33  513 


i  Tliomp.  Corp.  §  668.]     national  corpouations. 

a   generiil    statute.^     Statutes    relating   to    particular    national 
banks  are  still  passed  at  every  session. 

§  667.  Transcontinental  Railway  Companies.  —  In  1862, 
Congress  chartered  the  Union  Pacitic  Railroad  Company,  with 
power  to  construct  a  railway  and  telegraph  line  through  the  ter- 
ritories, and  b}^  the  same  act  of  incorporation  granted  franchises  to 
several  State  railway  corporations;  provided  for  operating  the 
lines  of  these  corporations  as  one  line,  and  provided  for  their 
future  consolidation. 2  The  consolidation  provided  for  by  the 
charter  was  effected  in  part  in  1880.^  The  name  of  the  consoli- 
dated corporation  is  the  Union  Pacific  Railway  Company. 
Whatever  may  be  thought  of  the  status  of  the  constituent  cor- 
porations from  which  this  consolidated  corporation  was  formed, 
it  appears  to  be  a  national  corporation  authorized  to  act  within 
the  States  of  the  Union.*  In  1864,  Congress  chartered  the 
Northern  Pacific  Railroad  Company,  and  authorized  it  to  con- 
struct a  railway  and  telegraph  line  from  a  point  in  the  State  of 
Minnesota,  or  the  State  of  Wisconsin,  west  to  Pnget  Sound, ^ 
The  charter  contained  the  provision  that  no  road  should  be  con- 
structed within  a  State,  without  the  previous  consent  of  the 
legislature  of  the  State.  In  1866,  Congress  chartered  the  Atlan- 
tic &  Pacific  Railroad  Company,  with  authority  to  construct  a 
railway  and  telegraph  line  from  a  point  in  the  State  of  Missouri 
to  the  Pacific  ocean. ^  In  1871,  Congress  chartered  the  Texas 
Pacific  Railway  Company,  to  construct  and  operate  a  railway  in 
part  in  the  States  of  California  and  Texas. ^ 

§  668.  Maritime  Canal  Company  of  Nicaragua.  —  In  1889 
Congress  chartered  the  Maritime  Canal  Company  of  Nicaragua, 
to  be  a  private  stock  corporation  for  pecuniary  profit,  with  its 
principal  ofBce  in  the  city  of  New  York,  for  the  purpose  of  con- 
structing and  operating  a  ship  canal  between  the  Atlantic  and 
Pacific  ocean,  through  the  territory  of  the  Republics  of  Nicara- 

1  12  U.  S.  Stat.  665.  «  14  u.  S.    Stat.    292;   Santa    Clara 

2  12  U.  S.  Stat.  489.  County  v.  Southern  Pac.  R.,  118  U.  S. 

3  Poor's  Manual  for  1882,  p.  762.  394,  398. 

*  Pacific  Railway  Removal  Cases,  ">  16  U.  S.  Stat,  573;   Supplemental 

115  U.  S.  1.  Act,  May  2,  1872,  17  Stat.  59. 

s  13  U.  S.  Stat.  365. 
5U 


HOW  FORMED.     [1  Thomp.  Corp.  §  670. 

gua  and  Costa  Rica.^  It  is  to  be  noticed  that  the  principal 
action  of  the  corporation,  the  construction  and  operation  of  a 
ship  canal,  are  to  be  performed  exclusively  in  foreign  territory. 

§  669.  Other  Corporations  Chartered  bj'  Congress. —  Con- 
gress has  chartered  corporations  not  for  pecuniary  profit.  In 
1871  Congress  chartered  the  Centennial  Board  of  Finance,  as  a 
corporation,  to  conduct  the  centennial  celebration,  in  1876,  of 
the  Declaration  of  American  Independence. ^  In  1865,  Congress 
chartered  the  Freedmen's  Savings  and  Trust  Company  as  a 
savings  bank  for  emancipated  negroes.^  In  1866,  Congress 
chartered  the  National  Asylum  for  Disabled  Volunteer  Soldiers.* 
Congress,  in  an  act  to  authorize  the  incorporation  of  national 
trades  unions  in  the  District  of  Columbia,  provided  that  corpora- 
tions formed  under  the  act  might  establish  branches  in  the 
States.^  It  is  uncertain  whether  Congress  intended  to  confer  the 
right  to  establish  a  branch  union,  if  the  State  in  which  it  should 
be  located  did  not  consent.  Several  quasi-ummGipal  corpora- 
tions have  been  created  within  State  limits  by  treaty  with 
Indian  tribes,^  though  necessarily  on  soil  over  which  Cono-ress 
retained  jurisdiction. 

§  670.  Formation  of  National  Corporations.  —  It  will  be  in- 
teresting to  examine  the  question,  how  national  corporations  em- 
powered to  act  wilhin  the  States,  may  be  formed.  The  Federal 
constitution,  the  people's  sole  grant  of  power  to  their  national 
officers,  does  not  contain  any  express  grant  of  power  to  create  a 

1  Act  of  Feb.  20,  1889;  25  U.  S.  6  United  States  v.  Kagaraa,  118  U. 
Stat.  673.  It  is  probable  th;it  Con-  S.  375;  Utah  &c.  R.v.  Fisher,  116  U.  S. 
gross  has  chartered  other  corpora-  28;  Ex  parte  Crow  Dog,  109U.  S.55G; 
tions  for  the  purpose  of  building  a  The  Kansas  Indians,  5  Wall.  (U.  S.) 
railway  or  canal  across  the  Isthmus,  737;  Worcester u.  Georgia,  6  Pet.  (U. 
but  a  single  example  is  a  sufficient  S.)  515,  561 ;  History  of  the  Creek  and 
illustration  of  the  class.  Cherokee  controversy,  1  Von  Hoist's 

2  Act  of  June  1,  1872,  17  St.  at  L.  Const.  Hist,  of  U.  S.  (Am.  ed.)  433. 
203.  Notice  Ute   Reservation    in    State    of 

"  Actof  MarchS,  18G5;  13U.  S.  Stat.  Colorado,    created     in     territory    of 

510.  Colorado  by  treaty  of   March  2,  1868, 

♦  Act  of  March  21,  1866;  14  U.  S.  (15  U.  S.  Stat.  619)  and  alluded  to  in 
Stat.  10.  United   States  v.  McBratney,  11  Fed. 

*  49th  Congress,  1st  session,  chap.  Rep.  96,  note. 


567. 


515 


1  Thomp.  Corp.  §  671.]     national  corporations. 

corponition,  but  it  contains,  as  interpreted  by  the  United  States 
Su[)reme  Court,  by  Congress,  and  by  the  acquiescence  of  the  peo- 
ple, an  implied  grant  to  Congress  of  power  to  create  a  corpora- 
tion under  certain  circumstances.  In  McCulloch  v.  Maryland, 
decided  in  1819,  Chief  Justice  Marshall  laid  down  the  rule,  which 
has  been  followed  ever  since,  that  Congress  has  power  to  create 
a  corporation,  whenever  to  do  so  is  an  appropriate  measure  to 
carry  into  execution  the  enumerated  powers  of  that  body.^  It 
was  also  decided  in  that  case  that  the  question,  whether  the 
creation  of  a  corporation  in  a  particular  instance  is  an  appropriate 
means  to  accomplish  the  end  sought,  is  one  for  the  courts  to  de- 
cide ;  and  that  the  question,  whether  such  measure  is  expedient 
is  one  solely  for  Congress.  Congress  has  not  indicated  under 
which  of  its  express  powers  it  acted  when  it  passed  the  national 
banking  statutes  and  the  special  charters  of  the  several  national 
corporations  to  which  allusion  has  been  made.  The  banking 
statutes  may  perhaps  fall  under  the  power  of  Congress  to  borrow 
money,  to  regulate  interstate  commerce,  to  coin  money  and  to 
regulate  the  value  thereof.  The  railway  statutes  may  be  referred 
to  the  power  of  Congress  to  establish  post  roads,  to  support 
armies,  and  to  regulate  interstate  commerce.^  The  purposes  for 
which  national  corporations  maybe  created  in  the  future  are  only 
limited  by  Marshall's  rule  that  such  corporations  must  be  appro- 
priate means  to  carry  into  execution  the  express  powers  of  the 
national  government. 

§  671.  Power  of  Congress  to  Confer  Franchises  on  them : 
Exemption  from  State  Control  and  Taxation.  — We  have  consid- 
ered in  the  preceding  section  the  power  of  Congress  to  confer  the 
franchise  to  exist  as  a  corporation.  We  come  now  to  consider  the 
power  of  Congress  to  confer  on  national  corporations  other  fran- 
chises. The  franchises,  which  Congress  may  confer  on  national 
corporations  to  be  exercised  within  the  States  of  the  Union,  are 
probably  limited  by  Marshall's  rule,  previously  stated.  Subject  to 
such  restriction,  no  reason  is  perceived  why  Congress  may  not  con- 

1  McCulloch  u.  Maryland,  4  Wheat.  Dearing,   91  U.  S.   29;  Legal  Tender 

(U.  S.)    316,  400;  affirmed   in  Osborn  Case,  110  U.  S.  421. 
V.  United  States   Bank,  9  Wheat.  (U.  ^  Const.  U.  S.  art.  1,  §  8. 

S.)   738;    Farmers'  &c.  Nat.    Bank   v. 

516 


EXEMPTION    FROM    STATE    CONTROL.        [I  Thomp.  Coi'p.   §   671. 

fer  franchises  upon  such  corporations,  to  the  same  extent  as  upon 
natural  persons.^  A  national  corporation  is  exempt,  in  general, 
from  State  control,  like  any  corporation  or  person,  in  the  exer- 
cise of  all  rights  held  by  it  under  the  Federal  constitution  and 
statutes. 2  Such  corporations  are  exempt  from  State  control  and 
taxation,  so  far  as  State  legislation  may  impair  their  efficiency 
as  agencies  of  the  national  government.^  The  exemption  of 
national  corporations  from  State  taxation  is  not  so  broad  under 
this  rule  as  it  was  under  the  ruling  in  McCulloch  v.  Maryland* 
and  in  Osborn  v.  United  States  Bank,^  decided  when  Chief  Jus- 
tice Marshall  was  on  the  bench.  In  those  cases  such  corpora- 
tions were  held  to  be  wholly  exempt  from  State  taxation,  with 
the  exception  of  taxation  of  their  real  estate,  and  of  the  taxation 
of  stockholders  residing  within  the  taxing  State,  upon  the  stock 
held  by  them.  In  Railroad  Company  v.  Peniston^  the  right  of 
a  State  to  tax  property  within  its  territory  belonging  to  a  rail- 
way corporation  cliartered  by  Congress  was  directly  in  issue,  and 
the  court,  applying  the  rule  just  announced,  — that  such  corpora- 
tions are  taxable  in  the  States  in  those  cases  in  which  their  effi- 
ciency as  Federal  agencies  is  not  impaired,  —  arrived  at  the  further 
rule  that  the  States  may  tax  th.Q  property ,  but  not  the  operations j 
of  Federal  agents,  and  decided  that  the  property  in  question 
was  subject  to  State  taxation.     Congress  may  give  the  State  the 

1  Example  of  incidental  franchise  a  sister  State  corporation  to  do  busi- 
conferred  ou  national  corporatiou:  ness  in  the  State,  that  it  agree  not  to 
Exemption  of  national  bank  from  sue  in  Federal  courts  is  void,  because 
attachment  before  final  judgment.  Rev.  it  makes  the  right  to  the  permit  de- 
Stals.  U.  S.  §  5242.  Pacific  Nat.  Bank  pend  on  surrender  of  a  right  conferred 
V.  Mixter,  124  U.  S.  721.  The  grant  of  by  Federal  constitution  and  statute, 
the  right  of  way  through  public  lands,  Barron  v.  Burnside,  121  U.  S.  186. 
within  and  without  the  States,  to  na-  ^  Farmers'  &c.,  Nat.  Bank  v.  Dear- 
tional,  State  and  territorial  railway  ing  (1875),  91  U.  S.  29;  National  Bank 
corporations,  has  been  quite  common  v.  Commonwealth  (1869),  9  Wall.  (U. 
in  the  past;  also  the  donation  of  public  S.)  353;  affirmed  in  Railroad  Co.  v. 
land  to  such  corporations.  Peniston,    18  Wall,  (U.  S.)  5;  s.  c.  1 

2  Afranchise  conferred  by  Congress,  Dill.  (U.  S.)   314;  Thomson  v.  Pacific 
e.g.,   to  construct  a  railway  across  a  Railroad,  9  Wall,  (U.  S.)  579. 

State,   cannot   be    taxed   by   a    State  ^  4  Wheat.  (U.  S.)  316. 

without  the  permission  ot  Congress.  ^  9  Wheat.  (U.  S.)  738. 

California  v.  Central   Pacific  R.   Co.,  c  is   Wall.   (U.  S.)  5;  s.   c.   1  Dill. 

127  U.  S.   1.     A  State  statute  making  (U.  S.)  314;  accord,  Tel.  Co.  v.  Texas, 

it  a  condition  of  granting  a  permit  to  105  U.  S.  460. 

517 


1  Thoiiip.  Corp.  §  673.]     national  corpokations. 

right  to  tax  national  corporations,  and  may  impose  conditions 
upon  such  grants.^  It  has  done  so  in  the  case  of  the  national 
banks. ^  If  a  national  corporation  is  a  party  conducting  interstate 
commerce,  Congress  may  exempt  it  from  State  taxation  also  on 
that  ground.  If  so  engaged,  it  would  be  exempt  from  State  taxa- 
tion, in  many  cases,  under  the  Federal  constitution,  without  any 
action  by  Congress.  Interstate  commerce  conducted  by  a  cor- 
poration is  entitled  to  the  same  protection  against  State  exactions 
as  is  given  to  such  commerce  conducted  by  individuals.^ 

§  672.  Power  to  Confer  Right  of  Eminent  Domain  within 
a  State.  —  The  national  government  may  exercise  the  power  of 
eminent  domain  within  the  States,  whenever  necessary  to  carry 
into  execution  the  powers  conferred  upon  it  by  the  constitution. 
The  case  of  Kohl  v.  United  States,^  has  settled  the  point.  Con- 
gress has  delegated  to  national  corporations  the  right  of  eminent 
domain,  to  be  exercised  within  the  territories.^  And  it  is  prob- 
able, judging  from  the  settled  practice  of  the  States  towards  cor- 
porations created  by  themselves,  that  Congress  has  power  to 
delegate  the  right  of  eminent  domain  to  national  corporations,  to 
be  exercised  within  a  State  without  its  consent.  In  the  case  of 
some  of  the  national  railway  corporations,  all  controversy  was 
avoided  by  provisions  in  the  statutes  creating  them,  forbidding 
or  rendering  impossible  the  construction  of  roads  within  the 
boundaries  of  a  State  without  its  assent.  However,  in  one  case 
at  least,  the  assent  of  the  State  was  obtained  after  the  construc- 
tion of  the  road."  The  charter  of  another  national  railway  cor- 
poration provides  for  the  condemnation  of  private  property 
within  States,  according  to  the  law  of  the  State  in  which  the  prop- 
erty is  situated.^ 

§  673.  May  Confer  on  Federal  Courts  Exclusive  Jurisdic- 
tion of  Suits  by  and  Against.  —  Congress  has  power,  under  the 

1  Van  Allen  v.  Assessors,  3  Wall.  *  91  U.  S.  367;  affirmed  U.  S.  ». 
(U.  S.)  573.  Jones,  109  U.  S.  513. 

2  U.  S.  Kev.  Stat.  (ed.  of  1878),  §  *  See  several  Pacific  railway  acts 
5219.  cited  supra. 

2  Gloucester    Ferry  Co.    v.   Penn,  ^  Recital  in  Pacific    Railroad    Re- 

lU  U.  S.  196;   Pensacola  Telegraph      moval  Cases,  115  U.  S.  2. 
Co,  V.  Western  Union  Telegraph  Co.,  ^  16  IT.  S.  Stat.  576,  §  10. 

96  U.S.I. 

518 


JURISDICTION  OF  u.  s.  COURTS.     [1  Thomp.  Coip.  §  674. 

constitution,  to  give  the  Federal  courts  jurisdiction  of  all  suits  by 
or  ao-ainst  national  corporations/  and  to  authorize  such  corpora- 
tions to  remove  to  the  Federal  courts  suits  brouj^ht  against  them 
in  the  State  courts. ^  Congress  may  undoubtedly  make  the  ju- 
risdiction of  Federal  courts,  over  suits  by  or  against  national  cor- 
porations, exclusive.  The  creation  of  a  corporation  by  Congress 
is  held  by  the  United  States  Supreme  Court,  to  make  any  con- 
troversy to  which  such  corporation  may  be  a  party,  a  controversy 
arisino:  under  the  laws  of  the  United  States,  and  hence  acontro- 
versy  to  which  the  judicial  power  of  the  United  States  extends, 
irrespective  of  the  citizenship  of  the  parties.^  And  it  is  settled 
that  Congress  may  make  exclusive  the  jurisdiction  of  the  Federal 
courts  over  all  controversies  arising  under  a  law  of  the  United 
States,  if  not,  indeed,  over  all  controversies  to  which  the  ju- 
dicial power  of  the  United  States  extends.*  Congress  may  con- 
fer a  special  jurisdiction  on  a  Federal  court  to  try  a  special 
matter,  and  it  has  exercised  such  power  with  reference  to  a  na- 
tional corporation.  In  this  instance  it  prescribed  that  matters 
and  defendants  might  be  joined  in  a  manner  which,  but  for 
the  special  authorization,  would  have  constituted  multifarious- 
ness.^ 

§   674.  Protection   under    tbe  Fourteenth    Amendment. — 

Apart  from  the  shelter  afforded  by  other  clauses  of  the  Federal 
constitution,  a  national  corporation  is  probably  protected  against 
unreasonable  State  exactions  by  the  clause  of  the  fourteenth 
amendment  to  the  Federal  constitution,  which  prohibits  a  State 
from  denying  to  any  person  the  equal  protection  of  the  laws.  It 
is  settled  by  the  decisions  of  the  United  States  Supreme  Court, 
that  a  domestic  corporation  of  a  State  of  the  Union,  is,  as  to  such 

1  Osborn  v.  Bank  of  United  States,  *  The  Moses  Taylor,  4  Wall.  (U.  S.) 
9  Wheat,  (U.  S.)  738;  accord,  Ken-  411;  Gaines  v.  Fuentes,  92  U.  S.  10; 
nedy  t?.  Gibson  8  Wall.  (U.  S.)  498;  Claflin  v.  Houseman,  Assignee,  93  U.  S. 
Pacific  Railroad  Removal  Cases,  115  130.  These  cases  by  implication  over- 
U.  S   2.  rule  Cook  v.   State  Nat.  Bank,  52  N. 

2  Pacific   Railroad  Removal  Case«,  Y.  96. 

supra.  ^  United  States  v.  Union  Pacific  R. 

3  Osborn  «.  Bank  of  United  States,  Co.  (1878),  98  U.  S.  569;  for  report 
supra;  Pacific  Railroad  Removal  of  case  below,  see  11  Blatch.  (U.S.) 
•Cases,  supra.  386. 

519 


1  Thorn  p.  Corp.  §  675.]     national  corporations. 

State,  ii  person  within  the  meaning  of  this  coHstitutioniil  iimend- 
ment,^ although  a  sister  State  or  foreign  corporation  is  not.^ 

§  675.  Status  of  National  Corporatious  vvitliiu  the  State: 
Jurisdiction  over  tliem.  —  The  status  of  a  national  corporation, 
witliin  a  State  where  it  acts,  depends  upon  several  circumstances. 
As  we  have  seen,  Congress  may  exempt  a  national  corporation 
from  State  control,  so  far  as  such  control  would  impair  its 
efficiency  as  an  agency  of  the  Federal  goverument,  and  so  far  as 
such  corporation  is  a  party  conducting  interstate  commerce.  In 
New  York,  a  national  corporation  is  by  statute  defined  to  be  a 
domestic  corporation  of  the  State, ^  and  it  may  sue  in  the  State 
courts  as  citizen  of  the  State. ^  In  Pennsylvania,  it  has  been 
held  that  a  national  corporation  is  not  a  foreign  corporation  with- 
in the  meaning  of  a  State  statute  imposing  a  tax  on  foreign 
corporations.^  In  another  case,  a  Pennsylvania  court,  acting 
upon  the  rule  that  a  corporation  has  in  general  a  legal  existence 
everywhere  within  the  limits  of  the  sovereignty  from  which  its 
corporate  existence  is  derived,  decided  that  a  national  corpora- 
tion was,  in  Pennsylvania,  neither  an  alien  nor  a  citizen  of 
another  State  of  the  Union,  nor  a  foreign  corporation,  and  hence 
that  a  Federal  statute,  governing  the  removal  of  causes  from  a 
State  to  a  Federal  court  by  an  alien,  did  not  apply  to  an  applica- 
tion for  removal  by  a  national  corporation.^  What  has  been 
said  of  the  status  of  national  corporations  does  not  apply  to  such 
corporations  chartered  by  Congress,  in  the  exercise  of  its  powers 
of  local  legislation  over  the  territories  and  the  District  of  Col- 
umbia. The  jurisdiction  of  the  Federal  courts  over  suits  by 
and  against  national  banks  is,  by  Federal  statute  of  March  3, 
1887,'  the  same,  except  as  to  suits  by  the  United  States  and  in 
one  or  two  other  specified  cases,  as  the  jurisdiction  of  suits  by 

1  Santa  Clara  County  v.  Southern  Pa-  ^  N.  Y.  Code  of  Civil  Procedure^ 
ciflc  R.  Co.,  118  U.  S.  394,  390 ;  Pembina      §  3343,  clause  18. 

&c.  Co.  V.  Pennsylvania,  125  U.  S.  181 ;  *  Market  National  Bank  v.  Pacific 

Minneapolis   &c.  R.    Co.  v.  Beckwith,  Nat.  Bank  (1882),  64How.Pr.  (NY.)  1. 

129  U.  S.  26.  ^  Commonwealth  v.   Texas   &c.   R. 

2  Philadelphia  Fire  Association  v.  Co.  (1881),  98  Pa.  St.  90. 

New  York,  119U.  S.  110;  Pembina  &c.  6  Eby    ?).  Northern   Pacific   R.  Co. 

Co.  V.  Pennsylvania,   125   U.    S.    181,       (1879,)  36  Leg.  Int.  164. 

189.  '  U.S. Stat.  1886-7, page 552, ch.  273. 

520 


STATUS    WITHIN    THE    STATES.       [1  Thomp.  Corp.    §  676. 

and  ao-ainst  banks  not  organized  under  a  law  of  the  United  States. 
For  the  purpose  of  determining  the  jurisdiction,  a  national  bank 
is  deemed  a  citizen  of  the  State  in  which  it  is  located.^  The 
power  of  a  national  corporation,  other  than  a  banking  corpora- 
tion, to  sue,  and  its  liability  to  be  sued,  are,  since  the  repeal  in 
1887  of  R.  S.,  §  640,  without  express  regulation  by  general  stat- 
ute. If  the  United  States  Supreme  Court  adheres  to  its  former 
decision,  any  suit  by  or  against  a  national  corporation  will  con- 
tinue to  be  deemed  a  suit  involving  a  Federal  question. ^ 

§  676.  Further  of  this  Subject.  —  An  injunction  lies  to  pro- 
tect a  national  corporation  in  the  enjoyment  of  its  franchises.^ 
For  example,  an  injunction  lies  against  the  agent  of  a  State, 
threatening  to  prevent  the  exercise  of  such  franchises  by  the 
execution  of  void  State  laws.*  And  a  stockholder  of  such  a  cor- 
poration may  have  such  remedy.^  A  State  tax,  collected  in 
violation  of  a  Federal  franchise,  from  a  stockholder  in  a  national 
corporation,  may  be  recovered  back.^  The  validity  of  a  de  facto 
national  corporation  will  be  inquired  into  only  in  a  direct  pro- 
ceeding for  that  purpose.^  Congress  has  provided,  in  a  particular 
instance  by  statute,  that  a  national  corporation  may  be  compelled  to 
perform  its  duties  \iY  mandamus,  and  the  courts  have  enforced  such 
statute.^  Congress  has  also  provided  in  a  particular  instance  for 
the  enforcement  of  rights  against  a  national  corporation  by  the 
recovery  of  treble  damages  in  a  civil  suit  and  by  the  fine  and 
imprisonment  of  the  officers  of  the  corporation  in  a  criminal  suit.^ 
It  has  been  held  on  circuit  that  the  property  of  a  national  corpo- 

1  ihid,.  chartered  by  such  State,  to  test  the 

2  Consult  cases  cited  ante,  §  671.  validity  of  the  merger  of  such  corpora- 

3  Osborn  u.  Bank  of  U.  S.,  9  Wheat,  tiou  into  a  national  corporation,  is  a 
(U.  S.)  737;  Peltou  W.Nat.  Bank  (1879),  suit  arising  under  the  laws  of  the 
101  U.  S.  143;  Hills  v.  Exchange  Bank  United  States.  Ames  v.  Kansas,  111 
(1881),  105  U.S.  319.  U.  S.  449. 

•t  Osborn  v.  Bank  of  U.  S.,  supra.  *  Union  Pacific  R.  Co.  v.  Hall  (187.5), 

6  EvansvilleBank  V.  Britton(1881),  91   U.  S.  313.     Same  case  below,  Hall 

105  U.  S.  322.  v.  Union  Pacillc  R.  Co.,  3  Dill.  (U.  S.) 

6  Supervisors  w.    Stanley,  105  U.  S.  515. 

305.  »  Act  of  June  20,  1874,  18  St.  Ill; 

'  Pacific   Railroad  Removal  Cases,  Pelton  v.  Nat.  Bank    (1879),  101  U.  S. 

115U.  S.  2.     A  9M0  ?'Mm<n<o suit,  l)y  a  143;    Hills  u.  Exchange   Bank  (1881), 

State  against  a  corporation  originally  105  U.  S.  319. 

521 


1  Thomp.  Corp.  §  678,  j     national  corporations. 

ration  may  be  appropriated  by  a  State,  within  whose  limits  such 
property  is  situated,  under  the  State's  right  of  eminent  domain, 
for  the  use  of  a  State  corporation.^  In  this  case,  merely  a  cross- 
ing for  the  line  of  a  State  railway  corporation  was  taken.  It  is 
probable  that  the  })roperty  of  a  national  corporation  cannot  be 
appropriated  by  a  State,  under  any  circumstances  which  would 
impair  the  efficiency  of  such  corporation  as  a  Federal  agent. 
Land  occupied  by  a  national  corporation  is  in  general  subject  to 
the  criminal  jurisdiction  of  the  State  where  the  land  lies.^ 

§  677.  How  Dissolved.  —  We  come  now  to  the  consideration 
of  the  question,  how  national  corporations  may  be  dissolved.  To 
the  present  time,  the  only  mode  in  which  such  corporations  have 
ceased  to  exist  is  by  the  expiration  of  the  terms  for  which  their 
charters  were  granted,  as  was  the  case  with  the  first  and  second 
United  States  Banks,  or  by  some  other  method  expressly  provided 
for  in  their  charters,  as  in  the  case  of  banks  formed  under  the 
national  banking  statutes.  The  merger  of  the  Union  Pacific  Rail- 
road Company  in  the  Union  Pacific  Railway  Company  was  ac- 
complished by  a  consolidation  made  in  pursuance  of  the  charter 
of  the  original  company  and  with  its  consent.  A  national  corpo- 
ration may  probably  be  dissolved,  like  other  corporations,  by  an 
accepted  surrender  of  its  franchise  to  exist,  by  a  judicial  forfeit- 
ure of  such  franchise  for  non-user  or  misuser  of  it,^  or  by  the  ap- 
propriation of  such  franchise  by  the  Federal  government  under 
its  rights  of  eminent  domain.  It  is  possible  that  such  a  corpora- 
tion may  be  dissolved  by  the  operation  of  some  future  Federal 
statute  governing  bankruptcy.  And  such  a  corporation  may  be 
dissolved,  as  before  indicated,  by  any  method  provided  for  in  its 
charter. 

§  678.  Power  of  Congress  to  Revoke  their  Charter.  —  The 

question,  whether  a  franchise  to  be  a  corporation  and  such  fran- 
chises as  are  given  with  it,  conferred  by  one  Congress  without 
conditions,  are  irrevocable  by  a  future  Congress,  is  one  of  specu- 
lative interest  rather  than  practical  importance,  as  the  charters  of 

1  Union  Pacific   R.  Co.  v.  Burling-  2  jq  re  O'Connor,  37  Wis.  379. 

ton  &c.    Co.    (1880),!   McCrary    (U.  ^  Post,Ch.  \b2. 

S.),  452.  ^ 

522 


EEVOCATION    OF    THEIR    CHARTERS.       [1  Thomp.  Corp.    §  679. 

the  Pacific  Railway  Companies  and  the  general  statutes  provid- 
insr  for  the  formation  of  national  banks  all  contain  a  reservation 
by  Congress  of  the  power  to  amend  them.  The  question  has 
never  been  directly  raised  before  the  United  States  Supreme 
Court.  The  grant  of  a  franchise  to  be  a  corporation  is,  by  our 
case  law,  a  contract  between  the  grantor  and  the  grantee.  It  is 
settled  law  that  Congress  may  in  general  make  contracts  which 
are  binding  upon  the  Federal  government,  and  which  will  be  en- 
forced when  Congress  has  provided  courts  with  jurisdiction  to 
enforce  them.^  The  question  under  discussion  seems  reduced  to 
this :  Is  the  grant  of  a  franchise  to  be  a  corporation,  or  is  the  grant 
of  any  other  franchise,  subject  to  the  general  rule  controlling 
contracts  of  the  g-overnment?  The  consideration  that  Cono-ress, 
in  the  exercise  of  its  functions  as  a  national  legislature,  may  enact 
laws  which  impair  the  obligation  of  contracts  between  citizens,  as 
it  has  perhaps  done  in  the  case  of  the  Legal  Tender  Acts,  seems 
irrelevant. 

§  679.  Effect  of  Reservation  of  Right  to  Amend. —  The  ques- 
tion remains,  how  far  a  corporate  franchise  conferred  by  one 
Congress,  with  the  reservation  of  the  right  to  amend,  is  binding 
upon  a  future  Congress.  Under  the  constitution,  the  power  to 
amend  the  charter  of  a  corporation  cannot  be  used  to  take  away 
from  it  property  already  acquired  under  its  charter,  or  to  deprive 
it  of  the  fruits,  actually  reduced  to  possession,  of  contracts  law- 
fully made  ;  but,  subject  to  such  restrictions.  Congress  may  estab- 
lish by  amendment,  whatever  it  might  have  prescribed  in  the 
original  charter. ^  Under  this  rule,  it  was  held  that  Congress 
might  require  a  national  corporation  to  establish  a  sinking  fund, 
to  secure  the  payment  of  claims  against  it,  not  yet  due.^ 

1  United  States  v.  Union  Pacific  R.  any  reason  for  the  forfeiture, — e.g.  Act 

Co.  (1875),  91  U.  S.  72;  U.  S.  v.  U.  P.  of  Feb.    28,  1885;  U.  S.  Stat.    1884-5, 

R.  Co.,  98   U.    S.  550;    also  oMler  re-  p.  337;  Act  of  July,  6,  1886;  U.  S.  Stat, 

marks  of  court  in  Sinking  Fund  Cases  1885-6,  p.  123.     See  an  act  to  provide 

(1878),  99   U.  S.  700.  for  the  adjustment     of    laud   grants 

*2  Sinking  Fund  Cases  (1878),  99  U.  made  by  Congress  to   aid  in  the   con- 

S.  700.     Congress  has,  in  a  number  of  struction  of  railroads  aud  for  the  for- 

cases,  declared  by  statute  the  forfeit-  feiture  of  unearned  lauds.     March  3, 

ure,  by  a  national  railway  corporation,  1887;  U.  S.  Stat.  188G-7,  p.  556. 

of  lands  previously  granted  to  it  by  ^  Ibid. 
Congress,  aud  often  without  assigning 

523 


1  Tliomp.  Corp.  §  681.]     national  corporations. 

§  G80.  Not  Dissolved  by  State  Action. —  A  national  corpora- 
tion cannot  be  dissolved,  or  its  property  confiscated,  or  its 
operations  seriously  crippled,  by  State  action.  We  hare  already 
seen  that  a  national  corporation  is  exempt  in  general  from  State 
control,  in  the  exercise  of  all  rights  held  by  it  under  the  Federal 
constitution  and  statutes.^ 

§  681.  Corporations  of  the  Territories. —  What  has  already 
been  said  of  the  power  of  Congress  to  create  corporations  to  act 
within  the  States,  is  true  of  the  power  of  Congress  to  create 
corporations  to  act  within  the  territories;  but  it  is  comparatively 
unimportant  with  reference  to  the  latter.  By  the  Federal  con- 
stitution ^  Congress  has  general  legislative  control  over  the  Ter- 
ritories, limited  only  by  the  restrictions  contained  in  that  instru- 
ment, while  in  respect  of  the  States  it  exercises  merely  enumerated 
powers.  Congress  has  empowered  the  territorial  legislatures  to 
authorize,  by  general  statutes,  the  formation  of  corporations 
within  their  territorial  jurisdictions,  and  has  forbidden  such  legis- 
latures to  grant  private  charters  or  special  privileges.^  No  such 
restriction  rests  upon  Congress  itself.*  It  has  authorized  a  rail- 
way corporation,  created  by  one  territory,  to  extend  its  line 
through  other  territories.^  Territorial  corporations  become 
State  corporations  upon  the  admission  into  the  Union  of  the 
territory  creating  them.^  A  corporation  created  by  Congress 
directly,  in  pursuance  of  its  powers  of  local  legislation  over  a 
territory,  or  mediately  through  a  territorial  legislature,  is  prima 
facie  a  corporation  of  the  territory,  as  a  corporation  created  by 
a  State  of  the  Union  is  a  corporation  of  the  State.     A  corpora- 

1  Ante,  §  671.  the  incorporation  of  insurance  com- 

2  U.  S.   Const.,  art.  4,  sec.  3,  cl.  2.  panics  and    to  declare    corporations 

3  U.  S.  Rev.  Stat.  (2  ed.  1878),  formed  under  said  laws  legally  incor- 
§1889.  Under  an  act  of  Congress  porated.  June  30,  1886;  U.S.Stat, 
which  gives  a  territorial    legislature  1885-6,  p.  107. 

general  legislative  power,  such  legisla-  ^  U.  S.  Laws  1877-1878,  p.  241,  ch. 

ture  may  charter  a  corporation.    Vin-  362. 

cennes  University  v.  Indiana,  14  How.  ®  Kansas  Pacific  R.  Co.  v.  Atchison 

(U.  S.)  268.  &c.  R.   Co.,  112   U.  S.    414.     Accckd, 

*  Example  of  congressional  legis-  Vance  v.   Farmers'    Bank,    1  Blackf. 

lation  relating  to  territorial  corpora-  (Ind.)    80;     Bank    of    Vincennes     v. 

tions:    An  act  to  legalize  the  general  State,  1  Blackf.  (Ind.;  267. 
laws  of  the  Territory  of  Dakota  for 
524 


IN  THE  DISTRICT  OF  COLUMBIA.     [1  Thomp.  Corp.  §  682. 

tion  of  a  territory,  unless  it  holds  other  franchises  than  are 
necessarily  implied  from  its  corporate  character,  has  no  right  to 
act  within  the  limits  of  a  State  without  its  consent;  but  if  such 
corporation  is  permitted  by  its  charter  to  act  generally  beyond 
the  territory,  it  may  act  by  comity  within  any  State,  so  long  as 
the  consent  of  such  State  continues.^  A  corporation  of  a  terri- 
tory cannot  sue  or  be  sued  in  the  Federal  courts  as  a  national 
corporation.^ 

§  682.  Corporations  of  the  District  of  Columbia. —  Con- 
gress is  given  by  the  constitution  general  and  exclusive  legisla- 
tive power  over  the  District  of  Columbia.^  Under  the  authority 
thus  conferred.  Congress  may  create  corporations  within  the 
District.*  It  has  frequently  done  so.  In  one  volume  of  the 
Statutes  at  Large, ^  are  to  be  found  an  act  to  incorporate  a  build- 
ing company,  an  act  to  incorporate  a  railway  company,  an  act  to 
amend  the  charter  of  another  railway  company,  and  acts  to  in- 
corporate an  inebriate  asylum,  a  cemetery  company  and  an  insur- 
ance company.^  The  franchises  which  Congress,  acting  as  a 
local  legislature  for  the  District,  may  confer  on  a  corporation, 
beyond  the  franchise  to  exercise  the  powers  which  a  natural  per- 
son exercises  without  special  authorization,  are  probably  co-ex- 
tensive with  those  it  may  confer  on  a  natural  person.  Congress 
probably  cannot  create  a  corporation  within  the  District  of 
Columbia  and  confer  upon  it  power  to  act  within  the  States  with- 
out their  assent,  unless  such  corporation  is, according  to  Marshall's 
rule,  an  appropriate  means  to  carry  into  execution  the  enumer- 
ated powers  of  Congress,  acting  as  a  national  legislature.^  But 
Congress  may  permit  a  corporation  of  the  District  to  act  within 
the  States,  just  as  any  State  may  permit  a  domestic  corporation 

1  See  authorities  cited  as  to  powers  v.  Nat.  Life  lus.  Co.  (1878),  64 
of    corporations    of   tlie    District    of      lud.  1. 

Columbia,  j9o.s<,  §  G82.  ^  19  U.  S.  Stat. 

2  Adams  Express  Co.  v.  Denver  &c.  ^  Statutes  at  Large,  vol.  18,  p.  513, 
R.  Co.,  IG  Fed.  Rep.  712.                             contain  "  An  act  to  incorporate,  the 

8  U.  S.  Const.,  art.  I.,  sec.  8,  cl.  17.  Inland  and  Seaboard  Coasting  Com- 

4  Such  power  recognized.     Hunt-  pany  of  the  District  of  Columbia." 

ington  V.  Savings  Bank,  DO  U.  S.  388;  ">  Congress  can   only  confer  on  the 

Hadley    v.    Freedman's   Savings   &c.  District  of  Columbia  municipal  pow- 

Co.  (1874),  2  Tenn.  Ch.  122;  Williams  crs.    Stontenburgh  v.  Hennick,  129  U. 

V.  Creswell  (1876),  51  Miss.  817;  Daly  S.  141. 

525 


1  Thomp.  Corp.  §  683.]     national  corporations. 

to  act  beyond  the  State  limits.  A  corporation  acts  beyond  the 
territory  of  the  sovereign  creating  it,  only  by  comity.  The  States 
generally  permit  corporations  of  the  District  to  act  within  their 
limits  as  foreign  corporations.^  Congress,  in  the  exercise  of  its 
powers  of  local  legislation  over  the  District,  in  1868  incorporated 
an  insurance  company,  with  permission  to  it  to  act  within  the 
States  with  their  assent.^  In  1867  it  passed  a  general  incor- 
poration law,  authorizing  the  formation  of  "  national  trades 
unions  "  within  the  District,  with  authority  to  establish  branches 
within  the  States.^  The  statute  does  not  expressly  provide  that 
a  branch  union  shall  only  be  established  within  a  State,  with  the 
express  or  implied  consent  of  such  State;  but  such  is  probably 
the  meaning  of  the  statute. 

§  683.  State  Corporations  Holdiug  Federal  Franchises.  — 

To  avoid  misapprehension,  it  is  proper  to  say  that  Congress  has 
not  chartered  any  corporation,  with  power  simply  to  operate 
telegraph  lines  within  the  States.  It  has  conferred,  by  general 
statute,  upon  such  State  telegraph  companies  as  choose  to  accept 
the  terms  offered,  the  franchise  to  construct  and  operate  their 
lines  on  all  post  routes,  which  include  all  railways,  public  roads 
and  streets  in  the  country.  These  State  corporations,  although 
they  are  made  agents  of  the  national  government  and  have  im- 
portant powers  confided  to  them  to  be  exercised  in  all  parts  of 
the  union,  are  not  within  the  scope  of  this  chapter.*  A  State  cor- 
poration holding  a  patent  right  is  not  a  national  corporation.^ 

1  Hadley  v.    Freedman's  Trust  Co.,  sacola  Tel.  Co.  v.  Western  Union  Tel. 

2  Tenn.  Ch.  122 ;  Daly  v.  Nat.  Life  Ins.  Co.,  96  U.  S.  1 ;  Telegraph  Co.  v.  Texas, 
Co.,  64  Ind.  1;  Williams  v.  Creswell,  105U.  S.  460.  Act  to  protect  telegraph 
51  Mis.s.  817.  lines  owned  or  occupied  by  the  United 

2  15  U.  S.  Stat.  184.  States:  June  23,  1874,  18  St.  250;  West- 

3  Stats.   49th  Congress,    1st  Sess.,  ern  Union  Tel.  Co.   v.   Pendleton,  122 
ch.  567,  p.  86.  U.  S.  347;  Western  Union  Tel.  Co.  v. 

4  Consult:  Act  of  July  24,  1866,  sub-  Massachusetts,  125  U.  S.  530;  Eatter- 
stantially  re-enacted  as  Rev.  Stat.,  §§  man  u.  Western  Union  Tel.  Co.,  127 
5263-52G8;  as  to  penalties:  Act  of  June  U.  S.  411;  Lelou  p.  u.  Port  of  Mobile, 
10,  1872,  17  Stat.  3CG;  same:  Rev.  127  U.  S.  640;  Western  Union  Tel. 
Stat.,  §  5209;  as  to  what  are  post  Co.  v.  Alabama,  132  U.  S.  472. 
routes:  Act  of  June  8,  1872,  17  Stat.  ^  United  States  v.  Araer.  Bell  Tele- 
283  at  p.  308,  §  201 ;  Uev.  Stat.,  §  3964 ;  phone  Co.  (1886),  29  Fed.  Rep.  17. 
Act  of  March  1,  1884,  23  Stat.  3;  Pen- 

526 


PLACE   OF   CORPORATE    MEETINGS.       [1  Thouip.  Coip.   §  687. 


CHAPTER    XIY. 

PLACE  OF  HOLDING  CORPORATE  MEETINGS  AND  OF  DOING  CORPO- 
RATE ACTS. 

Section  Section 

686.  Scope  of  this  chapter.  693.  Enjoining  a  corporation  from  re- 

687.  Corporations  anciently  named  as  moving  its  assets  out  of  the 

of  some  place.  state. 

688.  A  corporation  cannot  have   two      694.  Constituent  acts  must    be    per- 

domicils.  formed  within     the    state  of 

689.  Resides    where    it  exercises   its  creation. 

functions.  695.  Corporation  when  estopped  from 

690.  Power  to  establish  agencies   at  raising  the  question. 

other  places.  696.  Validity      of      corporate      elec- 

691.  Whether  they  lose  their  corpo-  tion       held        outside        the 

rate  character  by  migrating.  state. 

692.  Distinction  between  citizenship       697.  Meetings    held    at     what    place 

and  residence  of  a  corporation.  within  the  state. 

§  686.  Scope  of  this  Chapter. —  In  this  chapter  it  is  intended 
to  discuss  the  question  of  the  residence  of  corporations^  and  the 
place  of  holding  corporate  meetings  and  of  doing  corporate 
acts,  except  so  far  as  the  question  relates  to  jurisdiction,  to 
taxation,  and  to  the  status  of  foreign  corporations.  These  sub- 
jects are  reserved  for  separate  treatment. 

687.  Corporations  Anciently  Named  as  of  Some  Place.  — 

It  is  said,  by  Sir  James  Grant,  in  his  work  on  corporations,  that 
by  the  ancient  law  of  England,  every  corporation  must  be  cre- 
ated as  of  some  place.  This  expression  was  used  in  the  con- 
struction of  ancient  charters  granted  by  the  king,  and  meant 
nothing  more  than  that,  unless  the  charter  named  a  certain 
place  for  the  residence  of  the  corporation,  it  was  void.^  But 
the  ancient  learning  on  this  subject  had  reference  to  the  name 
and  identity  of  the  corporation,  and  not  to  any  power  or  disabil- 
ity to  act  in  one  place,  and  not  in  another.  Thus,  it  is  said  in 
Bacon's  Abridgment,  "  A  corporation  must  be  named  of  such  a 

'  Grant  Corp.  U,  53,  54;  Case  of  Sutton's  Hospital,  10  Coke  Rep    29b. 

527 


1  Thomp.  Corp.  §  688.]     tlace  of  corporate  meetings. 

place  as  will  distinguish  its  situation  from  that  of  others."  ^ 
The  ancient  rule  that,  unless  a  corporation  is  created  and  named 
as  of  some  place,  its  charter  is  void,  is  said  to  be  no  longer  the 
law  in  England.^  "  Generally,"  says  this  author,  "  we  find  that 
though  formerly  locality  was  held  to  be  of  tho  essence  of  the 
corporation,^  in  times  when  corporations  were  almost  entirely 
municipal  or  intrusted  with  local  government  in  some  way,  yet 
of  late  a  different  doctrme  has  prevailed,  at  least  in  practice; 
and  it  is  not  now  necessary  that  a  corporation  unconnected  with 
the  administration  of  justice,  and  not  holding  land  should  be 
named  of  a  place."  * 

§  688.  A  Corporation  Cannot  have  Two  Domicils.  —  A  cor- 
poration, it  is  often  said,  can  have  no  legal  existence  outside  of 
the  bounds  of  the  sovereignty  by  which  it  is  created.  It  exists 
only  in  contemplation  of  law  and  by  force  of  law ;  and  where  the 
law,  by  virtue  of  which  it  exists,  ceases  to  operate,  it  can  have 
no  existence.  It  must  dwell  in  the  place  of  its  creation.^  As  it 
can  oidy  exist,  as  a  legal  being,  within  the  bounds  of  the  sov- 
ereignty in  which  it  has  been  created,  it  follows  that  it  cannot 
have  two  domicils.  And  this  principle  has  even  been  applied 
where  a  corporation  has  been  created  and  endowed  with  the  fac- 
ulties which  it  possesses  by  the  cooperating  legislation  of 
two  or  more  States.  In  such  a  case,  it  is  held,  it  cannot  be  one 
and  the  same  legal  being  in  both  States.  And  this  is  so,  al- 
though it  is  spoken  of  in  the  laws  of  the  two  States  as  one  cor- 
porate body.^ 

'  Bac.  Abr.  tit.  Corp.  C.    2 ;  citing  or  within  three  miles  thereof,  this  was 

10  Coke  Rep,  296,-  32b;  2  Brownl.  244;  held  to   establish  such  local  limits  as 

And.  196;  RoUe  Abr.  513.  were  requisite  upon  such  a  charter. 

2  Grant  Corp.  14,  53,  54.  London  Tobacco  Pipe  Makers'  Co.  v. 

3  Citing  Button  v.  Wightinau,  Cro.  Woodroffe  7  Barn.  &  Cress.  838,  852. 
Eliz.  338.  ^  Bank  of  Augusta  v.  Earle,  13  Pet. 

"  Grant  Corp.  53,  54.     See  Mayor  &  (U.  S.)  519,  588;  Ohio  &c.  R.  Co.  v. 

Burgesses  of  Stafford  U.Bolton,  1  Bos.  Wheeler,  1  Black    (U.    S.),   286,  295; 

&      Pul.    39;    London  Tobacco    Pipe  Rece  u.  Newport  News  &c.  Co.,  32  W. 

Maker's    Company    v.    Woodroffe,   7  Va.  164;  s.  c.  9  S.  E.  Rep.  212. 

Barn.  &  Cress.  838.     In  this  last  case  it  ^  Ante,   §§   47,   48,   319,320;    Ohio 

was   held  that,  where   the  charter  of  &c.    R.  Co.  v.  Wheeler,    1    Black    (U. 

the  corporation  of   a  guild  of  trades-  S.),    286,    297.     "  It    is    true,"    said 

men    fixed    the    company's    place    of  Taney,  C.    J.,  in  giving  the  judgment 

meeting  at  London   or  Westminster,  of    the  court  in    this  case,   "  that  a 
528 


residence:  agencies.     [1  Thomp.  Corp.  §  690. 

§  689.  Resides  where  It  Exercises   its  Functions.  — ' '  The 

residence  of  a  corporation,"  says  the  Supreme  Court  of  Illinois, 
*'  if  it  can  be  said  to  have  a  residence,  is  necessarily  where  it  exer- 
cises corporate  functions.  It  dwells  in  the  place  where  its  busi- 
ness is  done.  It  is  located  where  its  franchises  are  exercised." 
Accordingly,  it  was  held  that  a  railroad  corporation  chartered 
by  the  State  had  a  legal  residence  in  any  county  in  which  it 
operated  its  roads.*  There  is,  therefore,  no  difficulty  in  holding 
that,  for  the  purposes  of  jurisdiction,  procedure,  litigation  affect- 
ing a  corporation, 2  and  the  taxation  of  its  personal  property,^ 
it  may  be  taken  to  reside  where  its  chief  office  is. 

§  690.  Power  to  Establish  Agencies  at  Other  Places.  —  A 

very  strict  and  possibly  a  narrow  construction  of  corporate  char- 
ters has  held  that,  in  the  absence  of  express  authorization  in  such 
charters,  they  have  no  power  to  establish  agencies  for  the  trans- 
action of  their  business  at  any  other  place  than  that  fixed  by 
their  charters  for  their  residences.  Thus,  a  banking  corporation 
chartered  to  do  business  at  Pontiac,  in  Michigan,  could  not  es- 
tablish an   agency  in  Detroit.     The  court   said:   <' It  would  be 


corporation  by  the  name  and  style 
of  the  plaintiff's  appears  to  have 
been  chartered  by  the  States  of  In- 
diana and  Ohio,  clothed  with  the 
same  capacities  and  po;Yers,  and  in- 
tended to  accomplish  the  same  objects, 
and  it  is  spoken  of  in  the  laws  of  the 
States  as  one  corporate  body,  exer- 
cising the  snme  powers  and  fulfilling 
the  same  duties  in  both  States.  Yet  it 
has  no  legal  existence  in  either  State, 
except  by  the  law  of  the  State.  And 
neither  State  could  confer  on  it  a  cor- 
pornte  existence  in  the  other,  nor  add 
to  or  diminish  the  powers  to  be  there 
exercised.  It  may,  indeed,  be  com- 
jH)sedof  or  represent,  under  the  corpo- 
rate name,  the  same  natural  persons. 
But  tiie  legal  entity  or  person,  which 
exists  by  force  of  law,  can  have  no  ex- 
istence beyond  the  limits  of  the  State 
or  sovereignty,  which  brings  it  into 
life  and  endues  it  with  its  faculties 
and  powers.    The  President  and  Di- 


rectors of  the  Ohio  and  Mississippi 
Railroad  Company  is,  therefore,  a  dis- 
tinct and  separate  corporate  body  from 
the  corporate  body  of  the  same  name 
in  Ohio,  and  they  cannot  be  joined 
in  a  suit  as  one  and  the  same  plaintiff, 
or  maintain  a  suit  in  that  character, 
against  a  citizen  of  Ohio  or  Indiana  iu 
a  Circuit  Court  of  the  United  States." 
Oiiio  and  Mississippi  Railroad  Co.  v. 
Wheeler,  I  Black  (U.  S.),  286,  297, 
298.  To  the  same  effect  see  Farnura 
u.  Blackstone  Canal  Co.,  1  Sumu.  (U. 
S.)  46;  Rece  v.  Newport  News  &c.  Co., 
32  W.  Va.  164. 

*  Bristol  V.  Chicago  &c.  R.  Co.,  15 
111.  436;  New  Albany  &c.  R.  Co.  v. 
Haskell,  11  Ind.  301. 

2  Bristol  V.  Chicago  &c.  R.  Co.,  15 
111.  436;  Bank  of  North  America  v. 
Chicago  &c.  R.  Co.,  82  111.  493. 

3  Sangamon  &c.  R.  Co.  ■;;.  County  of 
Morgan,  14  IU.  163. 


34 


529 


1  Thonip.  Corp.  §  691,]     plack  of  corporate  meetings. 

idle  for  the  legislature  to  locate  a  bank,  if  the  institution  could 
perambulate  the  State,  and  establish  agencies  whemver  and 
wherever  it  miijht  think  for  its  interest."  *  Somewhat  analoj»;ous 
is  an  early  decision  in  New  York,  where  it  was  held  that  the 
trustees  of  an  mcorporated  college,  situated  in  the  village  of  Gen- 
eva, in  the  western  part  of  that  State,  had  no  power  to  establish 
a  medical  school  in  the  city  of  New  York,  or  at  any  other  place 
than  Geneva. 2  So  where,  by  its  charter,  a  college  was  located 
at  Spring  Arbor  in  Michigan,  and  a  subscription  was  started  for 
the  purpose  of  erecting  a  college  building  therefor  at  Hillsdale^ 
and  it  did  not  appear,  by  the  subscription  or  otherwise,  that  it 
was  desio;ned  as  an  inducement  to  the  college  to  endeavor  to  ob- 
tain  legislative  authority  to  remove  to  Hillsdale,  it  was  held  that 
the  subscription  was  void,  as  being  made  for  a  purpose  not  au- 
thorized by  law  ;  ^  —  a  good  illustraaon  of  the  doctrine  that  a  cor- 
poration has  not  general  peraml)uhitory  powers. 

§  691.  Whether  they  Lose  their  Coi-porate  Character  by  Mi- 
grating-.—  It  follows  from  what  has  preceded,  that  a  corporation 
may  have  a  permissive  existence  in  a  State  or  county  other  than 
that  which  created  it,  by  delegation  or  representation ;  it  may  have 
agents  there,  through  whom  it  may  make  and  take  contracts, 
carry  on  its  business  and  sue  and  be  sued.  But  where  a  corpo- 
ration migrates  to  another  sovereignty,  transfers  to  such  State 
its  personnel  and  the  whole  of  its  business,  it  has  been  held  that 
it  does  not  carry  its  corporate  attributes  with  it,  but  that  it  be- 
comes, in  the  State  to  which  it  has  migrated,  nothing  more  than 
a  partnership,  and  its  stockholders  become  liable  as  partners.* 
The  Supreme  Court  of  New  York  took  this  view  of  the  question,^ 

1  Atty.-General  v.  Oakland  County  upon  contracts  entered  into  by  the 
Bank,  1  Walker  Ch.  (Mich.)  90,97;  corporation,  in  any  State  with  citizens 
People  V.  Oakland  County  Bank,  1  of  that  State,  in  like  manner,  and  to 
Dougl.  (Mich.)  282,  the  same  extent    as  upon   contracts 

2  People  V.  Trustees,  5  Wend.  (N.  entered  into  in  Massachusetts  with 
Y.)  211.  its     citizens.     Hutchins   v.    New   En- 

3  Underwood  v.  Waldron,  12  Mich,  gland  Coal  Co.,  4  Allen  (Mass.),  580. 
73.  ^  Merrick    v.    Bniiuard,    38    Barl). 

^  Taft  V.  Ward,  106  Mass.  58.     The  (N.  Y.)  574,  583.     Mullin,  J.,  in  laying 

same  court  ha«,  however,  held  that  the  down  this  doctrine,  used   the  follow- 

resident  members    of    a  corporation  ing  language:  "  If  a  corporation  ere - 

created  in  Massachusetts  are  liable  ated  in  another  State  can  transfer  to 

530 


MIGRATION    OF    CORPORATIONS.        [1  Thomp.   Coi'p.   §  691. 

but  its  judgment  was  reversed  by  the  Court  of  Appeals  in  a  very 
able  opinion  by  Porter,  J.' 


this  State  the  whole  of  its  business 
and  transact  the  same  here,  under  the 
principles  of  comity  above  alluded  to, 
then,  not  only  is  our  own  legislature 
rendered  useless  and  unnecessary,  at 
least  so  far  as  the  creation  of  corpo- 
rations is  concerned,  but  all  the 
States  in  the  Union,  and  all  the  legis- 
latures in  Christendom,  can  let  loose 
upon  us  a  multitude  of  these  corpora- 
tions, more  destructive  and  pernicious 
than  the  frogs  and  lice  let  loose  on 
the  Egyptians." 

1  Merrick  v.  Van  Santvoord,  34  N. 
Y.  208.  The  question  substantially 
■v^as  whether  a  Connecticut  corpora- 
tion, by  migrating  to  New  York  with 
its  principal  office  and  its  business, 
performing  no  other  acts  in  Connecti- 
cut than  the  holding  of  its  annual 
meetings,  had  so  far  forfeited  its  cor- 
porate character  that  its  members 
became  liable  in  New  York,  as  princi- 
pals, for  the  torts  of  its  servants.  In 
giving  judgment  upon  this  question 
in  the  negative.  Porter,  J.,  said :  "  We 
think  the  recognition,  In  our  State,  of 
the  rights  hitherto  conceded  in  our 
courts  to  foreign  corporations  is 
neither  injurious  to  our  interests, 
repugnant  to  our  policy,  nor  opposed 
to  the  spirit  of  our  legislation.  Ours 
is  peculiarly  a  commercial  country. 
We  have  large  inland  lakes  which 
serve  as  State  and  national  bounda- 
ries. We  have  continental  rivers 
which  unite  the  States  they  seem  to 
divide,  and  at  their  headwaters  the 
tributaries  of  two  oceans  interlock. 
We  have  every  variety  of  climate  and 
production.  Our  agricultural  and  min- 
eral resources  are  almost  boundless. 
We  have  j,reat  facilities  for  internal  in- 
tercourse, and  favorable  openings  on 
every  side  in  the  various  departments 
of  human  industry  and  enterprise.  By 
common  consent,  all  these  advantages 


have  been  regarded  as  open  to  every 
American  citizen,  though  many  of  the 
inland  States  are  untouched  by  the 
great  natural  highways  of  commerce. 
In  no  other  country  has  so  much  been 
achieved  by  the  association  of  capital 
and  labor,  through  coi'porate  organiz- 
ation. It  has  enabled  the  many  whose 
means  were  limited,  to  contribute  to 
the  accomplishment  and  participate  in 
the  benefit  of  great  undertakings, 
which  were  beyond  the  compass  of 
individual  I'esources  and  enterprise. 
It  has  taken,  without  let  or  hindrance, 
the  direction  to  which  it  was  invited 
by  the  general  law  of  supply  and  de- 
mand. The  same  enlightened  policy 
has  prevailed  in  eveiy  portion  of  the 
country.  All  have  welcomed  labor 
from  abroad,  and  invited  the  free 
investment  of  capital.  Hitherto,  cor- 
porate enterprise  has  not  been 
trammeled  by  unfriendly  legislation. 
No  jealousy  of  competition  or  rivalry 
of  adverse  interest  has  been  permitted 
to  convert  State  lines  into  barriers  of 
obstruction  to  the  free  course  of  gen- 
eral commerce.  Its  avenues  have 
been  open  to  all.  In  this  country  our 
material  interests  are  so  interwoven 
that  the  union  of  the  States  is  due,  in 
its  continuance,  if  not  in  its  origin, 
as  much  to  commercial  as  to  political 
necessity.  The  citizens  of  each  claim 
a  birthright  in  the  advantages  and 
resources  of  all.  They  demand  from 
their  local  authorities  such  facilities 
as  the  law-making  powers  can  afford 
in  the  employment  of  labor  and  capital. 
They  claim  such  corporate  franchises 
and  immunities  as  may  enable  them 
to  compete  on  equal  terms  with  the 
citizens  of  other  States.  For  these, 
from  the  structure  of  our  institutions, 
they  naturally  look  to  their  own  gov- 
ernment. They  acknowledge  a  double 
allegiance  in  their  local  and  Federal 
581 


1  Thomp.  Corp.  §  093.]     place  of  corporate  meetings. 

§  692.  Distinction  between  Citizenship  and  Residence  of  a 
Corporation. — A  distinction  is  sometimes  taken  between   the 


relations,  which,  by  general   consent, 
carries  with  it  a  cori*elative  community 
of  rights.     They  may  live  in  an  inland 
State,  but  they  are  none  the  less  citi- 
zens of  a  maritime  nation;  and  they 
may  lawfully  organize  companies  at 
home  for  traffic  on  ocean  highways. 
A  corporate  charter  is  in  the  nature  of 
a  commission  from  the  State  to  its 
citizens,  and  their  successors  in  inter- 
est,   whether    at   home    or    abroad. 
Each  government,  in  the  exercise  of 
its    own    discretion,   determines    the 
conditions  of  its  grant.     It  is  free  to 
impose    or  remit   territorial  restric- 
tions.    It  cannot  enlarge  its  own  ju- 
risdiction,  but  it  can  confer  general 
powers,   to    be  exercised    within  its 
bounds, or  beyond  tliem,  wherever  the 
comity  of  nations  is  respected.     For 
the  purposes  of    commerce,  such  a 
commission  is  regarded,  like  a  govern- 
ment flag,  as  a  symbol  of  allegiance 
and  authority;  and    it  is  entitled  to 
recognition  abroad  until  it  forfeits  its 
recognition    at    home.      Under    such 
commissions,    New    York    has     sent 
forth  its  citizens,  from  time  to  time, 
with  corporate    franchises    and  im- 
munities, to  gather  wealth  from  the 
coal  mines  of  Pennsylvania,  the  silver 
mines  of  Mexico,  and  the  gold  mines 
of  California;  to    establish    lines    of 
inland    navigation    on    the    Orinoco 
and    the    Amazon;     to    plant  forest 
trees  beyond  the  Mississippi;  to  fish 
in  the  Northern  and  Southern  Oceans; 
to  found  Christian  missions  in  Asia, 
and  to  colonize  freedmen  on  the  coast 
of  Africa.     In  many  of  these  cases  the 
franchises  were,  by  the  terms  of  the 
charter,  to  be    exercised  in  foreign 
territory.     In    1826,      for     instance, 
Churchill  C.   Cambreling  and  others 
were,  by  a  law  of  New  York,  consti- 
tuted a  body    corporate,    under   the 
532 


title  of  *  The  United  States  Mexican 
Company,'  organized  '  for  the  purpose 
of    purchasing,  leasing,  and  working 
gold  and  silver  mines  in  Mexico  and 
South  America.'     Laws  1826,  p.  143. 
In  the  act  of  1827,  incorporating  *  The 
New  York  South  American  Steamboat 
Association,'   it  was  provided  that  the 
annual  elections  should  be    held  in 
the  city  of  New  York,  but  there  was 
no  requirement  that  any  of  the  officers 
should  be  residents ;  and  the  company 
was  authorized,  in  terms,  to  navigate 
its  vessels  '  upon  any  water  or  waters 
not  within    the  jurisdiction    of     New 
York.'    Laws      1827,    p.     308.      The 
Panama  Railroad    Company  was  or- 
ganized, under    a  charter  from    this 
State,  to  construct    and  maintain   a 
railway  '  across  the  Isthmus  of  Pana- 
ma, in  the  republic  of  New  Granada.' 
The  only  act  which  the  charter  re- 
quires to  be  done  in  this  State  is  the 
annual  election    of  its  officers;  and, 
on  the  theory  maintained  by  the  re- 
spondents, every  shareholder  in  that 
company,  wherever  found,  is  individ- 
ually  liable  for    all    the    wrongs    it 
commits  and  all  the  debts  it  conti'acts. 
Laws  of  1849,  p.  407.     Other  illustra- 
tions of  our  legislative  construction 
of  the  rules  of  national  comity  will 
be  found  in  the  acts  incorporating  the 
'  North  Carolina  Gold  Mining  Com- 
pany,'   the  'Orinoco   Steam  Naviga- 
tion    Company,'      the    '  Pacific  Mail 
Steamship  Company,' the  'California 
Inland   Steamship    Navigation    Com- 
pany,' the  '  African  Civilization  Com- 
pany,' and  the  '  American  Forest-Tree 
Propagation     and    Land     Company.' 
Laws  1828,  p.  211;  Laws  1847,  p.  513; 
Laws  1848,  p.  396;  Laws  1850,  p.  627; 
Laws  18G4,    p.    758;  Laws    1865,    p. 
360."    Compare   Smith  «.  Alvord,  63 
Barb.  CN.Y.),415. 


ENJOINING   KEMOVAL   OF   ASSETS.       [1  Thouip.  Corp.   §  693. 

citizenship  and  the  residence  of  a  corporation.  Thus,  it  is  said 
that  a  corporation  may  have  a  i^esidence  at  any  place  where  it  exer- 
cises its  functions;^  but  it  can  only  be  a  citizen  —  so  far  as  it 
can  be  said  to  be  a  citizen,  of  the  State  by  which  it  was  created. 
*'  While  the  citizenship  of  a  corporation  would  depend  upon  the 
place  of  the  law  of  its  creation,  its  residence  might  manifestly, 
upon  the  principle  above  stated,  be  in  any  State  where  it  was, 
by  comity,  permitted  to  exercise  its  franchises.^ 

§  693.  Enjoining  a  Coi'poration  from  Removing  its  Assets 
out  of  the  State.  —  Recurring  to  the  doctrine  that  the  assets  of 
a  corporation  are  a  trust  fund  primarily  for  its  creditors  and 
secondarily  for  its  stockholders,^  it  seems  not  an  unreasonable 
conclusion  that,  where  the  circumstances  warrant  such  interpo- 
sition, its  managing  agents  may  be  enjoined  in  equity  from 
removing  its  assets  into  a  foreign  jurisdiction.  Where  such  an 
injunction  was  granted,  the  court  started  with  a  presumption 
against  the  right  of  the  corporators  to  exercise  their  corporate 
powers  and  franchises  outside  the  State  by  which  the  corpora- 
tion had  been  created,  and  proceeded  on  the  principle  that  the 
l)urden  rested  on  them  to  show  that,  by  the  laws  of  the  State 
into  which  they  proposed  migrating,  they  were  permitted  to 
maintain  their  corporate  existence  and  to  perform  their  corpo- 
rate functions  within  that  sovereignty.  Said  Allison,  P.  J.: 
'*  Conceding,  therefore,  that  the  use  intended  to  be  made  by  the 
defendants  of  the  property  of  the  corporation  is,  in  every  re- 
spect, just,  as  well  as  strictly  legal,  they  stand  convicted,  by 
their  own  confession,  of  an  intention  to  remove  it  from  the 
jurisdiction  which  had  undoubted  control  over  it,  and  the  cor- 
poration which  is  represented  by  its  trustees  in  this  proceeding, 
and  when  once  beyond  our  reach,  our  power  over  it  may  be  lost 
forever."  *  This  is  analogous  to  the  principles  on  which  courts 
of  equity  proceed  in  the  control  of  trustees.  Thus,  if  a  trustee 
becomes  so  situated  that  he  cannot  effectually  execute  the  office, 
as  by  becoming  a  permanent  resident  abroad,  a  court  having 

1  Bank  of   North  America  v.  Chi-  »  Post,  §  2841. 

caso  &c.  R.  Co.,  82  111.  4!>3;  Bristol  v.  *  Matthews  v.   Trustees,   7    Phila. 

Chicago  &c.  R.  Co.,  15  111.  436.  (Pa.)  270. 

^  Bank  of  North  America  v.  Chicago 
&c.  R.  Co.,  supra. 

5.33 


1  Thomp.  Corp.  §  003.]     plach  of  couforate  meetings. 

jurisdiction  over  the  trust  will  remove  him  and  appoint  a  new 
trustee  in  his  stead. ^     It  has  been  held  that  where  a  trustee  in  a 
railway  mortgage  voluntarily  removes  to  a  foreign  country  and 
becomes  a  resident  thereof,  this  vacates  his  office  and   disables 
him   from  performing  its  functions ;  so  that  if,  after  such  re- 
moval, he  attempts  to  prosecute  a  suit  in  a  Federal  court,  the 
State  court  having  jurisdiction  of  the  trust  will  enjoin  him.^     On 
the  other  hand,  where  the  cestui  que  trust  was  prohibited  by  law 
from  coming  into  the  State,  the  court  having  control   of  the 
trust,  on  the  trustee's  own  petition,    discharged  him,  and   ap- 
pointed one  living  in  the  same  State  as  the  cestui  quetrust.^     In 
short,  if  the  trustee  absconds  or  otherwise  places  himself  beyond 
the  reach  of  the  court  having  control  of  the  administration,  this 
will  be  ground  for  appointing  a  new  trustee.*     In  like  manner, 
if  the  trustee  is  a  corporation  and  has  become  subject  to   a 
foreio-n  power,  this  will  be  a  good  ground  of  removing  it  and  .sub- 
stituting  another  trustee.^     Accordingly,  where  the   College   of 
Willicim  and  Mary  in  Virginia,  originally  chartered  by  the  crown, 
had   become,  in  consequence  of  the  revolution,  subject  to  the 
jurisdiction  of  a  foreign  power,  to  wit,  the  State  of  Virginia,  it 
was  held  by  the  Court  of  Chancery  in  England  that  a  new  scheme 
must  be  laid  before  the  court  for  the  administration  of  a  charity 
which  had  been  committed  to  that  corporation.^     Regarding  the 
assets  of  a  corporation  as  a  trust  fund,  and  its  directors  and 
officers,   and  the  legal  entity  called  the  corporation  as  well,  as 
trustees,  for  the  beneficiaries  in  the  trust,  the  foregoing  decisions 
indicate  the  grounds  upon  which  the  migration  of  a  corporation 
and  the  carrying  of  its  assets  into  another  jurisdiction  may   be 
restrained.     It  ought  to  be  said  that  such  injunctions  are  unusuaU 

1  1  Perry  Trusts    (Sd    ed.),  §   275;  ^  Farmers'  Loan  &  Trust   Co.    v. 

O'Reilly  v.  Alderson,  8  Hare,  100;  Re  Hughes,  11  Huu  (N.  Y.),  130. 
Ledwick,  8  Irish  Eq.  561 ;  Com.  &c.  v.  ^  Ex    parte  Tuaao,   1    Bailey    Eq. 

Archbold,   17   Irish  Eq.   187;   Lill  w.  (S-  C.)  395. 

Neafie,  31  111.  101;  Re  Rignold  Settle-  ^  Millard  v.  Eyre,  2  Ves.    Jr.  94; 

ment,  L.  R.  7   (Ch.)  223;  Maxwell  u.  Gale's  Pet.,  R.  M.  Charlt.  (Ga.)   109; 

Finnie,  6  Coldw.(Tenn.)  434;  Mennard  Re  Mais,  16  Jur.,  Part  1,  608. 
V.  Welf ord,  1  Smale  &  G.  426 ;  Re  Stew-  »  Atty.-General  v.  London,  3  Brown 

art,  8  Week.  Rep.  297;   Re  Harrison's  (Ch.),  171. 
Trusts,  22  L.  J.  (Ch.)  69;  Dorsey  v.  ^  Ibid. 

Thompson,  37  Md.  25;  Ketchumw.  Mo- 
bile &c.  R.  Co.,  2  Woods  (U.  S.),  532. 
584 


PLACE    OF    DOIXG    COXSTITUENT    ACTS.  [1  TllOmp.  Coi'p.    §  694, 

and  that  the  case  above  cited, ^  is  the  only  instance  of  the  kind 
which  has  come  to  the  writer's  notice. 

§  694.  Constituent  Acts  must  be  Performed  within  State  of 
Creation. —  It  is  undoubtedly  true  that,  for  the  purposes  of  per- 
forming constihient  acts,  that  is,  those  acts  which  are  necessary 
to  the  organization  and  existence  of  the  corporation  itself,  or  to 
its  final  dissolution,  it  only  exists  within  the  territory  of  the 
jurisdiction  which  has  created  it;   and  this,  we  apprehend,  is  all 
that  remains  of  the  meaning  of    the    proposition,    frequently 
announced  in  general  terms  in  the  judicial  decisions,  that  a  cor- 
poration exists  only  within  the  territory  of  the  jurisdiction  which 
has  created  it.^     As  the  corporate  faculty  cannot  accompany  the 
natural  persons  beyond  the  bounds  of  the  sovereignty   which 
confers  it,  they  cannot,  it  has  been  held,  possess  and  exercise  it 
there,    and  any   attempt   to   exercise  such   a  faculty   there,  is 
merely  a  usurpation  of  authority  by  persons  destitute  of  it,  and 
acting  without  any  legal  capacity  to  act  in  the  manner  attempted. 
It  was  accordingly  held  that  all  votes  and  proceedings  of  per- 
sons  professing  to   act   in   the    capacity  of  corporators,  when 
assembled  without  the    bounds   of  the  sovereignty  granting  the 
charter,  are  wholly  void.^     The  Maine  court  lay  down  the  further 
rule,  that  corporations  duly  existing  within  the  State  may  act 
and  contract  beyond  its  limits,  by  an  agent  or  agents  duly  con- 
stituted, but  can  neither  exist  nor  contract,  per  se,  without  those 
limits,  except  by  the  assistance  of  its  officers  or  agents  duly 
elected  or  appointed  within  them.*     In  other  words,  while  a  cor- 
poration cannot  exercise  its  j)rimary  franchises  outside  the  sov- 
ereignty by  which  it  is  created,  yet  it  may  exercise  its  secondary 
franchises  within  the  territory  of  another  sovereign,  if  not  for- 

1  Matthews  v.  Trustees,  7  Phila.  3  Miller  v.  Ewer,  27  Me.  509,519; 
(Pa.)  270.  s.  c.  46  Am.  Dec.  619.     The  same  doc- 

2  Galveston  R.  Co.  v.  Cowdrey,  11  triue  prevails  with  refereuce  to  the 
Wall.  (U.  S.)  459,  476;  Hilles  v.  powers  of  executors,  administrators, 
Parrish,  14  N.  J.  Eq.  380,  383;  Bank  guardians,  assignees  under  bankrupt 
of  Augusta  u.  Earle,  13  Pet.  (U.S.)  and  insolvent  laws,  and  the  like. 
519,588;  Runyani).  Lessee  of  Factory,  Story  Connict  Laws,  §§  405-417,  512; 
18  Pet.  (U.  S.)  122,  129.  See,  how-  Williams  v.  Storrs,  G  Johns.  Ch.  (N. 
ever,  Ohio   &c.  R.   Co.  v.  McPherson,  Y.)  3.->;$,  357. 

35  Mo.  13,  26;  Arms  v.  Conant,36  Vt.  ^  Miller  v.  Ewer,  supra. 

750. 

535 


1  Thomp.  Corp.  §  695.]     place  of  couronATE  meetings. 

bidden  to  do  so  by  its  own  charter  or  by  the  l;ivv  of  that  sover- 
eign. Thus,  a  banking  corporation  ma}',  if  not  forbidden  by  its 
charter,  make  contracts  in  another  State  by  the  comity  of  such 
State,  which  will  be  valid  and  enforcible.^  In  accordance  with 
this  view,  it  has  been  held  by  the  Supreme  Court  of  Connecticut, 
that  it  is  competent  for  the  directors  of  a  manufacturing  corpo- 
ration chartered  by  the  State  of  Connecticut,  to  meet  in  the 
State  of  New  York  and  there  appoint  a  secretary;  and  the  secre- 
tary so  appointed  was  held  to  have  been  legally  appointed. ^ 

§  695.  Corporation  when  Estopped  from  Raising  the  Ques- 
tion. —  In  a  later  authoritative  case,  a  new  element  has  been  in- 
troduced into  this  subject,  the  element  of  estoppel.  The  board 
of  directors  of  a  corporation  created  by  the  State  of  Texas,  held 
a  meeting  in  the  city  of  New  York,  at  which  a  mortgage  of  the 
property  and  franchises  of  the  company  was  ordered  to  be  exe- 
cuted. In  all  other  respects  the  mortgage  was  executed  and  re- 
corded with  the  prescribed  formalities;  so  that  the  question 
came  down  to  this :  Can  a  corporation  repudiate  a  mortgage  given 
to  secure  its  bonds,  held  by  bona  fide  holders,  on  the  ground  that 
its  directors  authorized  its  execution  by  a  resolution  passed  out- 
side the  State,  the  mortgage  being  in  other  respects  executed 
and  recorded  in  due  form  of  law.  Can  it  take  all  the  benefit  of 
such  a  transaction,  unload  the  bonds  on  the  business  community, 
and  then  repudiate  its  mortgage  for  such  a  cause  ?  It  was  held 
that  it  could  not.  In  giving  the  judgment  of  the  court,  Mr. 
Justice  Bradley  used  the  following  language:  "  No  doubt  it  may 
be  true,  in  many  cases,  that  the  extra-territorial  acts  of  directors 
would  be  held  void,  as  in  the  case  cited  from  the  14th  New  Jersey 
Chancery  Reports,  383,^  where  a  set  of  directors  of  a  New  Jersey 
corporation  met  in  Philadelphia,  against  a  positive  prohibitory 
statute  of  New  Jersey,  and  improperly  voted  themselves  certain 
shares  of  stock.  And  other  cases  might  be  put  where  their  acts 
would  be  held  void  without  a  prohibitory  statute  ;  and  it  is  gen- 
erally true  that  a  corporation   exists  only  within  the  territory  of 

'  Lane  v.    Bank,  9  Heisk.    (Tenn.)  ^  Referring  to  Hilles   v.  Parrish,  14 

419,  N.  J.  Eq.  380. 

2  McCall  V.    Byram    Man.     Co.,  6 
Conn.  428. 

530 


ELECTIONS    OUTSIDE    THE    STATE.        [1  Thoilip.   Corp.    §   696. 

the  jurisdiction  that  created  it.  But  it  is  well  settled  that  a  cor- 
poration may,  by  its  agents,  make  contracts  and  transact  busi- 
ness in  another  territory,  and  may  sue  and  be  sued  therein.  It 
may  hold  land  in  another  territory,  so  long  as  the  local  authori- 
ties do  not  object.  And  we  see  no  reason  why  it  should  not  be 
estopped  by  the  action  of  its  directors  in  another  territory,  when 
that  action  is  the  basis  of  negotiations  by  which  third  parties  have 
bona  fide  parted  with  their  money  and  the  company  has  received 
the  benefits  of  the  transaction.  A  contrary  doctrine  would  au- 
thorize a  company  to  take  advantage  of  its  own  wrong,  and  would 
seriously  impair  the  negotiability  and  value  of  such  securities. 
Must  a  person,  purchasing  railroad  bonds  in  Wall  street  or  Wal- 
nut street,  first  send  to  Illinois,  California,  or  Texas,  to  see 
whether  the  meeting  of  the  directors  which  authorized  the  mort- 
gage given  to  secure  the  bonds  was  held  in  a  proper  place  ? 
Whoever  may,  under  supposable  circumstances,  raise  an  objec- 
tion of  this  kind,  it  ought  not  to  lie  in  the  mouth  of  the  company 
to  raise  it.  And,  if  the  company  are  estopped,  then  those  who 
purchase  the  property  of  the  company  at  an  execution  sale  must 
be  estopped.  It  has  frequently  been  held  that  such  a  purchaser 
takes  only  the  right,  title,  and  interest  which  the  debtor  had, 
subject  to  the  equities  which  existed  against  the  property  in  his 
hands  when  the  judgment  was  recovered."  ^ 

§  696.  Validity  of  Corporate  Elections  lield  Outside  the 
State.  —  It  has  been  laid  down  by  the  Supreme  Judicial  Court  of 
Maine  that  the  votes  and  proceedings  of  persons  professing  to 
act  in  the  capacity  ot  corporators  and  as  a  corporation,  when 
assembled  without  the  bounds  of  the  sovereignty  granting  the 
charter,  are  wholly  void?  It  is  held  by  the  same  court  that  a 
general  clause  in  the  charter  of  a  corporation  authorizing  certain 
persons  to  call  the  first  meeting  of  the  corporation  at  such  time 
and  place  as  they  think  proper,  does  not  authorize  them  to  call 
the  meeting  at  a  place  without  the  limits  of  the  State,  and  that 
the  oflScers  elected  at  such  a  meeting  are  not  even  ofiicers  de 

1  Galveston  Railroad  y.  Cowdrey,  46  Am.  Dec.  G19;  Freeman  v.  Machias 
11  Wall.  (U.  S.)  45!),  476.  &c.  Co.,  88  Me.  345.     But  see  Copp  v. 

2  Miller  v.  Ewer,  27  Me.  509;  s.  c.      Lamb,  12  Me.  312,  314. 

537 


1  Thomp.  Corp    §  696]     place  of  corporate  meetings. 

facto}     In  New  Jersey,  where  there  was  a  statute  which  pro- 
vided that  all  corporations  whose  charters  did  not  designate  the 
places  of  their  meeting  should  hold  their  business  meetings  and 
the  meetings  of  their  directors  within  the  State,  it  was  held  that 
a  resolution  of  the  board  of  directors  of  a  corporation  at  a  meet- 
in*^  held  in  the  city  of  Philadelphia,  in  Pennsylvania,  whereby 
certain  transfers  of    stock   were  ayithorized,   was  void.^     The 
same  rule  prevails  in  Texas ;  and  where  the  articles  of  associa- 
tion of  a  corporation,  created  under  the  laws  of  Texas,  author- 
ized the  corporation  to  transact  its  business  at  Paris,  in  France, 
it  was  held  that  the  corporation  could  not   hold  stockholders' 
meetings  outside  of  Texas,  and  that  directors  elected  at  a  meet- 
ino-  held  at  Paris  were  not  even  directors  de  facto ^  and  that  their 
acts  were  a  nullity?    On  the  contrary,  the  view  taken  in  Colo- 
rado is  that  the  fact  that  the  annual  meeting  of  the  stockholders 
of  a  corporation  created  under  the  laws  of  that  State,  for  the 
election  of  directors,  is  held  outside  the  State,  cannot  be  raised 
in  a  collateral  proceeding,  either  by  the  corporation  or  by  one 
who  has  contracted  with  it  as  such,  although  such  a  meeting  is 
irreo-ular  and  illegal;  *  and  this  is  in  accordance  with  a  principle 
elsewhere  explained.^     A  corporation  created  by  the  concurrent 
legislation  of  two  States,^  receiving  from  each  the  same  charter  in 
legal  effect,  has  a  legal  domicile  in  each  State,  and  may  lawfully 
hold  its  meetings  and  transact  its  corporate  business  in  either 
State?    In  some  of  the  new  States  and  territories,  whose  policy 
it  is  to  encourage  the  introduction  of  foreign  capital,  provisions 
have  been  made  by  statute,  allowing  corporate  meetings  to  be 
held  beyond  the  limits  of  the  State  or  territory.     Thus,  the  pro- 
visions of  the  civil  code  of   Dakota  territory,  relating  to  the 
place  of  meeting  of  directors  and  stockholders  of  corporations,^ 
has  been  amended  so  as  to  permit  such  meetings  to  be  held  at 
any  place  within  or  without  the  territory,  where  the  corporation 
appoints  an  agent  within  the  territory  upon  whom  service  of 

1  Miller  V.  Ewer,  27  Maine,  509;  s.  c.  ^  Ante,  §  518,  et  seq. 

46  Am.  Dec.  619.  ^  Ante,  §§  47,  48,  319,  et  seq. 

2  Hilles  V.   Parrish,   14  N.  J.   Eq.  '  Covington    &c.    Bridge     Co.     v. 
380_  Mayer,  31  Ohio  St.  317. 

3  Franco-Texan  Land  Co.  •».  Laigle,  »  Civ.  Code  Dak.  Ter.,  §  412,  sub- 
59  Tex,  339.  sec.  3. 

4  Humphreys  v.  Mooney,  5  Col.  282. 

.538 


WHERE    WITHIN    THE    STATE.       [1  Thomp.  Corp.    §   697. 

process  may  be  made.^  And  the  statute  of  Colorado^  allows 
meetings  of  directors  to  be  held  beyond  the  limits  of  the  State, 
if  ptovision  is  made  therefor  in  the  certificate  of  incorporation.^ 
The  statute  of  Minnesota  *  permits  meetings  to  be  held  at  any 
place  within  or  without  the  State. 

§  697.  Meetings  Held  at  what  Place  within  the  State. — 

Where  the  by-laws  of  a  corporation  authorize  the  president  to 
call  special  meetings  of  the  directors,  upon  giving  notice  of  the 
time  and  place  thereof,  and  such  place  is  not  prescribed  by  the 
by-laws,  the  president  may  call  such  meeting  at  a  place  other 
than  the  principal  place  of  business  of  the  corporation.^  Where 
the  charter  does  not  prescribe  the  place  where  the  annual  elec- 
tions are  to  be  held,  the  board  of  managers  have  the  right  to  fix 
the  place,  and  the  officers  elected  at  the  place  so  fixed  will  be  at 
least  officers  c^e/acifo,  with  power  to  hold  their  offices  unless 
ousted  by  quo  warranto  brought  during  the  official  terms  of  such 
officers.^ 

1  Act  March   11,  1887,  L.  1887,   c.  St.  59.    Mandamus  refused  to  compel 
36,  p.  85.  a  corporation  to  keep  its  records  at  tlie 

2  Gen.   Stat.   Colo.,  cliap.  19,   §18.  place  wiiere  its  business  of  manufact- 

3  See  Humphreys  V,  Mooney,  5  Col.  uring  was  done ;  the  evidence  showing 
282.  that  the  booiis  had  been  correctly  Ivept, 

4  Eev.   Stat.  Minn.    ("1881),  p.   449,  and  that  the  petitioner  had  been  fur- 
§  404.  nished  with  all  the  information  from 

s  Corbett  v.  Woodward,  6  Sawyer,      such  books  which  he  required :   Pratt 
(U.  S.),  403.  V.  Meriden  Cutlery  Co.,  35  Conn.    36. 

6  Commonwealth  v.  Smith,  45  Pa. 

539 


1  Thomp.  Corp.  §  700.]     corporate  elections. 


CHAPTER    XY. 

COKPORATE    ELECTIONS. 

Art.  I.  Assembling  the  Meeting,  §§700-722. 
II.  The  Quorum,  §§725-729. 

III.  Right  to  Vote,  §§730-743. 

IV.  Conduct  of  the   Election,  §§745-758. 

V.  Right  to  the  Office:   Contesting  the  Election,  §§761-794. 

Article  I.  Assembling  the  Meeting. 


702. 


703. 


Section 

700.  Mandamus  to  compel  the  holding 

of  a  corporate  election. 

701.  Time  of  holding  corporate  elec- 

tions. 
Statutory  provisions  as  to  time  of 

holding  meeting. 
Statutory  provisions  as  to  place 

of  holding  corporate  meetings. 

704.  Who  may  call  the  meeting. 

705.  Statutory  provisions  as  to  who 

may  call. 

706.  Necessity  of  having  meeting  duly 

assembled. 
Corporate  meetings  lavalid  unless 

duly  notified. 
If  the  meeting  is  special  all  must 

be  summoned. 

709.  And  in  the  statutory  mode. 

710.  Requisites  of  the  notice. 

711.  Statutory  provisions  as  to  man- 

ner of  giving  notice,  length  of 
time,  etc. 


707. 


708. 


of    notice    by   appear- 


of  the    foregoinc 


Section 

712.  Waiver 

auce. 

713.  Illustrations 

rule. 

714.  Notice  dispensed  with  by  unani- 

mous written  consent. 

715.  When      personal       notice      re- 

quired. 

716.  Must  be  given  for  the  statutory 

time. 

717.  When  notice  must  state  objects 

of  meeting. 

718.  Meeting  when  confined  to  sub- 

jects expressed  in  notice. 

719.  Illustrations. 

720.  Adjournment    to    a    subsequent 

day. 

721.  Statutes  providing  for  adjourned 

or  special  elections. 

722.  Statutes    under  which  elections 

fixed    and    regulated    by    by- 
laws. 


§  700.  Mandamus  to  Compel  the  Holding  of  a  Corporate 
Election.  —  A  mandamus  has  been  frequently  granted  by  the 
English  Court  of  King's  Bench,  in  the  case  of  municipal  corpora- 
tions, to  compel  the  corporate  authorities  to  hold  a  corporate 
540 


ASSEMBLING    THE    MEETING.        [1  ThoUip.  Corp.   §   700. 

election.^  The  English  courts,  it  is  well  known,  restrain  the  writ 
of  mandamus  to  the  enforcement  of  rights  of  a  public  nature, 
thouo-h  in  America  the  remedy  has  been  much  enlarged,  and  now 
extends  in  many  cases  to  compel  the  doing  of  acts  of  a  iwivate 
nature^  where  the  relator  has  no  other  remedy.  The  use  of  the 
writ  to  redress  injuries  in  private  corporations  is  vindicated  by 
a  decision  of  the  Supreme  Judicial  Court  of  Massachusetts,  where 
it  was  held,  on  a  learned  review  of  the  decisions,  that  the  cir- 
cumstance that  a  corporation  is  in  the  nature  of  a  partnership, 
as  where  it  is  merely  a  manufacturing  company^  does  not  pre- 
clude the  use  of  the  writ  of  mandamus  in  a  proper  case.  This 
holding  is  a  distinct  authority  for  the  proposition,  denied  in 
some  of  the  English  cases,  that  the  use  of  mandamus  in  such 
cases  is  not  restricted  to  instances  where  public  rights  are  in- 
volved.^ On  the  other  hand,  the  directors  of  a  corporation,  who 
are  in  office,  cannot  dispute  the  right  of  a  stockholder,  holding  a 
majority  of  the  stock,  to  have  an  election  in  accordance  with  the 
by-laws,  on  the  ground  that  he  intends  to  use  his  legal  rights  for 
purposes  detrimental  to  the  interests  of  the  corporation,  and 
that  the  desired  election  is  merely  a  step  toward  that  end.^     If 

1  In   one  case    a   mandamus    was  be  first  ousted  was  held  not  good,  be- 

granted  to  the  mayor,  bailiffs  and  bur-  cause  the  intent  of  the  statute  was  to 

gesses  of    the   corporation  of  Cam-  give  the  corporation  a  rightful  officer 

bridge,  to  compel  the   holding  of  a  as  soon  as  might  be;   whereas   this 

corporate  election.     After  the  election  pretense  would  waste  the  whole  year, 

had  taken  place,  it  was  shown  to  be  This  decision,  however,  was  made  to 

merely  colorable  and  illusory,  and  had  rest  upon  Its    own  peculiar  circum- 

f  or  the  mere  purpose  of  enabling  the  stances, —  the    court    saying    that  it 

mayor    to    hold    over.    The  election  "  might  be  otherwise  where  there  was 

in    question  resulted    in  choosing  as  a    probable     election    and    room     to 

mayor  an   officer    in    the  array,   just  doubt;  and  that  tliese  writs  were  dis- 

gone  to  North   America  and  without  cretionary.      Besides    there    was    no 

the  least  probability  of  returning  till  harm  done;  for  it  is  not  a  peremptory 

long  after  the  year,  which  was   the  mandamus,  and  they  may  return  '  that 

term  of  the  office,  would  be  expired,  there  is  a  rightful  officer.'  "     Case  of 

Rex  V.  Mayor  of  Cambridge,  4   Burr,  the  Borough  of    Boffiuy,  2    Strange, 

2008.     In  another    case  a    mandamus  1003. 

was  granted  under  a  statute,  11  Geo.  2  American    Railway -Frog    Co.    v. 

I.,  c.  4,  to  compel  the  election  of  a  Haven,  101  Mass.  398;  s.c.  3  Am.  Rep. 

mayor,  although  there  was  a  mayor  377. 

de  facto.    The  ol)jection  that  a  de/ac<o  s  Camden  &c.   R.  Co.  v.  Elkins,  37 

officer   (who  appeared  to   l>e  holding  N.  J.  Eq.  273. 
without  a  shadow  of  right),  ought  to 

541 


1  Thorap.  Corp.  §  701.]     corporate  elections. 

the  election  is  to  fill  a  vacancy^  the  officer  elect  holds  for  unex- 
pired term  of  the  officer,  whose  death,  resignation  or  removal 
created  the  vacancy,  in  the  absence  of  a  contrary  provision  in 
the  governing  statute  or  by-laws.^  The  board  of  directors  can- 
not enlarge  the  tenure  of  a  ministerial  officer  of  the  corporation, 
beyond  that  expressed  in  the  governing  statute.  When,  there- 
fore, the  charter  of  an  association  required  a  chief  engineer  to 
be  elected  "  annually"  by  the  board  of  delegates,  also  elected 
annually,  and  a  board  elected  one  for  a  term  of  five  years,  it 
was  held,  that  his  tenure  ended  the  election  of  another  by  the 
succeeding  board ;  and  this  although  such  election  did  not  take 
place  on  the  day  prescribed  in  the  charter  therefor,  but  at  a  later 
regular  meetino-.^ 

§  701.  Time  of  Holding  Corporate  Elections.  —  Several  de- 
cisions are  met  with,  on  the  question  of  the  ti7ne  at  which  corpo- 
rate elections  are  to  be  held,  but  they  mostly  turn  upon  the 
language  of  particular  charters  or  statutes,  and  do  not  follow  the 
thread  of  any  definite  principle.  On  obvious  grounds,  it  has 
been  held  that  where  the  charter  provides  for  an  annual  election 
of  a  board  of  managers,  those  in  power  cannot  lengthen  their 
term  of  office  by  changing  the  date  of  the  annual  election  from 
May  to  November,  and  thus  extend  their  official  terms. ^  The 
provision  of  a  special  charter  requiring  directors  to  be  chosen  at 
the  annual  tneelings  of  the  corporation,  has  been  held  directory 
and  not  restrictive,  so  that  its  observance  was  not  deemed  neces- 
sary to  the  validity  of  an  election.^  It  has  been  held  that  a 
statute  requiring  the  directors  and  treasurer  of  a  corporation 
to  be  chosen  annually  by  the  stockholders,  at  such  time  and 
place  as  shall  be  provided  by  the  by-laws  of  the  company,  is  in- 
applicable to  the  first  choice  of  officers  by  persons  associating 
themselves  together,  and  proceeding  to  create  and  constitute 
themselves  a  body  politic.  The  court  reason  that  no  by-laws  can 
be  adopted  by  or  for  a  corporation  before  the  corporation  itself 
is  created.  When  the  associates  first  meet  together,  in  pursu- 
ance of  their  articles  of  association,  and  then  commence  the  in- 

1  People  V.  McKiuney,  41  Barb.  (N.  ^  Mattu  v.  Primrose,  23  Md.  482. 
Y.)  51«.  ^  Hughes  ;;.  Parker,  20  N.  H.  58. 

2  State  V.  Bait,  38  La.  An.  955. 

542 


ASSEMBLING    THE    MEETING.        [1  TllOmp.   Coip.    §  703. 

itiatoiy  steps  towards  constituting  themselves  a  body  politic  and 
corporate,  they  may  and  must  determine  the  manner  in  which 
all  needful  officers  shall  be  elected.  Having  been  duly  organ- 
ized, the  association  becomes  a  corporation,  with  all  the  powers 
and  privileges,  and  subject  to  all  the  duties,  restrictions,  and  lia- 
bilities, incident  to  that  relation.^  Where  a  bank  charter  pro- 
vided that  directors  may  be  chosen  "  at  any  time,"  and  a 
subseqent  act  provides  that,  if  they  shall  not  be  chosen  on  a  day 
designated,  the  president  and  directors  shall  notify  an  election  to 
be  held  within  thirty  days  thereafter,  the  latter  is  not  a  repeal  of 
the  former,  and  does  not  prevent  an  election  being  had  after  the 
thirty  days.^  It  has  been  held  no  ground  for  postponing  the 
election,  that  the  treasurer  of  the  commissioners  appointed  by  the 
statute  for  the  organization  of  the  corporation,  according  to  a 
course  in  vogue  during  the  period  of  special  charters,^  withholds 
the  funds  which  have  been  received  from  the  control  of  the  com- 
missioners, although  they  have  a  right  to  them.*  It  has  been 
held  that  the  inspectors  of  an  election  for  directors  have  a  dis- 
cretion to  Tieep  open  the  polls  beyond  the  hour  limited  by  the 
board  from  which  they  derive  their  authority.^  The  New  York 
statute  relative  to  the  observance  of  Sunday  does  not  apply  to 
the  proceedings  of  business  meetings  of  societies  held  on  that 
day.  The  holding  of  business  meetings  of  a  benevolent  society, 
transacting  its  business,  on  Sunday^  is  not  forbidden  as  illegal.^ 

§  702.  Statutory  Provisions  as  to  Time  of  Meeting.  —  Most  of 
the  statutes  pro\'ide  that  directors  shall  be  elected  annually.'^  Others 
contain  the  same  provision,  with  the  qualification  that  the  time  and  place 
of  the  meeting  shall  be  fixed  by  by-laws.^  Others  establish  the  date, 
provided  the  by-laws  do  not  fix  it.^     One  statute  relating  to  special 

1  Boston &c.  Manuf.  Co.  v,  Moring,  ^  Gen.  Stat.  Colo.  1883,  chap.  19,  § 
15  Gray  (Mass.),  211.  86;  Deer.   Cal.  Code,  part  4,  §  302;  2 

2  M'Neely  v.  Woodruff,  13  N.  J.  L.  Sayle  Tex.  Stat,,  art.  4125  (railroad 
352.  companies). 

3  Ante,  §  44.  8  (jen.  Stat.  Colo.  1883,  chap.  19,  § 
*  Ilardeuburghv. Fanners &c.Bank,      86;  Comp.    Stat.  Neb.  1887,  chap.  16, 

3  N.  J.  Eq.  C8.  80. 

s  Matter  of  Mohawk  &c.  K.  Co.,  19  ^  As  in  California,   the  first  Tues- 

Wend.  (N.  Y.)  135.  day  in  June.    Deer.   Cal.  Code,   part 

8  People  V.   Young  Men's &c.  Soc,  4,  §  302. 
G5  Barb.  (N.  Y.)  357. 

543 


1  Tliomp.  Corp.  §  703.]     coupokate  elections. 

meetings  for  the  election  of  directors  where  the  regular  annual  meeting 
has  not  been  held,  provides  that  if  the  day  falls  on  Sunday  or  a  legal 
holiday,  the  election  shall  be  held  on  the  next  secular  day.i  By  the 
statute  of  Nebraska,  the  annual  meetings  of  the  stockholders  shall  be 
held  on  the  first  Monday  of  January  in  each  year,  at  which  meeting 
directors  shall  be  elected,  and  such  other  lawful  business  transacted  as 
they  shall  deem  necessary.^  In  some  States  the  whole  subject  is  re_ 
mitted  to  the  by-laios,  —  &s,  in  Oregon,  where,  after  providing  for  the 
first  meeting,  the  statute  provides  that  by-laws  shall  prescribe  the  time 
and  manner  of  holding  the  future  meetings. =^  So,  in  CaUfornia,  direct- 
ors of  a  railroad  corporation  may  be  elected  at  a  meeting  of  stockhold- 
ers, other  than  the  annual  meeting,  as  a  majority  of  the  fixed  capital 
stock  may  determine,  or  as  the  by-laws  may  provide.  Notice  to  be 
given  as  provided  for  notices  of  meetings,  by  another  part  of  the 
statute,  to  adopt  by-laws."^ 

§  703.  Statutory  Provisions  as  to  Place  of  Holding:  Corpo- 
rate Elections.— On  principles  stated  in  a  former  chapter,^  it  may  be 
stated,  as  a  general  rule,  that  corporate  elections  can  only  beheld  witJiin 
the  State  under  whose  laws  the  corporation  is  organized,  unless  there  be 
a  statute  of  the  State  permitting  it  to  be  held  elsewhere.  Several  stat- 
utory directions  are  met  with  as  to  the  place  of  holding  such  elections. 
Such  place  is  generally  fixed  at  the  principal  place  of  business  of  the  cor- 
poration,*5  or  at  its  principal  office.'  In  other  States,  both  the  time  and 
place  of  holding  such  elections  are  to  be  estabhshed  by  the  corporation 
by  by-laws. «  As  already  seen  ^  constitutional  provisions  exist  in  some 
of  the  new  States,  authorizing  the  holding  of  corporate  meetings  outside 
the  State.  By  statute  in  Minnesota  both  stockholders'  and  directors' 
meetings  may  be  held  outside  the  State.  ^^  In  Indiana  the  election  of 
directors  is  to  be  held  at  the  place  provided  for  in  the  charter  unless 
there  has  been  a  change  in  the  place  of  business  of  the  corporation,  in 
which  case  it  is  to  be  held  at  the  place  to  which  such  change  shall  have 
been  made.^i  By  the  statute  of  Kentucky  elections  for  directors  and 
officers  must  be  held  within  the  State.^^    The  same  statute  provides  that 

1  Rev.  Stat.  Wis.  1878,  §  1762.  »  1  Gen.    Stat.   Kan.,  §  1174;  Sayle 

2  Comp.  Stat.  Neb.  1887,  chap.  16,      Tex.  Civ.   Stat.   1888,   art.   679;    Ark. 
§  38.  Dig.  Stat.  1884,   §  964. 

3  Hill  Laws  Ore.,  §  2236.  ■  ^  Ante,  §  696. 

*  Deer.  Code  Cal.,  part  4,  §  464.  i"  Rev.    Stat.   Minn.    1881,  p.  449,  § 

5  Ante,  §  696.  404. 

6  2  Rev.  Stat.  Ind.  1888,  §  3021.  "  Rev.  Stat.  Ind.  1888,  §  3021 . 

''  Deer.  Cal.  Code,  part  4,  §  319.  ^  Gen.  Stat.  Ky.  1887,  chap.  767,  §  1. 

544 


ASSEMBLING    THE    MEETING.       [1  TllOmp.  Coi'p.    §   704. 

meetings   held  out  of   the  State  shall  be  void,  with  the  exception  of 
meetings  of  the  Cincinnati  Southern  Railroad.  ^ 

§  704.  Who  may  Call  the  Meeting.  — It  is,  in  general,  essen- 
tial to  the  validity  of  acts  done  at  a  special  or  called  meeting  of 
a  corporation,  that  the  call  shall  be  made  by  the  person  or  per- 
sons appointed  by  the  governing  statute  to  call  such  meetings ;  ^ 
though,  under  some  conditions,  acts  done  at  a  meeting  called  by 
unauthorized  persons  may  be  regarded  as  valid  until  called  in 
question  by  the  State. ^  According  to  one  view,  the  call  for  an 
original  meeting  of  corporators  to  elect  directors  need  not  be 
made  by  a  formal  order  of  those  authorized  to  make  the  call ; 
but  it  is  sufficient  if  it  be  made  by  their  direction.^  A  stricter 
view  has  resulted  in  the  conclusion,  under  a  statute,^  that  where 
the  meeting  is  to  be  called  by  the  board  of  directors,  or  by  any 
number  of  stockholders  holding,  together,  at  least  one-tenth  of 
the  capital  stock,  —  a  call  made  by  the  secretary,  on  the  authority 
of  stockholders  holding  one-tenth  of  the  capital,  is  invalid  and  all 
proceedings  thereunder  illegal.®  A  similar  strictness  has  pre- 
vailed  in   New  Hampshire,  in  respect   of  a  call  made  under  a 


1  Ibid. 

2  Reilly  v.  Oglebay,  25  W.  Va.  36 ; 
Bethany  v.  Sperry,  10  Conn.  200.  In 
New  Hampshire,  where  a  corporation 
has  no  officer  by  whom  a  new  meeting 
can  be  called,  its  powers  are  suspended 
or  dormant,  till  it  is  reorganized  under 
a  new  charter,  or  by  a  meeting  called 
under  the  statutes,  by  a  justice  of  the 
peace.  Goulding  v.  Clark,  Si  N.  H. 
148. 

3  Where  one  of  three  persons  named 
as  corporators  in  an  act  of  the  legis- 
lature, incorporating  thtra  and  their 
"associates,"  called  a  meeting  of  the 
"  subscribers  to  the  capital  stock," 
to  meet  "  for  the  purpose  of  organiz- 
ing and  e'ecting  the  necessary  offi- 
cers," and  the  fioo  other  corporators 
did  not  consent  to  the  call,  but  upon 
being  requested  refu-ed  to  join  there- 
in, and  the  organization  of  the  meeting 
was  otherwise  legal,  —  it  was  held  to 


35 


be  a  valid  corporation  against  all  per- 
sons but  the  commonwealth  and  the 
two  persons  named  as  corporators 
who  refused  to  join,  although  there 
were  no  subscribers  to  the  capital 
stock  before  the  act  of  incorporation. 
Walworth  v.  Brackett,  98  Mass.  98. 
After  the  requisite  amount  of  stock 
has  been  subscribed  to  authorize  the 
stockholders  to  elect  directors,  it  is 
not  Indispensable  to  an  election  that 
the  notice  for  it  should  be  given  by 
the  persons  named  in  the  certificate 
of  incorporation.  The  validity  of  the 
acts  of  the  directors  cannot  be  ques- 
tioned collaterally,  on  the  ground  of 
irregularity  in  eiviug  the  notice. 
Chamberlain  v.  Painsville  &c.  11.  Co., 
15  Oh.  St.  225. 

^  Hardeuburgh     v.      Farmers     &c. 
Bank,  3  N.  J.  Eq.  G8. 

5  W.  Va.  Code,  chap.  53,  §  41. 

6  Reilly  v.  Oglebay,  25  W.  Va.  36. 

545 


1  Tlioinp.  Corp.  §  705.]     corporate  elections. 

statute  by  Sk  justice  of  the  peace.  The  court  hold  that  the  statu- 
tory power  must  be  strictly  complied  witli,  and  accordiiig;ly  that 
the  justice  cannot  make  the  call  unless  on  such  a  petition  of 
proprietors  as  is  prescribed  by  the  statute;  and,  proceeding  by 
analogy  to  the  view  that  in  such  cases  the  jurisdiction  must 
affirmatively  appear,  it  is  also  held  that  the  petition  to  the  justice 
must  be  shown  to  be  signed  by  requisite  number  of  proprietors.^ 
But,  as  the  act  devolved  upon  the  justice  is  merely  ministerial, 
the  fact  that  he  is  a  stockliolder  does  not  disable  him  from  issu- 
ing the  warning  for  the  meeting,  or  even  presiding  thereat. ^  A 
simihir  strictness  prevails  under  New  England  statutes  relating 
to  the  calling  and  warning  of  town  meetings.  Authority  to  the 
clerk  to  call  and  warn  the  annual  meetings  has  been  held  not  to 
authorize  him  to  call  and  warn  special  meetings,  and  hence  the 
acts  and  doings  at  a  special  meeting  thus  called  are  void.^  Nor 
does  authority  to  "  warn"  future  meetings  authorize  the  clerk 
to  "  call"  such  meetings.^  While  these  conclusions  arise  under 
statutes,  it  is  not  perceived  why  they  are  not  equally  applicable 
in  the  case  where  the  persons  who  shall  make  the  call  are  desig- 
nated by  a  valid  by-law.  Nevertheless,  it  has  been  held  that  a 
by-law  of  an  insurance  company,  which  provides  that  a  special 
meeting  shall  be  called  by  the  president,  or,  in  his  absence,  by 
the  secretary,  on  application  made  to  them  in  writing,  by  ten 
members,  does  not  preclude  the  directors  from  calling  special 
meetings  without  such  application.^ 

§  705.  Statutory  Provisions  as  to  Who  may  Call.  — By  statute 
in  Missouri,  every  meeting  of  the  shareholders  of  a  corporation  must 
be  convened  b}'^  its  pi^esident  and  secretary.''  If  the  president  and  sec- 
retary fail  to  call  any  meeting  required  by  law  or  by  the  by-laws  of  the 
corporation,  any  two  shareholders  may  call  such  meeting,  and  appoint 
inspectors,  even  though  on  a  later  day  than  prescribed  by  statute  or  by- 
law.'^ By  a  statute  of  New  York,  if  the  directors  named  in  the  act  of 
association  neglect  or  refuse  to  adopt  a  by-law  fixing  and  regulating 

1  Gouldin?    v.  Clark,  34  N.  H.  148.  ^  Stone  v.  School  District,  8  Cush. 

2  Ashuelot  R.  Co.  v.  Eliot,  57  N.  H.       (Mass.)  592. 

397.  s  Citizens   Ins.    Co.   v.  Sortwell,   8 

3  School    District  v.    Atherton,  12      Allen  (Mass.),  217. 

Mete.  (Mass.)  105.  ^  Rev.  Stat.  Mo.  1889,  §  2484. 

'  Ibid. 

546 


ASSEMBLING    THE    MEETING.       [1  Thoilip.  Coi'p.    §  705. 

annual  elections,  by  reason  of  which  neglect  the  directors  hold  over,  the 
stockholder  may  elect  directors  sixty  days  after  the  expu-ation  of  the 
first  year,  after  giving  fifteen  days'  wi'itten  notice  to  aU  stockholders  of 
a  meeting  for  that  purpose  at  the  principal  office  of  the  company  (or,  if 
the  use  of  such  office  be  denied,  at  some  designated  place  in  the  town  or 
city  where  the  principal  office  is  located). i  In  some  of  the  States  whose 
statutes  are  modeled  after  the  theories  which  were  in  vogue  under  special 
charters,^  provision  is  made  that  the  commissioners  charged  with  the  pro- 
motion of  the  corporation  shall  convene  a  meeting  of  subscribers  for  the 
purpose  of  electing  directors  or  managers  and  of  transacting  other 
business. 2  In  the  statutes  of  Ai-kansas  there  is  a  provision  relating  to  rail- 
roads similar  to  that  found  in  the  statutes  of  Illinois,  to  the  effect  that, 
after  the  capital  stock  is  subscribed  the  commissioners  appointed  to 
receive  the  subscriptions  shall  appoint  a  time  and  place  for  a  meeting  of 
stockholders  to  choose  not  less  than  five  nor  more  than  thii'teen  dii'ectors.* 
In  the  same  State  stockholders  owning  two- thirds  of  the  stock  on  which  aU 
assessments  are  paid,  may  call  a  meeting  of  the  corporation,  by  signing 
a  call  therefor  irith  their  proper  names,  stating  the  number  of  shares 
held  by  each,  and  filing  the  same  with  the  president  or  secretary  of  the 
corporation,  and  pubUshiug  the  same  in  some  newspaper  in  the  county 
of  the  principal  office  of  the  corporation,  for  three  successive  weeks  prior 
to  holding  the  meeting,  and  by  mailing  a  copy  to  each  du'ector  at  his 
usual  place  of  abode.  ^  In  Indiana  the  fii'st  meeting  of  aU  corporations 
shall,  unless  otherwise  provided  for,  be  called  by  a  notice  signed  by 
three  or  more  members,  setting  forth  the  time,  place,  and  purpose 
of  the  meeting,  which  notice  shall,  at  least  ten  days  befoi-e  the 
meeting,  be  delivered  to  each  member,  or  be  pubfished  in  some 
newspaper  in  the  county  where  the  corporation  may  be  established ; 
or,  if  there  be  no  such  newspaper,  then  in  some  newspaper  in 
the  State  nearest  thereto.^  By  statute  in  Ohio,  unless  the  regulations 
of  the  corporation  otherwise  provide,  an  annual  election  for  trustees 
or  directors  shall  be  held  on  the  first  Monday  of  January  of  each 
year.  If  trustees  or  directors  are,  for  any  cause,  not  elected  at  the 
annual  meeting,  or  other  meeting  called  for  that  pui'pose,  they  may  be 
chosen  at  a  members'  or  stockholders'  meeting,  at  which  all  the  mem- 
bers or  stockholders  are  present  in  person  or  by  proxy ;  or  at  a  meet- 
ing called  by  the  trustees  or  directors,  or  any  two  members  or  stock- 
holders, notice  of  which  has  been  given  in  writing,  to  each  stockholder, 

1  3  Rev.  Etat.  N.  Y.  1889  (Banks  &  ■"  Ark.  Dig.  Stat.  1884,  §5425. 
Bros,  ed.),  §§  1,  3,  4.  ^  Starr  &  Curt.  111.  Stat.,  p.  617,  §22. 

2  As  to  which  see  ante,  §  44.  e  Kev.  Stat.  Ind,  1888,  §  3004. 

3  Starr  &  Curt.  111.  Stat.,  p.  GIO,  §  3. 

547 


1  Thoinp.  Corp.  §  705.]     coupoiiate  elections. 

or  by  publication  in  some  newspaper  printed  in  the  county  where  the 
corporation  is  situated,  or  has  its  priueii)al  office,  for  ten  days,  and 
trustees  and  directors  shall  continue  in  office  until  their  successors  are 
elected  and  qualified.  ^  In  Michigan,  the  first  meeting  shall  be  called  by 
a  twenty  days'  notice,  signed  by  one  or  more  members  or  persons 
associating,  setting  forth  the  time,  place  and  purpose  of  the  meeting. 
It  shall  be  dehvered  to  members,  or  published  in  newspapers  of  the 
county,  or  of  a  county  adjacent  to  the  county  in  which  the  corporation 
is  to  be  organized,  or  in  Detroit,  This  notice  may  be  dispensed 
with  in  the  articles  of  incorporation  or  in  an  enabling  act.^  Meet- 
ings for  the  annual  election  of  directors  are,  in  that  State,  provided 
for  by  the  by-laws  established  by  the  directors,  and  the  directors  call  the 
meeting.  If  they  neglect  to  call  it,  it  may  be  called  by  any  number  of 
stockholders  representing  one-fourth  of  the  stock. ^  In  California,  an 
adjoui'ued  election  may  be  held  on  a  day  fixed  by  law  or  by  the  direct- 
ors. If  no  such  day  is  fixed,  the  holders  of  one-half  of  the  votes  may 
call  such  an  election  in  writing.  Notice  must  be  given  by  the  secre- 
tary, if  there  be  one,  but  if  there  is  none,  or  he  refuses  to  act,  it  may 
be  served  directly  on  the  members,  as  provided  by  section  301  of  the 
Code  of  that  State.*  In  Nebraska,  promoters  of  railroad  companies, 
upon  securing  a  subscription  of  one-tenth  of  the  capital  stock,  may  call 
a  meeting  of  stockholders  to  choose  seven  directors  to  hold  office  until 
the  annual  election. ^  In  Wisconsin,  the  directors,  unless  it  is  otherwise 
dkected  by  law,  or  by  the  by-laws  of  the  corporation,  shall  order 
annual  elections  of  officers  of  the  company.  If  they  fail  to  do  so,  the 
corporation  is  not  thereby  dissolved,  but  a  special  meeting  may  be 
called,  by  giving  the  same  notice  as  for  the  annual  meetings.  If  the 
directors  fail  to  call  such  special  election  within  ten  days  after  the  time 
for  the  annual  election,  it  may  be  called  by  two  or  more  stoclcholders, 
at  such  time  and  place  as  they  may  appoint,  by  giving  ten  days'  personal 
notice  in  writing  to  each  stockholder,  or  by  two  weeks'  publication  in  a 
newspaper  nearest  the  location  of  such  corporation.^  In  Kentucky,  if 
the  officer  whose  duty  it  is  to  call  an  election  fails  or  refuses  to  do  so, 
he  may  be  compelled  by  an  order  of  court  to  call  the  same,  if  he  reside 
in  the  State.  The  court  may  so  order,  upon  the  application  of  any  num- 
ber of  stockholders  owning  not  less  than  ten  shares  in  the  corporation.''' 
In  Arkansas,  two  subscribers  may  call  the  first  meeting,  to  be  held  at 
such  time  and  place  as  they  may  appoint,  by  giving  notice  in  one  or 

1  Giauque  Oh.  Stat.,  §  3246.  *  Comp.   Stat.   Neb.  1887,  chap.  16, 

2  How.  Mich.  Stat.,  §  4862.  §  80. 

3  Ibid,  §  3317.  «  Rev.  Stat.  Wis.  1878,  §  1762. 

*  Deer.  Code  Cal.,  part  2,  §  314.  '  Gen.  Stat.  Ky.  1887,  chap.  769. 

548 


ASSEMBLING    THE    MEETING.        [1  TllOnip.  Corp.    §  706. 

more  newspapers  iu  the  county  in  which  the  corporation  is  to  be  estab- 
lished, or  in  an  adjoining  county,  fifteen  days  prior  to  the  meeting.i 
In  the  same  State  general  meetings  of  stockholders  of  railroad  com- 
panies must  be  held  annually  at  the  time  and  place  appointed  for  the 
election  of  directors.  Special  meetings  may  be  called  by  the  direct- 
ors, or  by  any  number  of  stockliolders  owning  one-third  of  the  stock, 
by  giving  thirty  days'  notice  of  the  time  and  place  in  a  newspaper  in 
each  county  thi'ough  which  the  road  runs,  if  it  has  a  newspaper.^  In 
Oregon,  corporators,  or  any  of  them,  after  the  stock  is  subscribed, 
may  call  a  meeting  of  stockholders  to  elect  directors,  stating  the  time 
and  place  of  such  meeting,  and  it  is  lawful  for  the  subscribers  to  elect 
a  board  of  dkectors  as  soon  as  one-half  of  the  capital  stock  is  sub- 
scribed.^ 

§  706.  Necessity  of  having  Meeting  duly  Assembled.  —  The 

members  of  a  corporation,  public  or  private,  can  do  no  corpo- 
rate act  of  a  constituent  character,  such  as  must  be  done  at  a 
general  meeting  of  all  the  members  or  of  a  quorum  of  them,  un- 
less the  meeting  is  duly  assembled,  in  conformity  with  the  law  of 
its  organization.*  The  same  rule  applies  in  respect  of  corporate 
business  which  is  required  to  be  done  by  the  directors,  and  which  can- 
not be  remitted  to  the  mere  ministerial  agents  of  the  corporation ;  so 
that  the  assent  of  a  majority  of  the  directors,  at  a  meeting  of  the 
board  which  has  not  been  regularly  called,  as  where  notice  of  the 
meeting  has  not  been  given,  will  not  be  sufficient  to  give  validity 
to  an  act  as  the  act  of  the  board .^  It  has  been  well  said  that  the 
act  of  a  majority  of  the  corporators  does  not  bind  the  minority, 
if  it  has  not  been  expressed  in  the  form  pointed  out  by  law  ;  and 
accordingly,  that  the  act  of  a  majority,  expressed  elsewhere  than 
at  a  meeting  of  the  stockholders,  is  not  binding  on  the  corpora- 
tion, —  as  where  the  assent  of  each  one  is  given  separately  and 
at   different  times. ^     The  reason   is  that  each  member  has  the 

1  Ark.  Dig.  Stat.  1884,  §  963.  ^  Dispatch  Line  v.    Bellamy  Man. 

2  Ark.  Dig.  Stat.  1884,  §  5429.  Co.,  12  N.  H.  205,   224;  s.  c.    37  Am. 

3  Hill  An.  Stat.  Ore.,  §  3222.  Dec.   203;  Elliott  v.  Abbott,  12  N.  H. 
*  Courts   of  justice  cannot  regard  549;  s.  c.  37  Am.  Dec.  227,  230;   Her- 

the    wishes    of    the    majority  of  the  rington  v.  Liston  District  Townsliip, 

members  of  a  corporation,  unless  ex-  47  Iowa,  11;  post,  §  3798. 

pressed  in  a  valid  form,  in  conformity  ^  pierce  v.  New   Orleans  Building 

with  the  by-laws   and  charter.     Ger-  Co.,  9  La.  397;  s.  c.  29  Am.  Dec.  448. 

man  Ev.  Cong.  v.  Pressler,  14  La.  An. 

799. 

549 


1  Thorap.  Corp.  §  707.]     corporate  elections. 

rio'lit  of  consultation  with  the  others,  and  that  the  minority- 
have  the  right  to  be  heard.^  In  the  line  of  authority 
establishing  the  foregoing  principles,  no  break  has  been  dis- 
covered ;  though  it  should  be  added  that  an  election,  or  other 
proceedings  had  at  a  meeting  irregularly  assembled  may  be 
valid  if  all  attend  and  act  or  assent? 

§   707.  Corporate  Meetings  Invalid  unless  duly  Notified.  — 

This  leads  to  the  conclusion  that  corporate  meetings  are  invalid, 
and  that  the  business  transacted  thereat  is  voidable,  unless  the 


1  Herrington    v.    Listen    District 
Township,  47  la.  11. 

2  Post,  §  712.  Tlie  tliird  section 
of  the  New  York  statute  relating 
to  the  incorporation  of  religious 
societies  made  it  the  duty  of  the 
minister,  if  there  were  one,  to  no- 
tify publicly  the  congregation,  of  the 
time  and  place  of  holding  an  election. 
The  sixth  section  of  the  same  statute 
directed  that  the  trustees  first  elected 
should  be  divided  into  three  classes, 
so  that  one-third  of  the  directors 
might  be  elected  annually.  It  made  it 
the  duty  of  the  trustees,  or  a  majority 
of  them,  at  least  one  month  before  the 
expiration  of  office  of  any  of  the 
trustees,  to  notify  the  same  to  the 
minister,  or,  in  case  of  his  death  or 
absence,  to  other  officers  of  the  church, 
specifying  the  names  of  the  trustees 
whose  terms  would  expire ;  and  it  was 
made  the  duty  of  such  minister  or 
other  officers,  In  the  manner  afore- 
said,—  which  was  held  to  mean  in  the 
manner  provided  in  the  third  section 
already  spoken  of,  —  to  notify  the 
members  of  the  church  of  such  vacan- 
cies, and  appoint  the  time  and  place 
for  the  election  of  new  trustees  to  fill 
the  same,  which  election  was  to  be 
held  at  least  six  days  before  such  va- 
cancies should  happen;  and  all  such 
subsequent  elections  were  directed  to 
be  held  and  conducted  by  the  same 
pers'  ns,  and  in  the  manner  before 
directed.     It  was  held  that  the  provis- 

550 


ion  of  the  sixth  section,  requiring  the 
trustees  to  notify  the  minister  of  the 
expiration  of  office  of  any  of  the 
trustees,  at  least  a  month  before  such 
expiration,  was  directory  merely;  and 
accordingly,  that  an  election  of  trust- 
ees was  not  necessarily  void  because 
such  notice  was  given  less  than  one 
month  prior  to  the  expiration  of  the 
offices  of  the  trustees  whose  succes- 
sors were  to  be  elected,  and  did  not 
contain  the  names  of  such  trustees, 
and  was  not  announced  for  two  suc- 
cessive Sabbaths;  provided  that  the 
election  was  fairly  conducted,  and  that 
all  the  members  in  fact  had  notice. 
But  if  the  omissions  were  fraudulently 
made,  or  the  election  had  thereby  been 
prejudiced,  then  it  was  conceded  by 
the  court  that  the  omission  should  in- 
validate the  election.  "  The  object  of 
the  notice,"  said  Savage,  C.  J.,  "  is 
that  the  voters  may  be  fully  apprised 
of  the  election,  and  may  attend  and 
exercise  their  rights.  There  is  no 
pretense  in  this  case  that  every  voter 
was  not  present,  for  they  appear  to 
have  come  from  a  distance ;  the  time 
was  well  understood,  and  had  been 
the  same  for  many  years.  No  evil  re- 
sulted from  the  omission,  if  there  was 
any;  no  fraud  was  imputed;  and  all 
the  parties  attended  and  thereby  ad- 
mitted notice."  People  v.  Peck,  11 
Wend.  (N.  Y.)  604,  Gil;  s.  c.  27  Am. 
Dec.  104. 


ASSEMBLING  THE  MEETING.      [1  Thomp.  Corp.  §  708. 

members  have  been  duly  notified  of  the  meeting,  in  accordance 
with  the  governing  statute  or  by-laws/  except  in  the  case  of 
stated  meetings,  at  which  every  member  is  bound  to  take  notice. 

§   708.  If  the  Meeting  is  Special,  All  must  be  Summoned. — 

Where  a  special  meeting  is  called  for  the  purpose  of  a  corporate 
election,  all  the  members  entitled  to  vote  at  such  meeting  must 
be  summoned,  or  the  election  will  be  void.  This  point  has  been 
ruled  again  and  again  in  the  Eoglish  King's  Bench ;  and  it  has 
been  held  that  where  a  single  member  was  not  summoned,  by 
reason  of  his  supposed  absence  and  the  consequent  inability  to 
summon  him,  the  election  was  void.^ 


1  It  was  laid  down  in  the  Kings' 
Bencli,  in  1770,  by  Lord  Mansfield  and 
two  of  his  colleagues,  ''  that  where 
there  is  a  usual  method  of  notice,  that 
usual  method  cannot  be  dispensed  with, 
nor  can  the  election  be  good  without 
complying  with  it,  unless  all  the  per- 
sons who  have  a  right  to  notice  are 
actually  summoned  and  unanimously 
agree."     Rex  v.  May,  5  Burr.  2681. 

2  The  rules  of  law  which  are  opera- 
tive In  this  couutry  in  respect  of 
private  corporations  have  been  de- 
rived from  the  principles  of  the  com- 
mon law  of  England  applicable  to  the 
municipal  corporations  of  that  coun- 
try. Those  principles  have  been  sum- 
marized by  an  eminent  writer  as  fol- 
lows: "Due  notice  of  the  time  and 
place  of  a  corporate  meeting  is,  by  the 
English  law,  essential  to  its  validity, 
or  its  power  to  do  any  act  which  shall 
bind  the  corporation.  Respecting 
notice,  the  courts  in  England  adopted 
certain  rules,  which,  since  they  form 
the  basis  of  much  of  the  statute  law 
in  this  country  upon  the  subject,  and 
have,  in  the  main  been  followed  by 
our  courts,  and  are  founded  on  reason, 
may  advantageously  be  here  men- 
tioned. All  corporators  arc  pre- 
sumed to  know  of  tlic  days  appointed 
by  the  charter,  statute,  usage,  or  by- 
laws, for  the  transaction  of  particuhir 


business,  and  hence  no  notice  of  such 
meeting  for  the  transaction  of  such 
business  is  necessary,  or  for  the  trans- 
action of  the  mere  ordinary  affairs  of 
the  corporation  on  such  days ;  yet  if 
it  is  intended  to  proceed  to  any  other 
act  of  importance,  a  notice  is  neces- 
sary, the  same  as  at  any  other  time." 
Dill.  Mun.  Corp.  (4th  ed.),  §  262. 
Where  the  meeting  is  held  upon  a 
stated  day,  appointed  by  the  charter 
or  a  by-law,  no  notice  of  the  meeting  is 
required,  unless  the  giving  of  notice 
is  prescribed.  Ang.  &  A.  Corp.,  § 
488;  People  v.  Pecli,  II  Wend.  (N. 
Y.)  604;  Rex  v.  Hill,  4  Barn.  &  Cress. 
441.  So,  if  a  particular  day  in  the 
year  is  appointed  for  the  transaction 
of  business,  a  notice  of  the  particular 
business  to  be  done  is  not  required. 
Ang.  &  A.  Corp.,  §  488;  Warner  v. 
Mower,  11  Vt.  385;  Sampson  v.  Bow- 
doinham  &c.  Corp.,  36  Me.  78;  Peo- 
ple V.  Batchelor,  22  N.  Y.  128,  Nor  is 
itraatirial  in  what  manner  the  stated 
meetings  of  the  corporation  have  been 
fixed;  if  they  are  in  fact  regularly 
held  on  stated  days  tliat  is  sufficient. 
Atlantic  Mutual  Fire  Ins.  Co.  v.  San- 
ders, 36  N. II.  252. 

3  Kynastou   v.  Mayor  of    Shrews- 
bury, 2  Strange,  1051 ;  Rex  v.  Liver- 
pool, 2  Burr.  734;  Rex  v.  Doncaster, 
2  Burr.  714;    Rex  v.  Hill,  4  Barn.  &  C. 
551 


1  Thorn  p.  Corp.  §  709.  J     corporate  elections. 

§  700.  Aud  in  the  Statutory  Mode. —  Where  the  time  or 
manner  of  giving  notice  is  prescribed  by  statute,  by  the  charter, 
or  by  the  by-laws  of  a  corporation,  it  is  necessary,  in  order  to  the 
validity  of  the  acts  done  at  the  meeting,  that  the  notice  should 
be  given,  as  thus  prescribed.^  In  like  manner,  where  the  statute 
prescribes  what  the  notice  shall  set  forth,  a  compliance  wiih  this 
requirement  is  considered  necessary,  to  the  legality  of  any  vote  at 
the  corporate  meeting. ^  Applying  this  principle  to  private  corpo- 
rations, it  is  held  that  acts  done  at  a  corporate  meeting,  of  which 
no  notice  has  been  given  in  the  manner  prescribed  by  the  charter 
and  by-laws,  are  void ;  and  that  where  no  mode  of  giving  notice 
is  prescribed  by  the  charter  or  by-laws,  personal  notice  must  be 
given  to  the  stockholders.^  But  the  rule  prescribed  by  the  by-laws 
of  a  corporation,  as  to  the  manner  of  calling  meetings,  is  not  nec- 


441;  Res  v.  Theodorick,  8  East,  543; 
Rex  V.  May,  5  Burr.  2682;  Rex  v. 
Grimes,  5  Burr.  2601;  Musgrove  v. 
Nevisou,  1  Str.  584;  s.  c.  2  Ld. 
Raym.  1359;  Rex  v.  Mayor  of 
Shrewsbury,  Cases  temp.  Hardw. 
147;  Smyth  v.  Darley,  2  H.  L. 
Cas-  789;  Rex  v.  Langhom,  4  Ad.  & 
EI.  538;  Rex  v.  Faversham,  8  T.  R.  352, 
per  Lord  Kenyon  with  reference  to 
point  whether  all  must  be  notified  in 
case  of  special  meeting:  Com.  v. 
Guardians,  6  Serg.  &  R.  (Pa.)  469,  475; 
Loubat  V.  Leroy,  15  Abb.  N.  C.  (N. 
Y.)  14;  s.  c.  65  How.  Pr.  (N.  Y.)  138. 
Compare  People  v.  Batchelor,  22  N. 
Y.  128.  It  was  decided  in  the  House 
of  Lords,  in  1849,  that  where  certain 
acts  of  a  corporation  are  to  be  per- 
formed at  a  special  meeting  of  the 
members  of  that  corporation,  all  the 
persons  entitled  to  be  present  thereat 
must  be  summoned,  if  they  are  within 
a  reasonable  summoning  distance; 
and  that  the  omission  to  summon  any 
one  entitled  to  be  summoned,  renders 
the  act  done  at  such  meeting,  in  his 
absence,  invalid.  Thus,  the  election 
of  a  treasurer  for  the  county  of  the 
Citj'  of  Dublin  was  vested  by  statute 
(Stat.  49  Geo.  3,  c.  20)  in  the  "  Board 
552 


of  Magistrates  of  the  County  of  said 
City,"  and  wjis  directed  to  take  place 
at  the  Sessions  Court  of  the  city,  by 
vote  of  the  magistrates  there  present. 
It  was  held  by  the  Lords  that  the 
Recorder  of  Dublin  was  a  member  of 
that  board;  that  he  ought  to  have  been 
summoned  to  a  meeting  of  the  magis- 
trates summoned  for  that  election,  and 
that  the  omission  to  summon  him 
rendered  the  election  which  took 
place  in  his  absence  invalid.  Smyth 
V.  Darley,  2  H.  L.  Cas.  789.  A  finding 
in  a  special  verdict  that  a  person  en- 
titled to  be  present  at  a  meeting  of  the 
corporate  boily  was  not  summoned, 
and  that  he  was  at  the  time  within 
summoning  distance,  throws  on  the 
party  supporting  the  validity  of  the 
acts  done  at  such  meeting,  the  onus  of 
showing  sufficient  cause  for  his  not 
being  summoned.     Ibid. 

1  Hunt  V.  School  District  No.  20, 
14  Vt.  300  (1842) ;  s.  c.  39  Am.  Dec. 
225;  Stockholders  v.  Louisville  &c.  R. 
Co.,  12  Bush  (Ky.),  62.  Compare 
Cogswells.  Bullock,  13  Allen  (Mass.), 
90. 

2  Ibid. 

3  Stow  V.  Wyse,  7  Conn.  214;  s.  c. 
18  Am.  Dec.  99. 


ASSEMBLING   THE    MEETING.       [1  TllOmp.,  Corp.    §   711. 

essarily  exchif^ive  of  every  other  mode.  Accordingly,  it  was  held 
that,  where  the  by-laws  of  an  insurance  company  provided  that  a 
special  meeting  should  be  called  by  i\iQ president ^  or  in  his  absence 
by  the  secretary,  on  application  made  to  them  in  writing  by  ten 
members,  this  did  not  preclude  the  directors  from  calling  a  special 
meeting  without  such  application.^  Where  the  charter  of  an  in- 
corporated company  declares  that  the  election  of  directors  shall 
be  conducted  according  to  the  by-laws  of  the  company,  which  fix 
the  time  and  place  of  election,  and  require  notice  to  be  given, 
but  do  not  specify  the  length  of  notice,  and  the  mode  of  giving 
it,  notice  must  be  given  in  these  respects  according  to  the  gen- 
eral statute  law  relating  to  corporations.^ 

§  710.  Requisites  of  the  Notice.  — The  requisites  of  the  no- 
tice may  be  enumerated  as  follows  :  1.  It  must  be  issued  by  one 
who  has  authority  to  issue  it.^  2.  It  must  state  the  time  of  the 
meeting,  unless  there  is  a  regular  time  fixed  in  the  charter  or 
by-laws,  of  which  every  member  is  presumed  to  have  notice.* 
3.  The  place  where  the  meeting  is  to  be  held,  unless  the  place 
is  settled  and  established  by  the  charter  or  by-laws.^  4.  The 
business  to  be  transacted  thereat.^ 

§  711.  Statutory  Provisions  as  to  Manner  of  Giving  Notice, 
Lengtli  of  Time,  etc.  —  In  many  of  the  States  provision  is  made  by 
statute  for  the  giving  of  the  notice  in  some  newspaper  for  a  stated  length 
of  time.  Thus,  in  Missouri,  notice  may  be  given  in  a  daily  or  weekly 
newspaper  published  in  the  place  or  county  of  the  corporation,  or  by 
written  notice  served  on  each  shareholder  in  person,  setting  forth  the 
place,  time  and  object  of  the  meeting.'^  In  New  York,  a  by-law  regu- 
lating the  election  of  directors  or  officers  of  a  corporation  must  be  pub- 
Ushed  for  at  least  two  weeks  in  some  newspaper  in  the  county  in  which 

1  Citizens  Mutual  Ins.  Co  v.  Sort-  128;  Atlantic  Mat.  Ins.  Co.  v.  Sanders, 
well,  8  Allen  (Mass.),  217,  36  N.  H.  252. 

2  Matter  of  Long  Island  R.  Co.,  19  ^  Ante,  §697;  Ang.  &  A.  Corp., 
Wend.  (N.  Y.)    37.  §  49C. 

3  Ante.  §  704;  Ang.  &  A.  Corp.,  <•  Sampson  v.  Bowdoinham  &c. 
§491;  Evans  v.  Osgood,  18  Maine,  Corp.,  3G  Maine,  78;  Warner  w.  Mower, 
213;  Stevens  u.  Eden  Meeting  House,  11  Vt.  385;  Meriitt  v.  Farris,  22  111. 
12  Vt.  G88;  Bethany  v.  Sperry,  10  303;  Hunt  v.  School  District,  14  Vt. 
Conn.  200.  300;  s.  c.   39  Am.   Dec.  225;  Littler. 

*  Ante,    §  701;  Ang.    &A.    Corp.,      Merril,  10  Pick.  (Mass.)  543. 
§  488;  People  v.  Batchelor,  22   N.  Y.  '  Rev.  Stat,  Mo.  1889,  §  2484. 

553 


1  Thomp.  Corp.  §  711.]     corporate  elections. 

the  election  is  held,  at  least  thirty  days  before  the  election. i  An  elec- 
tion for  directors  not  held  at  the  time  designated  by  the  act  of  incor- 
poration, must  be  held  within  sixty  days  thereafter,  of  which  due  notice 
must  be  given  by  the  president  and  directors. ^  Other  provisions  of  the 
statutes  of  that  State  direct  annual  meetings  to  be  held,  at  which  direct- 
ors and  officers  are  elected,  and  prescribe  the  notice,  time  for  which  it 
is  to  be  given,  the  specification  of  the  purpose  of  the  meeting,  —  all  of 
which  is  to  be  fixed  and  governed  by  by-laws  of  the  corporation,  — but 
with  the  reservation  that  such  meetings  shall  be  held  at  the  same  time 
and  place  each  year. ^  In  Illinois,  notice  shall  be  given  at  least  ten 
days  prior  to  the  meeting,  which  notice  shall  be  written  or  printed  and 
deposited  in  the  post-office,  properly  addressed,  stating  the  object,  time 
and  place  of  the  meeting.*  Another  statute  of  the  same  State,  elsewhere 
referred  to,  provides  for  the  call  of  meetings  by  stockholders  owning 
two-thirds  of  the  stock  and  provides  that  the  secretary  shall  enter  such 
call  on  the  records  of  the  corporation,  and  that  the  records  so  made 
shall  \iQ  prima  facie  evidence  of  the  fact  of  pubhcation,  maihng  the  no- 
tice, name  of  the  paper  in  which  pubhshed,  dates  and  place  of  publica- 
tion, etc.^  The  statute  of  Michigan  provides  for  a  notice  of  thirty  days, 
by  publication  in  some  newspaper  published  in  the  county  where  the 
principal  business  of  the  corporation  is  carried  on,  or  in  some  newspaper 
published  in  the  city  of  Detroit,  where  the  object  of  the  meeting  is  gen- 
eral or  public  in  its  nature,  or  where  its  purpose  is  to  authorize  an  ap- 
plication to  the  legislature  for  a  change  of  charter.^  In  Michigan,  there 
must  be  thirty  days'  notice  of  annual  or  special  meetings  in  some  daily 
paper  printed  in  Detroit  and  in  some  newspaper  printed  in  the  county 
where  the  principal  office  of  the  corporation  is  situated,  such  notice 
stating  the  object  of  the  meeting.  Evidence  of  such  notice  is  perpetu- 
ated by  affidavit.'  In  Minnesota,  there  must  be  twenty  days'  notice  of 
the  first  meeting  of  the  corporation,  setting  forth  the  time,  place  and 
purpose  of  the  meeting.  It  must  either  be  delivered  to  the  members 
personally,  or  be  pubhshed  in  some  newspaper  of  the  county,  or  if  there 
is  none,  in  some  newspaper  in  the  capital  of  the  State. ^  In  the  same 
State  notice  of  a  special  meeting  of  a  railroad  company  called  to  con- 
sider the  question  of  consolidation  vfith  another  railroad  must  be  given 
for  thirty  days.  It  must  state  the  object  of  the  meeting  and  be  ad- 
dressed   and   mailed    to    each    stockholder,  or   it  must    be  given  by 

1  2  Rev.  Stat.   N.    Y.   1882,  p.  1535,  *  Starr  &  Curt.  111.  Stat.,  p.  610,  §  3. 
§  6.  s  Starr  &  Curt.  III.  Stat.,  p.  617,  §  22. 

2  2  Rev.    Stat.  N.  Y.    1882,  p.  1535,  «  How.  Mich.  Stat.  18S2,  §  4902-3. 
§  6,  7  How.  Mich.  Stat.  1882,  §  3317. 

3  2  Rev.    Stat.  N.  Y.  1882,    p.  1639,  «  jjgy.  gt^t.  Minu.  1881,  §  4005. 
§6. 

554 


ASSEMBLING    THE    MEETING.        [1  Thomp.  Corp.    §  711. 

publication  in  a  newspaper,  or  the  holding  of  the  meeting  must  be 
authorized  by  the  written  consent  of  a  majority  of  the  stock. "^ 
In  Texas,  notice  of  a  meeting  to  consider  the  question  of  increasing 
the  capital  stock  of  a  railroad  company  must  be  served  personally,  or 
mailed  to  each  member  sixty  days  previously,  and  must  be  advertised 
for  sixty  days  in  some  newspaper  in  the  county  through  which  the  rail- 
road passes. 2  In  Colorado,  directors  (except  those  named  for  the  first 
year)  shall  be  annually  elected  by  the  stockholders,  at  such  time  and 
place  as  shall  be  directed  by  the  by-laws  of  the  company,  and  public 
notice  of  the  time  and  place  of  the  meeting  shall  be  published  ten  days 
previously  in  the  newspaper  nearest  the  place  of  the  operations  of  the 
company. ^  Another  provision  of  the  same  statute  as  to  annual  meetings 
of  particular  corporations  is  to  the  same  effect,  except  that  it  omits  the 
clause  as  to  notice,  and  makes  the  first  Monday  in  January  the  time  for 
holding  such  meetings.^  In  the  same  State  there  is  a  provision  relating 
to  mining  companies  to  the  effect  that  assessments  on  the  capital  stock  can 
only  be  made  by  a  vote  of  the  stockholders,  held  at  the  principal  office 
thirty  days  or  more  after  the  date  of  the  call  for  the  meeting.  The  notice 
•of  the  meeting  is  signed  by  the  president  or  secretary ;  must  state  the 
object,  time  and  place  of  the  meeting,  and  be  published  in  the  county 
where  the  operations  of  the  company  are  carried  on,  once  a  week  for 
four  consecutive  weeks  and  in  some  newspaper  of  general  circulation 
where  the  principal  office  is  located  daily  for  thirty  days, —  the  last 
publication  to  be  ten  days  before  the  meeting, —  aud  notice  shall  be 
served  personally  on  or  mailed  to  each  stockholder.  ^  A  provision  of 
the  same  statute  relating  to  railroads  requires  special  meetings  of  stock- 
holders to  be  called  by  thirty  days'  personal  or  mailed  notice, 
stating  the  time  and  object  of  the  meeting. ^  By  a  statute  of  Tennes- 
see, relating  to  railroads,  and  applicable  to  the  first  election,  it  is  pro- 
vided that  when  a  sufficient  amount  of  stock  is  subscribed,  a  notice, 
personal  or  by  publication  in  a  newspaper  where  the  principal  office  is 
to  be  kept,  is  to  be  given  of  the  time  and  place  for  holding  an  election 
of  officers.'''  By  statute  in  Nebraska,  if  there  is  a  failui*e  to  elect  at  the 
regular  annual  meeting  a  special  meeting  subsequently  held,  after  thirty 
days'  notice  in  a  newspaper  of  general  circulation  in  the  county,  may  hold 
the  election.*^  A  statute  of  Arkansas  relating  to  the  first  meeting  of  rail- 
road companies,  provides  for  holding  the  meeting  in  one  of  tlie  counties 
through  which  the  line  passes,  on  publication  of  a  notice  in  a  newspaper 

1  Kev.  Stat,  Minn.  1881,  app.  §  GG6.  ^  Ibid.,  §  86. 

2  SayleTox.  Stat.  1888,  art.  4U(;.  «  jf^fd^^  §  m. 

"'  Gen.  Stat.   Colo.   1883,   chap.  19,  '  Code  Tcnn.  1884,  §  1901. 

§  6.  8  Comp.  Stat.   Neb.  1887,  chap.  IG, 

<  Ibid.,  §  37.  §  38. 

555 


1  Thomp.  Corp.  §  712,]     coKroiiATE  elections. 

in  each  county  through  which  it  is  to  pass,  for  twenty  days  previously.^ 
Another  statute  of  the  same  State  authorizes  corporations  to  fix  the 
time  of  holding  their  annual  meetings  and  also  their  special  meetings  of 
stockholders,  but  requires  thirty  days'  notice  of  the  time  and  place  to 
be  given  in  a  newspaper  published  in  Little  Rock.^  In  Oregon,  notice 
of  corporate  meetings  is  to  be  given  for  thirty  days  by  publication  in 
some  weekly  or  daily  newspaper,  if  published  in  the  county  where  the 
meeting  is  to  be  held,  or  having  a  general  circulation  therein. ^  By  the 
statute  of  Colorado,  elections  of  directors  shall  be  held  annually  at  a 
time  and  place  fixed  by  the  by-laws,  and  ten  days'  notice  of  the  meet- 
ing shall  be  given  in  a  newspaper  of  the  county  of  the  principal  oflSce, 
or  by  personal  notice.*  By  the  statute  of  Kentucky,  in  case  of  railroad 
and  turnpike  companies,  the  time  and  place  of  holding  the  election 
shall  be  advertised  by  at  least  three  insertions  in  a  newspaper  in  some 
county  in  which  the  road  is  situated.^ 

§  712.  Waiver  of  Notice  by  Appearance.  —  As  in  the  case  of 
the  appearance  of  a  party  defendant  in  a  civil  action,  without 
being  regularly  served  with  process,  the  appearance,  for  all  the 
purposes  of  the  suit,  is  deemed  to  be  a  waiver  of  the  necessity  of 
process  and  a  submission  to  the  jurisdiction  of  the  court,  so  as  to 
preclude  him  from  thereafter  setting  up  the  objection  of  want  of 
formal  notice  or  service,  —  so,  if  all  the  members  of  a  corpora- 
tion appear  at  a  corporate  meeting,  without  being  formally  noti- 
fied, and  proceed  without  objection  to  the  business  of  the  meet- 
ing, this  will  be  a  waiver  by  each  member  of  the  necessity  of 
notice,  or  of  a  want  of  formality  in  giving  it.^  But  if  a  single 
person,  having  a  right  to  be  present  and  vote,  is  absent  or  re- 
fuses his  assent  to  the  acts  done  at  the  meeting,  its  proceedings 
will  be  illegal  and  void.^  This  principle  is  qualified  by  an  emi- 
nent writer  with  the  statement  that  "  it  is  to  be  observed  that  the 
foregoing  rules  are  not  applicable  where  they  are  in  conflict  with 
the  charter;  and  hence,  if  this  imperatively  requires  a  specm? 
notice ,  it  cannot  be  waived,  even  by  the  consent  of  all."  ^ 

1  Ark.  Dig.  Stat.  1884,  §  5425.  Ind.  333;  Jones  v.  Milton  T.  Co.,  7  Id. 

2  /6id.,  §  5430.  547.     See    also    People    v.   Peck,     11 

3  Hill  Ann.  Laws  Ore.,  §  3226.  Wend.    (N.  Y.)  604;  s.  c.  27  Am.  Dec. 
*  Gen.  Stat.  Colo.    1883,   chap.  19,       104. 

§  86.  '  Ang.    &    A.    Corp.    495;    Rex   v. 

5  Gen.  Stat.    Ky.  1887,   p.  767,  §  1,  Theodorick,  8  East,  543;  Rex  u.  Gabo- 

subsec.  2.  rian,  11  East,  77. 

fi  Judah  V.  American  &c.  Ins.  Co.,  4  ^  1  Dill.  Mim.  Corp.  (4th  ed.),  §  264. 
55(5 


ASSEMBLING   THE    MEETING.        [1  Thomp.  Corp.    §   713. 

§  713.  Illustrations  of  the  Foregoing  Rule.  —  The  defendants 
were  jirosecuted  by  an  information  in  the  nature  of  a  quo  warranto, 
and,  a  verdict  being  found  8,gainst  them,  they  moved  for  a  new  trial. 
The  only  question  was  upon  the  validity  of  their  election  to  some  office 
in  the  corporation,  the  report  does  not  say  what.  The  corporation  was 
originally  a  borough  by  prescription,  but  it  afterwards  obtained  a 
charter.  The  charter  prescribed  no  particular  place  of  election ;  but 
the  usual  place  was  at  the  guild  hall ;  and  the  usual  notice  was  by  the  ring- 
ing of  a  bell,  which  used  to  ring  at  8  o'clock,  at  9  o'clock,  and  then  to 
toll  from  10  o'clock  until  the  time  of  meeting.  But  the  election  now  in 
question  was  not  made  at  the  guild  hall,  but  at  an  inn  within  the  town ; 
and  was  upon  a  by-day  and  without  the  usual  notice;  for  no  bell  was 
ever  rung  at  all  upon  the  occasion.  But  all  the  electors  who  were  en- 
titled to  notice  had  personal  notice  of  this  meeting  at  the  inn,  and  of  the 
business  to  be  transacted  at  it ;  and  all  the  electors  were  present  except 
two,  and  were  wianimous  in  the  election.  The  two  absent  electors  did 
not  live  within  reach  of  summons  ;  and  therefore  it  was  said  they  had 
no  right  to  notice,  nor  had  anything  to  do  in  this  matter.  The  court 
seeing  no  reason  for  a  new  trial,  discharged  the  rule.  Lord  Mansfield 
said:  "Nothing  is  more  certain  than  that  there  cannot  exist  a  vaUd 
election  upon  a  by-day  and  by  surprise.  Notice  must  be  given  to  every 
member  who  is  within  the  fimits  of  summons.  .  .  .  Personal  sum- 
mons must  allow  reasonable  time  to  the  person  summoned.  But  this  is 
only  where  no  other  method  of  summons  or  notice  is  established,  as,  for 
instance,  by  a  bell,  a  horn,  etc.  Here,  by  the  usage,  the  notice  must 
be  given  by  personal  summons  to  those  who  are  within  the  limits  of  the 
borough.  But  that  is  only  pari  of  the  usual  notice  ;  there  must  also  be 
a  bell  rung  at  eight  and  nine,  and  then  to  toll  from  ten  to  the  time  of 
meeting.  This  cannot  be  dispensed  with ;  it  is  necessary  to  be  com- 
plied with,  unless  every  single  member  be  present,  and  consents  to  waive 
it.  The  want  of  it  vacates  the  election."  i  -  -  -  -  In  another 
case,  "  the  corporation  were  all  invited  to  a  treat,  when  one  of  the  alder- 
men desired  leave  to  resign,  upon  which  his  resignation  was  taken,  and 
the  plaintiff  at  the  same  time  chosen  and  sworn  in.  Upon  a  trial  at  bar 
the  jury  found  it  a  good  election;  but  the  court  granted  a  new  trial,  it 
being  fraudulent,  and  it  appearing  that  one  of  the  members  was  not 
there  till  after  the  election,  and  there  was  no  summons  to  meet  to  do 
such  a  corporate  act,  that  the  members  might  come  prepared.  The 
meeting  likewise  was  not  in  the  moothall,  but  at  a  tavern,  and  it  was  a 
plain  surprise,  and  even  all  not  present. "  ^     _     -     -     _    The  board  of 

'  Rox  t;.  May,  5  Burr.  2G81.  584;    s.  c.  2   Ld.    Raym.    1358,  where 

2  Musgrave  v.  Neviuson,  1  Strange,      the  report  is  fuller. 

657 


1  Thomp.  Corp.  §  715.]     corporate  elections. 

aldermen  of  the  city  of  New  York  appointed  a  day  for  the  election  of  a 
city  officer.  At  a  subsequent  meeting  of  the  board,  the  resolution  appoint- 
ing such  day  was  rescinded,  and  it  was  delterminded  to  go  at  once  into 
the  election.  Some  of  the  aldermen  were  absent  at  the  former  meeting, 
and  had  no  notice  of  the  election.  It  was  held  that  the  election  was 
void.^ 

§  714.  Notice  Dispensed  with  by  Unanimous  TVritten  Con- 
sent. —  By  statute  in  several  of  the  States,  it  is  provided  that  the  writ- 
ten assent  of  all  the  members,  at  a  meeting  illegally  called,  will  validate 
it.2  By  the  statute  of  Colorado  a  meeting  of  all  the  stockholders,  how- 
ever called,  at  which  they  all  sign  a  written  consent  or  record  of  such 
meeting,  is  valid  ;  and  they  may  act  with  the  same  power  as  at  a  regu- 
lar meeting  and  their  acts  will  bind  the  corporation. 3  By  the  statute  of 
Arkansas,  the  prescribed  notice  of  the  first  meeting  may  be  waived  by 
a  writing  signed  by  all  the  subscribers,  which  notice  shall  specify  the 
time  and  place  of  the  meeting  and  be  spread  on  the  records  thereof.* 
By  the  statute  of  Oregon,  if  all  the  stockholders  are  present  at  a  meet- 
ing, however  called,  and  in  writing  consent  thereto,  which  consent  shall 
be  filed  with  their  secretary,  then  the  prescribed  notice  is  unnecessary 
and  the  meeting  is  valid. ^ 

§  715.  When  Personal  Notice  Required.  —  Where  no  mode 
of  giving  notice  is  prescribed  at  all  by  the  charter  or  by-laws,  or 
where  no  other  mode  than  by  personal  notice  is  thus  prescribed, 
the  rule  is  thui personal  notice  of  the  meeting  must  be  given  to 
all  the  members,  and  that  a  vote  passed  at  a  meeting  not  so 
notified  is  not  binding.^  And  where  the  meeting  is  of  the  board 
of  trustees  of  the  corporation,  in  the  absence  of  any  provision  in 
the  charter  or  by-laws  prescribing  the  notice  which  shall  be  given, 
each  member  of  the  board  must  have  personal  notice.^  It  has 
been   held,  on   obvious  grounds,  that  a  vote    of  a  corporation, 

1  People  V.  Batchelor,  22  N.  Y.  128  Bank,  9  R,  I.  308,  333;  Stow  v.  Wyse, 
(Deuio,   J.,  disseutiug.).  7    Conn.  214;    s.   c.  18  Am.   Dec.    99; 

2  Rev.  Stat.  Minn.  1881,  §  4008;  Savings  Bank  v.  Davis,  8  Conn.  191. 
Rev.  Stat.  Wis.  1878,  §  1761.  '  Harding  v.  Vandewater,  40  Cal. 

3  Deer.  Code  Cal.,  part  4,  §  317.  77;  People  v.  Batchelor,  22  N.  Y.  128; 

4  Ark.  Dig.  Stat.  1884,  §  963.  State  v.  Ferguson,  31  N.  J.  L.  107, 
6  Hill  Laws  Ore.,  §  3226.  124;  Wiggin  v.  Freewill  Baptist 
«Wigginw.  Free  will  Baptist  Church,      Church,  8  Met.  (Mass.)  301;  Rex.  v. 

in  Lowell,  8  Mete.  (Mass.)  301;  Stev-  Doncaster,  2  Burr.  738;  Rex  v.  Liver- 
ens  V.   Eden   Meeting-House   &c.,  12  pool,  Id.  723;   Rex  v.   Theodorick,  8 
Vt.  C88;  Lockwood  v.  Mechanic  Nat.  East,  543. 
558 


ASSEMBLING   THE    MEETING.       [1  'ihomp.  Corp.   §  717. 

which  affects  the  liability  of  those  of  its  members  who  are  its 
debtors,  cannot  be  regarded  as  consented  to  by  them,  if  they  were 
not  present  at  the  meeting  at  which  the  vote  was  passed,  al- 
though they  had  legal  notice  of  the  meeting.^ 

§  716.  Must  be  Given  for  the  Statutory  Time.  —  Where  the 
governing  statute,  or  a  valid  by-law,  prescribes  the  time  which 
shall  elapse  between  the  giving  of  the  notice  and  the  meeting, 
the  proceedings  at  the  meeting  will  be  voidable,  unless  the  no- 
tice is  given  for  the  prescribed  time ;  nor  can  a  by-law  reduce 
the  time  prescribed  by  the  charter.^ 

§  717.  When  Notice  Must  State  Objects  of  Meeting.  —  If  a 

particular  day  in  each  year  is  appointed  for  the  transaction  oiall 
business,  a  notice  of  the  particular  business  to  be  done  is  not  re- 
quired.^ It  has  been  reasoned  that,  where  the  statutory  pro- 
vision in  regard  to  annual  meetings  is  general,  such  meetings  are, 
ex  vi  termini^  for  the  transaction  of  all  business  incident  to  the 
corporate  powers  and  interests.*  Moreover,  the  notice  of  a 
special  meeting,  when  it  is  held  for  the  transaction  of  ordinary 


1  American  Bank  v.  Baker,  4  Mete. 
(Mass.)  1(54. 

2  United  States  v.  McKelden,  Mac- 
Arthur  &  Mackey  (D.  C),  162. 

3  Ang.  &  A.  Corp.  §  488 ;  Warner  v. 
Mower,  11  Vt.  385;  Sampson  v.  Bow- 
doiuliam  &c.  Corp.,  36  Me.  78;  People 
V.  Batchelor,  22  N.  Y.  128.  The  Civil 
Code  of  California,  §  320,  does  not  re- 
quire that  the  notice  of  a  special  meet- 
ing of  the  directors  of  a  corporation 
sliall  specify  the  purpose  of  the  meet- 
ing. It  is  sufDcient  that  it  states  that 
the  meeting  •will  be  held,  naming  the 
time  and  place.  In  that  State  a  mort- 
gage was  executed  under  a  resolution 
passed  at  a  special  meeting  of  the 
directors.  The  resolution  recited  that 
written  notice  of  the  meeting  had  been 
served  on  each  director.  The  pur- 
pose of  the  meeting  was  not  specifled 
in  the  notices.  Granger  v.  Original 
Empire  &c.  Co.,  59  Cal.  678;  s.  c.  9 
Am.  Corp.  Cas.  27.    It  was  held  that 


the  meeting  was  regularly  called,  and 
the  mortgage  valid. 

*  Warner  v.  Mower,  11  Vt.  385. 
The  by-laws  of  a  corporation  provided 
that  the  business  transacted  once  a 
year  at  the  annual  meeting  should  be 
the  choice  of  officers;  and  also,  in  a 
subsequent  article,  that  "Jtofice  for 
meetings  shall  specify  the  business  to 
be  transacted  at  said  meetings."  It 
did  not  appear  that  it  was  stated  in 
the  notice  of  any  meeting  that  it  was 
called  for  the  choice  of  officers.  The 
corporation  objecting  that  the  acts  of 
certain  directors  were  not  binding, 
because  they  were  chosen  at  a  meet- 
ing not  notified  to  be  held  for  that 
purpose,  it  was  held  that  the  corpora* 
tion  could  not  be  permitted,  against 
its  creditors,  to  assert  that  it  had  no 
directors  capable  of  transacting  busi- 
ness. Sampson  v.  Bowdoinham  &c. 
Co.,  36  Me.  78. 

559 


1  Thomp-  Corp.  §  718.]     corporate  elections. 

business,  need  not  state  the  object  of  the  meeting.^  But  where 
the  meeting  is  called  for  the  purpose  of  transacting  business  of 
special  importance,  not  within  the  general  routine  of  corporate 
business,  upon  a  day  not  expressly  set  apart  for  that  particular 
transaction,  unless  the  notice  of  the  meeting  stated  the  nature  of 
such  business,  all  acts  done  at  the  meeting  will  be  illegal  and 
void. 2  Thus,  the  levying  of  an  assessment  upon  the  stockhold- 
ers was  held  to  be  an  act  of  such  importance  that  it  could  not  be 
done  at  a  special  corporate  meeting,  unless  the  stockholders  were 
notified  that  such  was  the  purpose  of  the  meeting ;  ^  and  the  same 
was  held  in  respect  of  the  meeting  of  a  religious  corporation 
called  for  the  election  of  officers^  A  notice  of  a  second  meeting, 
made  conditional  upon  the  passage  of  certain  resolutions  to  be 
proposed  to  a  prior  meeting,  has  been  held  invalid,  and  not 
made  good  by  the  fact  that  the  shareholders  have  acquired  in- 
formation aliunde  that  such  resolutions  were  passed  at  the  first 
meeting.^ 

§  718.  Meeting  when  Confined  to  Subjects  Expressed  in 
Notice.  — If  the  meeting  is  a  special  one,  and  if  the  objects  of 
assembling  it  are  expressed  in  the  notice,  it  is  confined  to  these 
objects,  and  the  transaction  of  any  other  business  will  be  void, 
unless  all  the  members  are  present  and  consent  to  the  transaction 
of  such  other  business.^  This  is  a  principle  of  such  importance 
that  it  has  been  embodied  in  the  charters  of  many  American 
municipal  corporations,  in  the  form  of  a  provision  that  whenever 
the  mayor  calls  a  special  meeting  of  the  city  council  or  municipal 
assembly,  he  must  '*  specially  state  to  them  when  assembled  the 

^  Savings  Bank  v.   Davis,  8  Conn,  meeting    of  shareholders,  under  the 

191.  English  joint-stock  companies'   acts, 

2  PotterCorp.,§323;  Ang&  A.Corp.,  has  been  held  not  invalidated  by  the 
§489;  Eex  v.  Liverpool,  2  Burr.  723;  fact  that  the  notice  convening  it  did 
Rex  V.  Doucaster,  Id.  738;  Rex  v.  not  suggest  any  reason  why  the  con- 
Theodorick,  8  East,  543;  People's  Mu-  tract  could  not  be  carried  into  eff  ct 
tual  Ins.  Co.  v.  Westcott,  14  Gray  vrithout  the  sanction  of  a  general 
(Mass.),  440.  meeting.     Grant  v.   United  Kingdom 

3  Atlantic  Delaine  Co.  v.  Mason,  5  Switchback  R.  Co.,  40  Ch.  Div.  135. 
R.  I.  4G3.  '^  Machell  v.  Nevinson,  2  Ld.  Raym. 

4  Smith  V.  Erb,  4  Gill  (Md.),  437.  1355;  People's  Mut.  Ins.  Co.  v.  West- 
s  Alexander  w.  Simpson,  43  Ch.  Div.      cott,   14   Gray   (Mass.),   440;  ante,    § 

139.     A  resolution  passed  at  a  general      712. 
5  GO 


ASSEMBLING   THE    MEETING.       [1  Thomp.  Corp.   §   719. 

objects  for  which  they  have  been  convened,  and  their  action  shall 
be  confined  to  such  objects."  ^  With  such  a  provision  in  force, 
an  ordinance  passed  at  a  meeting  so  called,  having  no  reference 
to  anything  alluded  to  in  the  mayor's  message,  is  void.^  The 
English  municipal  corporations  act,  as  quoted  by  Judge  Dillon 
in  his  work  on  municipal  corporations,^  embodies  a  similar 
principle.  The  statutes  of  the  New  P^ngland  States,  governing 
town  meetings,  quite  generally  prescribe  that  the  matters  to  be 
acted  upon  shall  be  specified  or  inserted  in  the  notice  or  warn- 
ing; and  it  is  said  by  Judge  Dillon  that  the  courts  of  those 
States  concur  in  requiring  a  faithful  observance  of  this  statutory 
provision  ;  and  they  deny  the  English  doctrine,  applied  to  indef- 
inite corporate  bodies,  that  if  all  are  present,  notice  may  he 
waived  by  unanimous  consent,  and  hold  that  a  meeting  not  duly 
notified,  though  attended  by  all  the  voters  capable  of  attending, 
is  not  a  valid  meeting,  but  its  acts  are  void.* 

§  719.  Illustrations.  —  In  a  corporation  by  a  prescription,  if  the 
right  of  electing  common  councilmenis  in  the  common  council,  and  they 
have  never  in  practice  proceeded  to  an  election  without  being  sum- 
moned for  the  purpose  by  the  mayor,  an  election  by  some  of  tliem^  at  a 
corporate  meeting  for  another  purpose,  is  void,  notwithstanding  all  the 
common  councilmen  were  present  at  the  time,  had  notice  of  the  election, 
and  might  have  concurred  in  it.^  _  _  _  _  A  meeting  of  a  mutual 
fire  insurance  company,  called  ' '  for  the  purpose  of  making  such  altera- 
tions in  the  by-laws  of  said  company  as  may  be  deemed  necessary,  and 
for  the  transaction  of  such  other  business  as  may  come  before  them," 
cannot,  after  voting  to  increase  the  number  of  directors  (which  is  not 
limited  by  the  by-laws),  elect  the  additional  directors ;  and  an  assess- 

1  Charter  of  St.  Louis,  art.  4,  I  18.      Salem,  6  Mete.  (Mass.)  340;  Bethany  v. 

2  St.  Louis  u.  Withaus,  16  Mo.  App.  Sperry,  10  Cona.  200;  Bloomtield  v. 
247;  s.  c.  afnrraed,  90  Mo.  64G.  Cliarter  Oak  Bank,  121  U.  S.  121,  130; 

3  1  Dill.  Mun.Corp.  (4thed.),  §  265.  Raud.  i;.  Wilder,    11    Cush.  (Mass.) 

*  In  support  of  these  conclusions,  204;  Stone  v.  School  District,  8  Cush. 

Judge     Dillon    cites    the    following  (Mass.)  592;  North  wood  v.   Ilarring- 

cases,  all   of  which   support  his  text:  ton,  9  N.  H.  369;  Giles  v.  School  Dis- 

Hayward  v.   School  District,  2  Cush.  trict,  31  N.  II.  304;  Lander  v.  School 

(Mass.)  419;  Moor  v.  Ncwfield,  4  Me.  District,  33  Me.  239;  Jordan  v.  School 

44;  School    District  v.    Atherton,   12  District,  33  Me.  164. 
Mete.  (Mass.)  105;  Little  v.  Morrill,  '^  Machell  u.  Nevinson,  2  Ld.  Raym. 

10  Pick.  (Mass.)  543;  Perry  v.  Dover,  1356.     See  a?jfe,  §  713. 
12  Pick.  (Mass.)  206;  Reynolds  u.  New 


3G 


561 


1  Thomp.  Corp.  §  730.]     corporate  elections. 

ment  or  call  made  at  a  meeting  of  the  board  of   directors,  at  which  only 
the  additional  directors  so  chosen  are  present,  is  void.^ 

§  720.  Adjournment  to  a  Subsequent  Day.  —  Although  the 
members  of  the  corporation  have  been  convened  to  do  certain 
acts  which  are  required  to  be  done  on  a  stated  day  and  no  other, 
yet  if  the  business  cannot  be  completed  upon  that  day,  it  is  com- 
petent for  them  to  adjourn  to  a  subsequent  day,  and  no  new 
notice  need  be  sent  to  the  members;  the  general  rule  being  that 
a  corporation  may  transact  any  business  at  an  adjourned  meet- 
ing which  they  could  have  transacted  at  the  original  meeting, 
without  giving  notice  of  such  adjourned  meeting. ^  Accordingly, 
where  the  by-laws  fixed  slated  days  for  the  meeting  of  the  di- 
rectors, and  provided  that  when  less  than  a  quorum  but  more 
than  three  should  be  present,  they  might  adjourn  to  any  day 
prior  to  the  next  regular  meeting,  it  was  held  that  the  acts  of  a 
majority  of  those  present  at  a  meeting  so  adjourned,  were  binding, 
although  the  absentees  had  no  special  notice  of  the  adjourned 
meeting,  other  than  such  notice  as  they  were  chargeable  with 
from  the  by-laws.^  But  this  principle  only  applies  where  the 
meeting  has  been  duly  convened,  and  at  the  time  and  place  regu- 
larly appointed,  so  that  all  the  members  have  a  fair  opportunity 
of  being  present,  and  hence  acquire,  by  the  fact  of  adjournment, 
notice  of  the  time  and  place  of  the  adjourned  meeting.  Accord- 
ingly, where  the  stockholders  of  a  corporation  were  notified  that 
the  annual  meeting  for  the  election  of  directors  would  be  held 
at  a  certain  hour  of  the  day  fixed  by  the  charter,  and  the  cor- 
poration was  enjoined  from  holding  an  election  on  that  day,  in 
consequence  of  which  no  meeting  was  held  until  several  hours 
after  the  time  fixed  in  the  notice,  when  a  small  number  of  stock- 
holders, without  the  knowledge  of  the  others,  met,  organized  and 
adjourned  until  the  next  day,  at  which  time  an  election  was  held 
by  a  minority  of  the  stockholders,  without  notice  to  others,  who 
were  in  the  vicinity  for  the  purposes  of  the  meeting,  and  might 
have  been  readily  notified, —  it  was  held  that  such  election  was 

1  People's  Mut.  Ins.  Co.  v.  West-  v.  Law,  21  N.  Y.  296;  Scadding  v. 
cott,  14  Gray  (Mass.),  440.  Loraut,  3  H.  L.  Cas.  418. 

2  Rex  V.  Carmarthen,  1  Maule  &  S.  ^  Smith  v.  Law,  21  N.  Y.  296.  Com- 
696;  Warner  V.  Mower,  11  Vt.  385;  pare  People  u.  Batchelor,  22  N.  Y.  128. 
Schoff  r.  Bloomfleld,  8  Id.  472;  Smith 

562 


ASSEMBLING    THE    MEETING.       [1  Thomp.  Corp.    §  722. 

invalid,  whether  the  restraining  order  did  or  did  not  bind  the 
stockholders.^  Moreover,  the  power  to  adjourn  resides  in  the 
meeting,  and  not  in  the  officials  appointed  by  law  to  call  the 
meeting.  When  they  have  exercised  their  function  of  calling 
the  meeting,  they  become  functus  officio,  and  cannot  adjourn  it 
to  a  future  day.^ 

§  721.  Statutes  Providing  for  Adjourned  or  Special  Elec- 
tions. —  Some  of  the  statutes  provide  that  in  case  of  the  failure  to  hold 
an  election  at  the  appointed  time,  the  stockholders  shall  meet  and  hold 
one  in  the  manuer  provided  by  the  by-laws. ^  Some  of  the  statutes  pro- 
vide that  if  a  quorum  does  not  assemble  —  usually  a  majority  in  value 
of  the  stock,  —  the  meeting  may  adjourn  from  day  to  day  or  from  time 
to  time,  a  record  of  the  adjournment  and  the  reasons  therefor  being  kept 
in  the  journal.'*  By  the  statute  of  Colorado,  if  the  statutory  quorum 
does  not  attend,  the  meeting  may  adjourn  for  a  period  of  not  more  than 
sixty  days.^ 

§  722.  Statutes  under  whicli  Elections  Fixed  and  Regulated 

by  By-Lavrs.  —  Many  of  the  States  commit  the  time,  place  and  manner 
of  holding  corporate  elections  to  the  regulations  of  by-laws. ^  Thus,  by 
statute  in  Cahfornia,  a  corporation  may,  in  the  absence  of  special  pro- 
visions, provide  by  by-laws  for  the  time,  place  aud  manner  of  calling 
and  conducting  its  meetings  ;  what  shall  constitute  a  quorum  ;  mode  of 
voting  by  proxy ;  time  of  annual  election  of  directors,  and  mode  of 
giving  notice  thereof.'^  In  Texas,  the  by-laws  shall  prescribe  the  man- 
ner and  time  of   electing  and  the  mode  of  filhng  vacancies  in  the  office 

1  State  V.  Bonnell,  35  Ohio  St.  10.  tary  of  a  private  corporation  to  include 

2  Accordingly,  it  has  been  held  that  a  resolution  in  a  communication  to  a 
by  the  organization  of  the  subscribers  stocliholder  who  was  represented  by 
for  stock  at  such  meeting,  the  power  proxy  at  the  meeting,  — is  held  to  be 
of  the  commissioners  appointed  to  no  badge  of  fraud,  nor  ground  of  equit- 
receive  subscriptions  ceases,  and  they  able  relief  against  the  company, 
cannot  adjourn  or  postpone  such  meet-  Thames  v.  Central  City  Ins.  Co.,  49 
ing.    And    if  such   postponement  be  Ala.  577. 

directed    by  the  commissioners,    but  3  2  Sayle  Tex.  Stat.  1888,  art.  4129. 

the  subscribers  nevertheless  refuse  to  *  Deer.  Code  Cal.,  part  4,  §  312. 

accede  to  the  postponement,  and  pro-  «  Gen.    Stat.  Colo.  1883,  chap.    19, 

ceedwith  the  election  of  their  ofTiccrs,  §  G. 

the  election  will  not  be  avoided,  unless  «  Ark.  Dig.  Stat.  1884,  §  5428  (rail- 

itappears  to  the  court  that  a  postpone-  roads  after  the   first  election);   post, 

meut  was  clearly  necessary.     Harden-  §1050. 

burg  V.  Farmers'  &c.  Bank,  3  N   J.  Eq.  '  Deer.  Code  Cal.,  part  4,  §  303. 

68.     The  mere  omission  of  the  secre- 

563 


1  Thonip.  Corp.  §  725.]     corporate  elections. 

of  director,  and  such  by-laws  can  onl}--  be  changed  at  annual  meetings 
and  by  a  majority  vote  of  all  the  stock.^  In  Minnesota,  corporations 
maj^,  by  by-laws,  determine  the  manner  of  calling  and  conducting  meet- 
ings, the  quorum,  the  number  of  shares  that  shall  entitle  a  member  to 
one  or  more  votes,  and  the  mode  of  voting  by  proxy  ;  ^  and  the  statute 
of  Michigan  is  similar. ^  Another  statute  of  the  same  State  provides 
that  a  corporation  shall  be  empowered  to  elect,  in  such  manner  as  it 
deems  proper,  all  necessary  officers,  and  define  their  duties  and  obliga- 
tions.* In  Ohio  corporations  may,  where  no  other  provision  is  specially 
made  by  statute,  provide  for  the  time,  place  and  manner  of  calling  and 
conducting  elections  ;  the  number  of  stockholders  constituting  a  quo- 
rum ;  the  time  of  holding  the  annual  election  for  trustees  and  directors, 
and  the  mode  and  manner  of  gi\ing  notice  thereof ;  and  the  manner  of 
electing  all  officers  other  than  directors. ^ 


Article  II.     The  Quorum. 

Section  Section 

725.  Quorum  where  body  is  composed      728.  Election  by  a  majority  of  those 

of  an  indefinite  number.  who  actually  vote,  though  not 

726.  Where  composed  of  definite  num-  a  majority  of  the  quorum. 

ber.  729.  Delegating  power  of  selection  to 

727.  Statutory  provisons    as    to    the  a  select  body. 

quorum. 

§  725.  Quorum  where  Body  is  Composed  of  an  Indefinite 
Number. — In  the  United  States,  where  the  subject  is  not  gov- 
erned by  a  statute  or  by  valid  by-laws  ®  established  by  the  cor- 
poration, the  analogy  which  applies  in  the  case  of  elections  in 
municipal  corporations  and  other  public  elections,  is  resorted  to 
for  the  purpose  of  determining  what  constitutes  a  quorum,  where 
the  body  entitled  to  elect  consists  of  an  indefinite  number.  In 
such  a  case,  if  the  meeting  is  regularly  called,  and  if  those  en- 
titled to  participate  are  duly  notified  where  notice  is  required  — 
but  only  on  this  condition, — those  who  actually  assemble  con- 
stitute a  quorum,  and  a  majority  of  this  quorum  is  competent  to 

J  2  Sayle  Tex.  Stat.  1888,  art.  4127.  ^  The  power  to  establish  by-laws, 

2  Rev.  Stat.  Miun.  1881,  §409.  providing  what  shall  be  a  quorum  at 

3  How.  Mich.  Stat.  1882,  ch.  11)1,  corporate  meetings  is  conferred  in 
§  4861.  many  States   by  statute,  as  hereafter 

*  Ibid.  §  4860.  seen.     Post,  §  965. 

5  Giauque's  Rev.  Stat.  Ohio,  §  3252. 
5G4 


THE  QUORUM.         [1  Thomp.  Corp.  §  725. 

elect  directors,  or  to  transact  any  other  constituent  business. ^ 
As  the  number  of  members  in  a  joint-stock  corporation  is  indef- 
inite,—  since,  although  the  number  of  shares  is  definite,  they 
may  be  distributed  among  many  or  accumulated  by  a  few,  and 
by  this  distribution  or  accumulation  the  number  of  members  may 
increase  or  decrease,  —  the  rule  applicable  to  other  indefinite 
bodies  applies  to  elections  in  joint-stock  corporations.  If  the 
meeting  is  regularly  assembled,  a  majority  of  those  who  assemble 
may  elect,  unless  there  is  a  different  regulation  by  statute  or  valid 
by-law. 2  This  rule  is  also  applicable  to  religious  societies,  and 
to  all  other  indefinite  bodies  of  the  like  character.^  There  are 
judicial  expressions,  ancient  and  modern,  to  the  effect  that  a 
majority  of  all  the  members,  although  in  a  meeting  duly  called, 
is  necessary  to  constitute  a  quorum. *  And  there  are  more  gen- 
eral expressions  to  the  effect  that  the  acts  of  a  majority  of  a  body 
politic  bind  the  whole  corporation,  when  confined  to  its  ordinary 
transactions,  and  consistent  with  the  original  objects  of  its  for- 
mation.^ But  these  expressions  must  either  be  restrained  to  the 
case  of  a  corporation  in  wdiich  the  elective  body  is  definite,  as 
where  it  consists  of  a  municipal  assembly  or  a  board  of  trustees 
or  directors,  a  majority  of  whose  members  is  necessary  to  a 
quorum;  or  else  to  cases  where  the  language  has  been  influenced 
by  the  terms  of  some  statute ;  or  else  they  must  be  understood 
as  meaning  no  more  than  is  meant  by  that  indefinite  American 
expression,  that  "  the  majority  shall  rule,"  which  means  a  ma- 
jority of  those  who  come  out  and  vote.  But  it  must  be  con- 
stantly borne  in  mind  that,  whatever  number  may  be  necessary 
to  constitute  a  quorum,  the  mode  of  election,  unless  otherwise 
fixed  by  statute,  or  by  by-law,  is  that  a  majority  of  this  quorum 
is  necessary  to  elect,  and  not  a  vnQve  plurality .^     This  principle 

1  Craig  w. First  Presbyterian  Churcli,  *  "  Of  common  right  there  must  be 
88  Pa.  St.  42;  Everett  v.  Smith,  22  a  majority  of  the  whole  present;  and 
Minn.  53;  Field  v.  Field,  9  Wend.  (N.  the  majority  of  them  must  make  the 
y.)  305.  act."     Dr.  Harscot's  Case,  Comb.  202, 

2  Brown  v.  Pacific  Mail  Steamship  per  Lord  Holt,  C.  J.  See  also  Pierce 
Co.,  r>  Bhitchf.  (U.  S.)  525;  Columbia  v.  New  Orleans  Build.  Co.,  9  La.  397; 
Bottom  Co.  V.  Meier,  39  Mo.  53.  s.  c.  29  Am.  Dec.  448. 

3  Craig  V.  First  Presbyterian  Church,  '^  Mowrey  v.  Indianapolis  &c.  K. 
88  Pa.  St.  42;  Madison  Avenue  Baptist  Co.,  4  Biss.  (U.  S.)  78. 

Church  V.  Baptist  Church,  5  Rob.  (N.  ^  State  v.  Wilmington  City  Council, 

Y.;  649.  3  Ilarr.  (Del.)  294. 

5(55 


1  Tliomp.  Corp.  §  726. J     corporate  elections. 

cures  the  effect  of  casting  illegal  votes  to  this  extent,  that  al- 
though IHegal  votes  may  have  been  cast  and  legal  votes  rejected, 
yet,  if  a  majority  of  legal  votes  still  appear  for  those  who  are 
returned,  their  election  is  valid. ^ 

§  726.  Where  Composed   of  a  Definite  ISTvimber.  —  In  the 

case  of  corporations  or  representative  boards  of  corporations 
composed  of  a  definite  number,  the  rule  of  the  common  law  is 
that  a  majority  of  this  number  must  be  present  before  any  busi- 
ness can  be  transacted,  but  that  the  votes  of  a  majority  of  those 
who  are  present  will  suffice  to  elect  officers,  or  to  carry  any  other 
measure  before  the  meeting.^  *'  In  all  cases  where  an  act  is  to 
be  done  by  a  corporate  body,  or  part  of  a  corporate  body, 
and  the  number  is  definite,  it  has  been  held  that  a  majority 
of  the  whole  number  is  necessary  to  constitute  a  legal 
meeting;  and  that,  if  the  actual  number  is  reduced  from 
any  cause,  the  number  necessary  to  constitute  a  quorum  re- 
mains the  same ;  but  that,  at  a  legal  meeting,  a  majority  of 
those  present  may  act."  ^     A  corporation  cannot  be  considered  as 


1  M'Neely  w.  Woodruff,  13  N.  J.  L. 
352.  To  illustrate  the  text,  take  the 
case  where  the  by-laws  of  the  corpo- 
ration provide  that  the  capital  stock 
shall  consist  of  four  hundred  shares, 
and  that  no  business  shall  be  trans- 
acted at  any  meetini?  of  the  stock- 
holders unless  a  majority  of  the  stock 
is  represented.  In  such  a  case  a  board 
of  directors  elected  at  a  meeting 
where  only  138  shares  of  the  stock  are 
represented,  are  not  legally  elected, 
and  are  not  officers  de  facto,  where 
another  board  of  directors,  legally 
elected  at  a  previous  meeting,  and 
holding  over  by  virtue  of  a  by-law, 
claim  the  right  to  act.  Ellsworth 
Woolen  Manuf.  Co.  v.  Faunce,  79  Me. 
440;  10  Atl.  Rep.  250;  4  New  Eng.  Rep, 
G79.  There  is  one  doubtful  holding 
that  an  election  of  directors  of  a  cor- 
poration by  those  holding  less  than  one- 
half  of  the  shares,  brought  about  by 
the  exclusion  from  voting  of  other 
shareholders  by  an  injunction  issued 
566 


by  a  competent  court,  is  legal.  Brown 
V.  Pacific  Mail  Steamship  Co.,  5 
Blatch.   (U.  S.)  525. 

2  2  Kent  Com.  293.  That  this  is  the 
rule  which  governs  meetings  of  direct- 
ors, see  post,  §  3802,  et  seq. 

3  Lockwood  V.  Mechanics'  Nat. 
Bank,  9  R.  I.  308;  11  Am.  Rep.  253, 
269.  See  note  to  Ex  parte  Willcocks,  7 
Cow.  (N.  Y.)  402,  410;  s.  c.  17  Am. 
Dec.  525,  528;  King  v.  Bellringer,  4 
T.  R.  810;  King  v.  Miller,  6  Id. 
268;  Cahill  v.  Kalamazoo  Ins.  Co., 
2  Doug.  (Mich.)  124,  137;  s.  c.  43  Am. 
Dec.  457;  Columbia  &c.  Co.  v.  Meier, 
39  Mo.  53;  Sargent  v.  Webster,  13 
Mete.  (Mass.)  497;  Fosters.  Mullau- 
phy  Planing  Mill  Co.,  92  Mo.  79,  88. 
Though  an  act  of  Parliament  on  au- 
thorizing an  act,  names  a  quorum,  it 
is  not  ni.'cessary  that  the  persons 
mentioned  in  it  should  expressly  con- 
sent to  it;  but  it  is  sufficient  if  they 
are  present  when  it  is  done.  The  rule 
in    such    cases    is  that  where  those 


THE  QUORUM.         [1  Thomp.  Corp.  §  726. 


composed  of  distinct,  definite,  integral  parts,  unless  the  number  of 
the  members  of  each  class  is  definite ;  but  where  it  is  so  composed, 
a  majority  of  the  members  of  each  class  is  necessary  to  constitute 
a  corporate  meeting  or  assembly.^  The  quorum  required  by  the 
principles  of  the  common  law,  or  by  the  governing  statute  or  by- 
law, must  not  only  be  present  at  the  commencement  of  the  meet- 
ing, but  it  must'he  present  when  the  act  is  done,  the  validity  of 
which  is  called  in  question.  When,  therefore,  the  governing 
statute  positively  requires  that  a  certain  number  of  persons 
shall  be  present  at  the  consummation  of  an  act,  the  act  is  not 
valid,  though  it  be  begun  while  all  are  present,  if  one  of  the  per- 
sons depart,  though  wrongfully,  before  it  is  consummated.^  In 
determining  whether  there  is  a  quorum,  all  the  members  are  en- 
titled to  be  counted,  whether  they  are  candidates  for  the  office 
to  be  voted  for  or  not.  While  no  direct  judicial  authority  is 
found  upon  this  question,  yet  such  is  known  to  be  the  universal 
practice.     Besides,  it  appears  to  be    a  matter  of  common  right ; 


might  be  present  who  ought  to  be 
present,  a  majority  can  act  and  the 
assent  of  the  minority  is  presumed  to 
be  included  in  the  act  of  the  majority: 
"  This  must  be  understood  like  similar 
clauses  in  commissions  of  Oyer  and 
Terminer,  peace,  etc.,  which  require 
the  presence  of  the  persons  named 
in  the  quorum;  but  it  was  never 
thought,  that  their  actual  consent  was 
necessary  to  every  act  that  was  done, 
and  that  if  they  dissented  the  majority 
could  not  act;  but  their  consent  has 
always  been  taken  to  be  included  in 
the  consent  of  the  majority."  Reg.  v. 
Bailifes  of  Ipswich,  2  Ld.  Raym.  1232; 
s.  c.  2  Salk.  434;  Holt,  443.  Where  a 
power  of  election  is  vested  in  a  given 
number,  of  whom  A.  and  B.  are  to  be 
two,  the  presence  of  A.  and  B.  only  is 
requisite.  The  election  is  valid  al- 
though they  do  not  consent.  Thus, 
where  the  charter  of  a  borough  pro- 
vided —  "  If  it  happen  any  of  the  said 
capital  burgesses  to  die  or  be  re- 
moved, then  it  shall  be  lawful  for  the 
Ijailiffs,  aldermen  and  capital  bur- 
gesses for  the  time  being,  or  the  major 


part  of  them,  Quorum  unum  ballivo- 
rum  et  unum  aldermannorum  duos  esse 
volumus,  to  elect  another,"  —  it  was 
held  that,  although  the  presence  of  a 
bailiff  and  alderman  was  necessary,  in 
order  to  the  validity  of  such  an  elec- 
tion, yet  it  need  not  appear  that  they 
assented  to  the  choice  which  was 
made.  If  their  assent  was  required, 
this  would  probably  make  them  all 
electors,  and  take  away  the  power  of 
election  from  the  body  of  the  capital 
burgesses.  Lord  Parker,  C.  J.,  said: 
"This  is  like  the  case  of  the  city  of 
London,  where  the  mayor  and  common 
council  have  power  to  do  acts ;  and  yet 
the  act  of  the  majority  of  the  common 
council  is  good,  though  the  mayor 
dissents.  In  this  case  there  is  nothing 
required  but  the  presence  of  one  bail- 
iff and  one  alderman  at  every  election, 
and  they  have  no  negative  voices." 
Cotton  V.  Davies,  1  Strange,  53. 

1  University  of   Maryland  v.    Will- 
iams, 9  Gill  and  J.  (Md.)  3C5. 

2  Ex  parte  Rogers,  7  Cow.  (N.  Y.) 
526,  630,  n, 

567 


1  I'homp.  Cor}).  §  727.]     corporate  elections. 

for  no  good  reason,  sentimental  or  otherwise,  is  perceived  by 
which  a  person  holding  a  majority  of  the  shares  of  a  corporation 
should  not  be  counted  in  mailing  up  a  quorum  for  an  election, 
since  he  has  a  clear  right  to  vote  his  stock  for  himself  if  he  sees 
lit,  and  thereby  make  himself  one  of  the  managers  of  his  own 
property.^ 

§  727.  Statutory  Provisions  as  to  the  Quorum.  — The  statutes 
are  provokingly  silent  upon  the  question  what  number  of  the  members, 
or  what  value  of  the  shareholders,  shall  constitute  a  quorum  to  elect 
directors,  or  transact  other  constituent  business.  By  the  statutes  of 
Illinois,  the  vote  necessar}^  to  carry  certain  propositions  varies  from  a 
mere  majority  ~  to  two-thirds  of  the  capital  stock. ^  By  the  statute  of 
Michigan,  a  majority  of  the  stock  must  be  voted,  either  in  person  or  by 
proxy,  at  a  special  meeting,  called  in  default  of  a  regular  meeting,  for 
the  election  of  directors.*  In  Texas,  the  consent  of  tivo-lJiirds  is  requi- 
site to  carry  a  proposition  to  increase  the  capital  stock;  ^  and  a  vote  of  a 
majority  of  the  stock  \s  necessary  to  elect  each  member  of  the  board. ^ 
By  the  Colorado  statute,  elections  shall  be  held  by  the  stockholders  in 
attendance,  if  a  majority  of  the  stock  is  represented.'^  By  the  same  stat- 
utes a  vote  of  two-thirds  of  all  the  stock,  given  either  in  person  or  by 
proxy,  is  necessaiy  for  the  adoption  of  a  resolution  changing  the  name, 
the  place  of  business,  the  number  of  directors,  the  amount  of  capital  or 
consolidating  with  another  company.^  By  the  statute  of  Nebraska, 
the  directors  are  chosen  by  ballot,  by  the  perso7is  who  attend  for  that 
purpose  in  person,  or  by  lawful  proxy.  Each  share  entitles  the  owner 
to  one  vote,  and  a  plurality  of  the  votes  cast  at  the  election  is  necessary 
to  a  choice.^  By  the  Tennessee  statute,  directors  are  elected  by  a  ma- 
jority of  the  votes  cast,  each  share  having  one  vote.i"     By  the  Tennessee 

1  There  is,  however,  a  holding  to  '  See  Starr  &  Curt.  111.  Stat.,  p.  627, 

the  effect  that  an  invalid  election  of  a  §  61. 

member  of  a  board  of  directors  cannot  ^  /^jfL,  p.  625,  §  52,  and  p.  630,  §  72. 

be  ratified  by  the  board,  where  the  *  How.  Mich.  Stat.  1882,  §    3317. 

member  whose  title  is  in  controversy  ^  Sayle  Tex.  Stat.    1888,   art.  4146. 

is  necessary  to  constitute  a  quorum  in  «  2  Sayle  Tex.  Stat.  1888,  art.  4126. 

the  ratifying  board.     People  v.  N.  Y.  ''  Gen.  Stat.   Colo.    1883,   chap.  19, 

Infant  Asylum,  43   Hun  (N.  Y.),  640,  §  86. 

mem.;  7  N.  Y.  St.  Rep.  277.     But  it  is  »  Ibid.,  §  112. 

not  perceived  how  the  board  could  »  Comp.  Stat.  Neb.  1887,  chap.  16, 

ratify  an  invalid  election  for  one  of  §  80. 

the  number,  any  more  than  they  could  i"  Code  of  Tenn.  1804,  §  1706. 
elect  him  in  the  first  instance,  and  the 
case  so  intimates. 
568 


THE  QUORUM.    [1  Thomp.  Corp,  §  728. 

statute  relating  to  railroad  companies,  the  result  of  all  elections  is  to 
be  determined  by  a  majority  of  all  the  votes  cast,  each  share  to  represent 
one  vote.i  By  the  statute  of  Arkansas,  a  majority  of  the  stocldiolders 
present  at  a  legal  meeting,  are  capable  of  transacting  business,  and  each 
share  entitles  its  holder  to  one  vote.^  By  the  same  statutes,  majority  of 
value  of  the  stock  must  be  present  at  a  special  meeting  assembled  for 
electing  directors,  or  else  the  meeting  must  adjourn  from  day  to  day  for 
thi'ee  days  ;  and  if  a  majority  does  not  then  appear,  the  meeting  must 
be  dissolved. 3  Another  provision  of  the  same  statutes,  relating  to  rail- 
road companies,  is  that  a  majority,  in  person  or  by  proxy,  shall  choose 
directors  by  ballot,  each  stockholder  having  one  vote  for  each  share 
of  the  stock  which  he  has  owned  for  thirty  daj^s.*  The  statute  of  Mis- 
souri provides  that  directors  shall  be  notified,  who  have  received  a  ma- 
jority of  the  votes  cast.^  It  has  been  held,  apparently  with  reference 
to  the  provisions  of  the  civil  code  of  Louisiana,  that  the  acts  of  stock- 
holders at  a  corporate  meeting,  whereat  only  a  minority  of  the  stock  is 
represented,  are  void,  and,  it  has  been  held,  cannot  be  ratified  by  the 
subsequent  assent  of  the  holders  of  a  majority  of  the  stock,  if  this  con- 
sent be  given  elsewhere  than  at  a  meeting  of  the  stockholders.^ 

§  728.  Election  by  a  Majority  of  those  who  Actually  Vote, 
though  not  a  Majority  of  the  Quorum. —  Authority  is  found 
lor  the  proposition  that,  where  the  meeting  is  duly  convened 
and  a  quorum  is  present,  a  majority  of  those  who  actually  vote 
is  sufficient  to  a  valid  choice  ;  but  it  is  apprehended  that  this  can 
be  affirmed  only  in  cases  of  municipal  corporations,  or  in  other 
cases  where  the  elective  body  is  indefinite^  and  where  a  quorum 
consists  of  those  who  actually  assembled  at  the  proper  place  and 
time,  in  pursuance  of  a  valid  notice.^  In  such  a  case  a  quorum 
is  deemed  to  consist  of  those  who  vote,  and  it  is  by  their  votes  that 
they  are  counted,  unless  some  other  method  is  prescribed  by  the 
governing  statute  or  by-law.  The  doctrine  of  "  visible  quorum," 
established  by  a  recent  innovation  in  the  House  of  Representa- 
tives of  the  United  States,  does  not  apply.  The  propriety  of 
this  ruling  will  be  instantly  perceived,  if  we  consider  the  case 
of  a  municipal  election.  It  would  be  quite  unheard  of  to  prove, 
for  the  purpose  of  overturning  such  an  election,  that  a  number 

1  Ibid.,  §  1901.  s  Rev.  Stat.  Mo.  1889,  §  2484. 

2  Ark.  Dig.  Stat.  1884,  §  969.                       «  Pierce  v.   New  Orleans  Building 

3  Ibid.,  §  5429.  Co.,  9  La.  397;  s.  c.  29  Am.  Dec.  448. 
*  Ibid.,  §  5425.  '  Ante,  §  725. 

569 


1  Thomp.  Corp.  §  729.]     corporate  elections. 

of  citizens  went  to  the  polls,  and  then  went  away  without  voting, 
and  that,  if  this  number  were  counted,  it  would  appear  that 
there  was  no  election  by  a  majority  of  the  quorum.  Accord- 
insrly,  where  a  meeting  for  a  corporate  election  was  duly 
assembled,  and  those  entitled  to  vote  were  duly  notified,  and  a 
majority  of  those  entitled  to  vote  assembled  at  the  time  and 
place  appointed,  it  being  a  time  and  place  at  which  the  election 
mio-ht  be  held  agreeably  to  law,  and  the  election  was  regularly 
begun,  and  a  majority  of  those  present  who  were  entitled  to  vote, 
conceivins:  that  there  was  no  vacancv  in  the  office,  protested 
against  any  election  being  held,  and  did  not  vote,  and  the  votes 
of  the  remaining  minority  were  cast  in  favor  of  a  particular 
candidate, —  it  was  held  that  if  the  office  voted  for  were  bona 
Ude  vacant,  the  candidate  thus  receiving  the  votes  of  the  minor- 
ity was  duly  elected.  The  case  stated  was  adjudged  in  the 
Kinor's  Bench  in  1 760.  Lord  Mansfield  saw  no  doubt  in  the  case. 
"  Here,"  said  he,  "  was  an  assembly  duly  summoned;  one  can- 
didate was  named;  no  other  was  named;  the  poll  was  taken; 
they  had  no  right  to  stop  in  the  middle  of  the  election ;  the 
mayor  did  not  put  any  question  for  adjournment,  nor  was  there 
any.  .  .  .  The  protesting  electors  had  no  way  to  stop  the 
election,  when  once  entered  upon,  but  by  voting  for  some  other 
person  than  Seagrave  [the  person  put  in  nomination]  or  at  least 
against  him;  whereas  they  only  protested  against  any  election  at 
that  time.  .  .  .  Whenever  electors  are  present,  and  don't  vote 
at  all  (as  they  have  done  here),  they  virtually  acquiesce  in  the 
election  made  by  those  who  do.''  ^  Stockholders  who,  at  a 
meeting,  do  not  vote  when  they  might,  are  bound  by  the  result. ^ 

§  729.  Delegating  Power  of  Selection  to  a  Select  Body. — 

In  England  there  was  a  difference  of  opinion  among  the  judges 
whether  the  general  body  of  an  ancient  borough  could  delegate 
the  power  to  elect  burgesses,  to  a  select  body  of  the  corporation. 
The  question  was  finally  decided  in  the  affirmative  in  the  House 
of  Lords,  on  the  ground  that  "  so  many  by-laws  of  this  descrip- 
tion have  been  held  to  be  good,  that  now  it  may  be  considered  as 
settled  that  such  by-laws  may  be  made  by  the  body  at  large."  ^ 

J  Oldknovv  v.  Wainwright,  2  Burr,  2  state  v.  Chute,  34  Minn.  135. 

1017,  1020,  1021.  ^  Rexv.  Westwood,  2  Dow.  &C1.  21. 

570 


RIGHT  TO  VOTE.     [1  Thomp.  Corp.  §  730. 


Article  III.  Right  to  Vote. 

Section  Sectiox 

730.  Right  to  vote  at  such  elections.       737.  Validity  of    by-law  which  pro- 

731.  Execution,    surviving    partners,  vides  for  voting  by  proxy. 

trustees,  assignees,  etc.  738.  Statutes  conferring   the  right  to 

732.  Right  to  vote  in  respect  of  shares  Vote  by  proxy. 

pledged  or  mortgaged.  739.  Further  of  the  right  to  vote   by 

733.  Further  of  this  subject.  proxy. 

734.  Right  to  vote  in  respect  of  shares       740.  Right  to   vote   how  affected   by 

held  or  owned  by  the  corpo-  by-laws. 

ration  itself.  741.  Injunction  to  restrain  fraudulent 

735.  Right  of  pledgor  to   proxy  from  or  ultra  vires  voting. 

pledgee.  742.  Statutory  provisions  as  to   who 

736.  No  right  to  vote  by  proxy  at  com-  entitled  to  vote. 

mon  law.  743.  Non-residents  and  aliens. 

§  730.  Right  to  Vote  at  Such  Elections. —  Where  a  charter  is 
granted  to  certain  persons,  "  their  associates,  successors  and  as- 
signs," the  grantees  can  legally  elect  directors  without  having 
made  any  associates,  successors  or  assigns.^  Ordinarily,  the 
right  to  vote  rests  in  the  member  in  whose  name  the  shares  stand 
on  the  corporate  books,  although  in  fact  he  may  have  transferred 
them  to  another.^  It  has  been  ruled  in  one  case  that  any  trans- 
fer of  stock  sufficient  to  pass  the  property  is  sufficient  to  entitle 
the  transferee  to  vote  in  the  election  of  directors,  unless  some 
specific  mode  of  transfer  is  made  necessary  by  statute  or  the  by- 
laws of  the  company.^  But,  as  hereafter  seen,  the  governing 
statutes  in  some  cases,  and  valid  by-laws  in  others,  provide  that 
the  shares  shall  be  transferred  only  on  the  booksof  the  company. 
In  such  a  case,  where  the  shares  are  not  so  transferred,  although 
there  may  have  been  a  sale  of  thetn  such  as  will  pass  the  right  of 
property  as  between  transferor  and  transferee,  yet,  as  to  the 
company,  all  rights  in  respect  of  them  stand  as  though  no  such 
sale  had  taken  place  until  there  has  been  a  transfer  on  its 
books.  An  unregistered  transfer  indeed  passes  the  equitable  title, 
as  between  the  parties  to  the  transaction,  but  a  registration  of 
the   transfer  on  the   corporate  books  is  necessary  to  pass  the 

1  Hughes  V.  Parker,  19  N.  H.  181;  v.  Buffum,  9  R.  1.  513;  s.  c.  11  Am. 
ante,  ^4:3.  Rep.  291;  State  v.   Pettinelli,  10  Nev. 

2  People  V.  Robinson,  64    Cal.  373;       141. 

State  V.  Ferris,  42  Conn.  560;  Hop  pin  »  People  v.  Devin,  17  111.  84. 

571 


1  Thomp.  Corp.  §  731.]     corporate  elections. 

legal  title;  and  unless  otherwise  provided  by  the  governing  stat- 
ute or  by  a  valid  by-law,  the  right  to  vote  follows  the  legal, 
and  not  the  equitable  title. ^ 

§  731.  Executors,  Surviving  Partners,  Trustees,  Assignees^ 
etc.  —  An  executor  may  vote  on  stock  standing  on  the  corporate 
books  in  the  name  of  the  testator,  on  exhibiting  an  exem- 
plified copy  of  his  testamentary  letters;^  and  so  may  an  ad- 
ministrator, and  this  without  any  formal  transfer  of  the  shares 
to  him  on  the  books  of  the  corporation.^  A.  surviving  partner 
has  the  right,  while  the  partnership  business  remains  unset- 
tled, to  vote  upon  corporation  stock  standing  in  the  name  of 
the  firm,  or  which,  though  standing  in  the  name  of  the  de- 
ceased partner,  it  is  shown  actually  to  be  firm  property.*  In 
like  manner,  one  is  entitled  to  vote  in  respect  of  stock  stand- 
ing in  his  name  as  the  trustee  of  others;  ^  and  for  equally  good 
reasons,  where  the  trust  is  not  disclosed  on  the  company's 
books.®  Stock  standing  on  the  corporate  books  in  the  name 
of  A.  B.,  with  the  addition  of  ^^  cashier"  subjoined,  cannot 
be  voted  on  a  proxy  given  by  his  successor  in  office.''  It  is  not 
necessary,  to  entitle  an  owner  of  corporate  stock  to  vote  at  a 
corporation  election,  that  he  should  be  the  sole  owner. ^  Where 
stock  in  a  corporation  is  owned  by  tivo  persons  jointly ,  and  they 
disagree  as  to  the  vote  to  be  cast  upon  the  shares,  at  an  elec- 
tion for  trustees,  the  vote  upon  such  stock  may  be  rejected.^ 

1  It  has  beenheld  that,  the  require-  *  Ex  parte  Baker,  6  Wend.  (N.  Y.) 
ment  in  a  statute  enacted  to  prevent      509. 

fraudulent  elections  by  incorporated  *  Wilson  v.  Proprietors  of   Central 

companies,  which  directs  that  a  list  Bridge,  9  R.  I.  590. 

of  the  stocl<holders  entitled  to  vote,  '  Re  Mohawk  &c.  R.  Co.,  19  Wend. 

with  the  shares  held  by  each,  shall  be  (N.  Y.)  135. 

made  out  ten  days  prior  to  the  election,  «  Ervin  u.  Philadelphia  &c.  R.    Co. 

is  directory  only,  and  non-compliance  (C.  P.  Phila.),  7  Rail.   &  Corp.  L.J. 

with  it  does  not  of  itself  make  void  87. 

the  election.     Downing  v.   Potts,   23  '  Re  Pioneer  Paper  Co.,  36   How. 

N.  J.  L.  66,  Pr.   (N.  Y.)    Ill,     That  stockholders 

2  Matter  of  Cape  May  &c.  Nav.  Co.,  who  acquire  their  stock  a  year  after  a 
51  N.  J,  L.  78;  16  Atl,  Rep.  191.  previous     election  have  no  right  to 

'  Re    North    Shore    Ferry  Co.,  63      vote  upon  it,  where  there  has  beea  an 

Barb.  (N.  Y.)  556,  omission  to  hold  an  annual  election  as 

*  Allen  V.  Hill,  16  Cal.  113,  required  by  statute:    Vandenburg  v. 
bl'2 


RIGHT  TO  VOTE.     [1  Thomp.  Corp.  §  732. 

The  provisions  of  the  bankrupt  act  of  1867,  which  vest  the 
property  of  a  bankrupt  in  the  assignee,  and  require  the  bank- 
rupt, at  the  request  of  the  assignee,  to  execute  all  necessary  con- 
veyances and  transfers,  do  not  take  away  the  right  of  the 
bankrupt  to  vote  in  respect  of  shares  of  stock  still  standing  in 
his  name ;  and  where  the  bankrupt  does  so  vote  in  respect  of 
such  shares,  together  with  the  assignee,  the  other  stockholders 
have  no  such  interest  in  the  question,  whether  the  strict  right 
to  vote  is  in  the  bankrupt  or  in  the  assignee,  as  will  enable  them 
to  object  thereto.^ 

§  732.  Right  to  Vote  in  Respect  of  Shares  Pledged  or 
Mortgaged.  —  In  the  absence  of  a  contrary  rule  in  the  govern- 
ing statute  or  by-laws  authorized  thereby,  the  2)ledgor  of  shares 
which  have  been  hypothecated  is  entitled  to  vote,  unless  the 
pledgee  has  been  made  a  shareholder  as  between  himself  and  the 
corporation,  by  having  the  shares  transferred  to  him  on  the  cor- 
porate books. 2  And  it  has  been  held  without  qualification,  that 
"  in  a  clear  case  of  hypothecation  the  pledgor  may  vote.  The 
possession  may  continue  with  him,  consistently  with  the  nature 
of  the  contract,  and  the  stock  remain  in  his  name.  Till  en- 
forced, and  the  title  made  absolute  in  the  pledgee,  and  the  name 
changed  on  the  books,  he  should  be  received  to  vote.  It  is  a 
question  between  him  and  the  pledgee,  with  which  the  corpora- 
tion have  nothing  to  do,^     On  the  other  hand,  if  the  stock  has 

Broadway  Underground  &c.   R.    Co.,  2  Scholfield      v.    Union    Bank,     2 

29  Hun.  rN.  Y.),  348.     Right  to  repre-  Crancla  C.  C,  (U.  S.)  115. 
sentatiou  in  boards  of  directors,  as  3  e^  parte  Willcociis,  7   Cow.  (N. 

between  stockholders  of  a  parent  bank  y.)  402;  s.  c.    17  Am.   Dec.   525,    528. 

and  stockholders  of  a  branch  bank:  This  case  has  been  cited  in  subsequent 

State  V.  Thompson,  27  Mo.  305.   Num-  cases,  to  the  principle  that  a  corpora- 

ber  of  votes  possessed  by  the  Stale  as  tion    has    no    concern    with    private 

a  stockholder  in  a  particular  railway  agreements    between    holders    of  its 

company:  State  y.  New  Orleans  &c.  R.  stock  and  third  persons.     Matter  of 

Co.,  20  La.  An.  489.    Case  of  siichdif-  Long  Ishuid  R.  Co.,  19  Wend.  ("N.  Y.) 

Acuity  that  the  court  could  not  dociile  44;  Matter  of  Mohawk  &c.  R.  Co.,  Id. 

the  number  of  vole.y  possessed  by  the  140.     It  has   also  been   cited   to    the 

Slate,  but  remitted  it  to  the  legislature :  principle  that  the  pledgor  of  hypothe- 

Commonwealth  u.  Bank  of  Penusylva-  cated  stock  may  vole  tliereon.     New 

nia,  SWatls  &  S.  (Pa.)  173.     Compare  Yor^c  &c.  R.  Co.  v.  Schuyler,  38  Barb. 

Van  Dyke  v.  Stout,  8  N.  J.  Eq.  333.  (N.  Y.)  642,  per  Ingraham,  J. 


1  State  V.  Ferris,  42  Conn.  560. 


573 


1  Thomp.  Corp.  §  732.]     corporate  elections. 

been  transferred  on  the  books*  of  the  corporation  to  one  to  whom 
it  has  been  delivered  under  a  contract  of  pledge,  he  is,  prima 
faciey  entitled  to  vote  in  respect  of  the  shares,  and  after  he  has 
voted,  the  corporate  election  will  not  be  set  aside  because  of  his 
having  voted,  although  his  vote  determined  the  result.  The 
corporation  is  not  bound  to  inquire  into  the  circumstances  under 
which  he  holds  as  trustee,  but  if  those  circumstances  are  such 
that  the  pledgor  has  a  right  to  a  re-transfer,  he  may  enforce 
that  right  in  equity. ^  The  general  rule  is  that  the  right  to  vote 
remains  in  the  pledgor  or  mortgagor  until  the  pledge  or  mort- 
gage has  been  foreclosed;  and  while,  as  elsewhere  seen,^  the 
inspectors  of  the  election  cannot  inquire  into  the  equities  upon 
which  the  shares  are  held,  or  look  behind  what  appears  on  the 
face  of  the  transfer  books, —  yet  the  courts  can  ;  and  if  it  ap- 
pears to  them  that  a  pledgee  of  corporate  stock  has,  without 
authority  from  the  pledgor,  caused  it  to  be  registered  on  the  com- 
pany's books  in  his  name  as  trustee,  they  will  restrain  him  from 
voting  thereon.^  Nor  need  the  pledgor,  in  order  to  maintain  an 
action  to  restrain  such  voting,  show  that  his  rights  would  thereby 
be  injuriously  affected.* 


1  Hoppin  V.  Buffum,  9  R.  I.  513; 
s.  c.  11  Am.  Rep.  291.  See  also  Vowell 
V.  Thompson,  3  Cranch  C.  C.  (U.  S.) 
428.  To  illustrate:  M.,  the  pledgee 
of  stock  which  stood  on  the  books  as 
"M.  Trustee,"  had  repeatedly  voted 
in  respect  of  the  shares  without  ob- 
jection, and  voted  them  at  an  election 
of  directors  under  such  circumstances 
that  his  vote  determined  the  result. 
In  quo  warranto  against  the  ofBcers 
declared  elected,  it  was  held,  (1)  that 
M.  was  entitled  to  vote,  in  the  ab- 
sence of  any  claim  by  the  pledgors  to 
do  so;  (2)  that  after  the  election  it 
was  too  late  for  the  pledgors  to  ask 
the  court  to  disturb  the  result.  Hop- 
pin  V.  Buffum,  9  R.  I.  513;  s.  c.  11 
Am.  Rep.  291.  The  case  might  better 
have  been  put  upon  the  naked  ground 
that  those  in  whose  name  the  stock  is 
registered  are  the  only  ones  entitled 
to  vote,  and  that  if  the  register  is  not 
574 


correct  it  should  be  rectified  prior  to 
the  election.  Compare  State  v. 
Lehre,  7  Rich.  L.  (S.  C.)  234,  256. 
Scholfield  V.  Union  Bank,  2  Cranch 
0.  C.  115. 

2  Post,  §  748. 

3  McHenry  v.  Jewett,  26  Hun  (N. 
Y.),  453. 

*  Ibid.  The  owner  of  corporate 
shares  pledged  them.  The  pledgee, 
before  the  debt  became  due,  caused  a 
transfer  to  be  made  on  the  corporate 
books.  It  was  held,  that  the  pledgor 
was  entitled,  notwithstanding,  to  vote 
on  the  shares,  and  that  a  by-law  limit- 
ing the  right  of  voting  to  stockhold- 
ers, requiring  transfers  to  be  made  on 
the  corporate  books  only,  and  a  certi- 
fied transcript  as  evidence  of  the  right 
to  vote,  did  not  affect  the  case.  State 
V.  Smith,  15  Or.  98  (Lord,  C.  J.,  dis- 
senting) . 


RIGHT  TO  VOTE.     [1  Thomp.  Coip.  §  733. 

§  733.  Further  of  this  Subject.  —  Statutes  have  been  enacted 
in   some  jurisdictions  confirming   this   right.     Thus,    a   recent 
statute  of  Arizona  provides  that  persons  holding  shares  of  stock 
of  incorporated  companies  as  security  for  money  loaned  thereon, 
or  as  security  for  other  indebtedness,  shall  be  prohibited  from 
voting  at  any  election,  general,  or  special,  of   such  companies.^ 
It  has  been  held  that  the  pledgor  and  pledgee    may  arrange  by 
contract,  as  between  themselves,  which  one    shall  vote  in  respect 
of   the  shares. 2     But,    on  the  contrary,  it  has  been  held   that 
where  the  right  to  vote  at  corporate  elections  is,  by  the  govern- 
ing statute,  vested  in  the    stockholders,  one  to  whom  shares  of 
the  corporate  stock  has  been  by  the   corporation   transferred  in 
trust,  under  a  contract  of  pledge  for  a  third  person  who  has  ad- 
vanced money  to  the  corporation,  cannot   vote  at  corporate  elec- 
tions for  directors  in   respect  of  the  shares  so   held  in  pledge, 
although  it  is  provided  in   the    contract  of  pledge  that  he  shall 
have  the  right  to  do  so.     The  reason  is  plain;    the   governing 
statute  having  prescribed  who  shall  vote  at  corporate  elections, 
it  is  not  competent  for  the  corporation  to  make  a  different  rule,  ■ — 
otherwise  a  corporation  could  make  for  itself  a  new  charter,  or 
re-create  itself.^     And  again,  it  has  been  held  that  where  stock 
is  held  under  a  written  contract  with  the  corporation,  as  security 
for  advances  made  by  the  holders  of   it  to  the  corporation,  it  is 
not  competent  to  show  by  parol  evidence  that  there  was  a  verbal 
understanding  that  the  holders  of  it  were  to  have  the  privilege  of 
votin"-  in  respect  of  the  stock.*     It  has  been  held  that,  where  the 
legal  title,  and  with  it  the  right  to  vote,  is  in  the  pledgor,  and  the 
shares  stand  on  the  books  in  the  name  of  the  pledgee,  the  pledgor 
has  a  remedy  in  equity  against  the  pledgee  to  compel  him  to  re- 

i  Ariz.  Act  March   21,    1889;    Acts  from  this  principle,  that  the  pledgee 

1889  No.  50,  p.  76;  and  see  post,  §         .  is  a  shareholder  and  liable  to  crcdit- 

2  Ervin  v.  Philadelphia  &c.   R.  Co.  ors  as  such,  the  California  decision 
(C.  P.  Phila.),7Rail.  &  Corp.  L.  J.  87.  cannot  be  quoted  as  an  authority. 

3  Brew-ter  ■;;.  II;irlley,  37   Cal.  15; 

s.  c.  99  Am.  Dec.  237.    This  case  is  *  Griswold  v.  Seligman,  72  Mo.  110. 

cited  in  Griswold  v.  Seligraan,  72  Mo.  Compare  Union  Savings  Association 

122,  to  the  point  that  a  corporation  «.    Seligman,   92  Mo.  635;  Fisher  v. 

cannot  be  its  own    stockholder;  but  Seligman,  75  Mo.  13;   Bray  v.  Selig- 

in  respect  of  the  conclusion  which  the  man,  75  Mo.  40;  Ersliine  v.   Lowen- 

Supreme  Court  of  Missouri  deduced  stine,  82  Mo.  301. 

575 


1  Thomp.  Corp.  §  734.]     couroRATE  elections. 

transfer  the  shares  or  else  to  give  him  a  proxy  to  vote  in  respect 
of  them.^ 

§  734.  Right  to  Vote  in  Respect  of  Shares  Held  or  Owned  by 
the  Corporation  Itself. —  Corporations  have,  as  hereafter  seen,^ 
a  qualified  power  to  deal  in  their  own  shares,^  They  may  acquire 
them  from  defaulting  shareholders,  by  forfeiture  or  by  sale  to 
foreclose  their  lien  upon  them,*  —  as  in  the  case  of  banking  cor- 
porations that  have  a  lien  upon  them  for  a  general  balance  due.^ 
But  stock  thus  owned  or  held  by  the  corporation  cannot  be  voted 
at  corporate  elections,^  although  it  is  held  by  a  trustee  in  pledge, 
to  secure  a  debt  under  a  contract  which  allows  him  to  vote  it.'' 
The  reason  rises  to  the  dignity  of  a  rule  of  public  policy. 
It  will  not  be  permitted  to  a  company  to  procure  stock  which 
the  officers  may  wield  for  the  purposes  of  an  election. s 
As  the  right  to  vote  in  respect  of  stock  transferred  in  pledge 
ordinarily  remains  in  the  pledgor,^  for  stronger  reasons  it  so  re- 
mains where  the  pledge  has  been  made  to  the  corporation  itself.^" 


1  Vowell  V.  Thompson,  3  Cranch  C. 
C.  (U,  S.)  428.  The  right  of  a  pledgee 
to  vote  is  discussed  in  a  learned  note 
and  decisions  on  the  subject  collected 
in  19  Am.  &  Eug.  Corp.  Cas.  533  n. 

2  Post,  §  2054,  et  seq. 

3  Monsseaux  v.  Urquhart,  19  La. 
An.  482. 

*  Post,  §  2068. 

5  Post,  §  2320. 

«  McNeely  v.  Woodruff,  13  N.  J. 
L.  352;  Ex  parte  Holmes,  5  Cow.  (N. 
Y.)  435.  By  statute  in  Missouri  stock 
held  or  hypothecated  to  the  corpora- 
tion cannot  be  voted.  Rev.  Stat.  Mo. 
1889,  §  2487. 

'  So  held  under  the  California  stat- 
ute in  Brewster  v.  Hartley,  37  Cal. 
15;  s.  c.  99  Am.  Dec.  237;  Ex  parte 
Holmes,  5  Cow.  (N.Y.)426;  American 
Eailway  Frog  Co.  v.  Haven,  101 
Mass.  398;  s.  c.  3  Am.  Rep.  377,381; 
Union  Savings  Association  v.  Selig- 
man,  92  Mo.  635.  This  rule  does  not 
extend  to  a  case  where  the  stock  is 
held  m  trust  for  a  stockholder.  Ex 
parte  Barker,  6  Wend.  (N.  Y.)  509. 
.576 


8  Ex  parte  Holmes,  5  Cow.  (N.  Y.) 
435.  See  also  Ex  parte  Desdoity,  1 
Wend.  (N.  Y.)  98;  McNeely  v.  Wood- 
ruff, 13  N.  J.  L.  352.  An  agreement 
among  stockholders  of  a  railroad  com- 
pany, vesting  in  trustees  the  right  to 
vote  the  stock  at  all  meetings  of  the 
corporation,  has  been  held  void,  as 
contrary  to  public  policy,  and  as  sub- 
stantially amounting  to  a  repeal  of 
the  Pennsylvania  statute  in  regard  to 
the  right  to  vote  incident  to  the  own- 
ership of  railroad  stock.  Vanderbilt 
V.  Bennett,  6  Pa.  County  Ct.  193. 

9  Ante,  §  732. 

10  Where  the  question  was  whether 
certain  shares  could  be  voted  at  a  cor- 
porate election,  and  it  appeared  that 
there  was  a  by-law  of  the  corporation 
providing  that  when  a  director  was 
indebted  to  the  corporation,  eighty- 
five  per  cent  of  his  stock  should  be 
considered  as  hypothecated  and  held 
as  security,  and  not  transferred  till  the 
debt  was  paid ;  and  it  appeared  that 
some  450  shares  of  such  stock  were 
voted  on  at  an  election,  the  validity  of 


RIGHT  TO  VOTE.     [1  Thomp.  Corp.  §  736. 

The  rule  which  restrains  the  corporation,  through  its  officers, 
from  voting  in  respect  of  shares  held  by  it,  or  in  trust  for  it, 
has  been  held,  under  particular  circumstances,  to  apply  where 
the  corporate  funds  were  not  used  in  the  transactions  by  which 
the  shares  were  deposited  with  its  officers.-' 

§   735.  Right  of  Pledgor  to  Proxy  from  Pledgee.  —  It  has 

been  decided  that  a  pledgor  of  stock,  which  stands  on  the  books 
of  the  corporation  in  the  name  of  the  pledgee,  may,  by  a  suit  in 
equity,  compel  a  transfer  to  him,  or  oblige  the  pledgee  to  give 
him  a  proxy  to  vote.^  It  has  also  been  held  that  the  mortgagor 
of  stock  is,  until  foreclosure  and  sale,  entitled  to  vote  as  a  stock- 
holder, and  accordingly  a  decree  has  been  passed  requiring  the 
mortgagee  to  give  to  the  mortgagor  a  power  of  attorney  to  vote 
in  respect  of  the  stock  until  the  foreclosure  of  the  mortgage.^ 

§   736.  No  Right  to  Vote  by  Proxy  at  Common  Law.  —  At 

the  common  law  all  voting  at   every  election  is  required  to  be 


■which  was  in  controversy,  in  favor 
of  the  successful  ticket,  by  the  per- 
sons in  whose  names  it  stood,  —  it 
was  held  that  this  could  not  be  called 
hypothecated  stock;  that  hypotheca- 
tion is  conventional  and  implies  the 
power  of  rendering  the  subject  avail- 
able by  way  of  sale,  to  satisfy  the 
debt  on  default  of  payment;  and  that 
as  the  stock  stood  on  the  transfer 
books  in  the  names  of  the  voters, 
this  fact  was  conclusive  upon  the  in- 
spectors of  tlie  right  of  the  voters  to 
vote  in  respect  of  it.  Ex  parte  Will- 
cocks,  7  Cow.  (N.  Y.)  402;  s.  c.  17 
Am.  Dec.  525. 

1  WoodrufE  V.  Dubuque  &c.  R. 
Co.,  20  Fed.  Rep.  91.  Where  the 
charter  of  an  incorporated  company 
has  fixed  tlie  qualification  of  voters, 
by  declaring  that  each  share  of  stock 
shall  be  entitled  to  one  vote,  which  may 
be  cast  by  the  stockholder  in  person 
or  by  proxy,  any  vote  or  votes  cast  by 
a  party  at  any  election  of  the  corpora- 
tion without  the  qualification  named. 


is  null  and  void,  and  the  election  will 
be  declared  and  enforced  without 
counting  such  votes.  The  right  of 
voting  conferred  by  the  charter,  is 
not  to  be  tested  by  the  mere  owner- 
ship of  stock,  but  the  transfer  of  it 
must  be  patent  on  the  stock-book, 
and  where  the  stock  of  the  company 
stands  on  the  books  in  the  name  of 
an  individual,  as  president,  and  has 
not  been  transferred  by  him  on  the 
books  of  the  company,  he  has  no  right 
to  vote  on  it,  or  for  it,  at  any  election. 
Nor  can  stock  or  shares  standing  on 
the  books  of  the  company,  in  the 
name  of  the  corporation  itself,  be 
voted  for  by  one  of  its  oflScers. 
Monsseaux  v.  Urquhart,  19  La.  An. 
482. 

2  Iloppin  V.  Buffura,  9  R.  I.  513; 
Vowell  V.  Thompson,  3  Cranch  C.  Ct. 
428. 

3  Vowell  V.  Thompson,  3  Cranch  C. 
C.  428.  Compare  Amhurst  v.  Dawling, 
2  Vern.  401;  McKenzie  v.  R  binsou,  3 
Atk.  659;  Ivory  v.  Cox,  Pr.  Ch.  71. 

577 


1  Thomp.  Corp.  §  737.]     corporate  elections. 

done  i)i  propria  persona.  The  only  exception  to  this  rule  has 
been  in  the  case  of  the  peers  of  Enj^lund,  who  have  been,  by 
license  obtained  from  the  king,  allowed  to  make  other  lords  of 
parliament  their  proxies  to  vote  for  them  in  their  absence.^  It 
has  never  been  doubted  that,  in  all  elections  in  municipal  or 
other  public  corporations,  every  vote  must  be  personally  given ; '"* 
and,  in  the  absence  of  a  statute  or  valid  by-law  otherwise  pro- 
viding, the  same  rule  applies  in  the  case  of  elections  in  pri»rate 
corporations,  even  in  those  having  a  joint-stock.^ 

§  737.  Validity  of  a  By-law  which  Provides  for  Voting  by 
Proxy.  —  There  is  a  difference  of  opinion  among  the  American 
courts,  as  to  whether  a  by-law  of  a  private  corporation,  which 
authorizes  shareholders  to  vote  by  proxy,  is  valid,  in  the  absence 
of  an  express  statutory  authorization  for  the  passage  of  such  a 
by-law.  Those  courts  which  follow  the  analogy  of  the  common 
law  hold  that  such  a  by-law  is  invalid.*  But  other  courts  have 
taken  the  view  that  such  a  by-law  is  valid. ^  There  are  two 
reasons  in  support  of  the  rule  which  denies  the  right  to  vote 
by  proxy,  aside  from  the  analogy  of  the  common  law.  The 
first  is  founded  in  the  policy  of  requiring  the  personal  attend- 
ance of  the  shareholders,  in  order  that  each  may  have  the 
benefit  of  personal  consultations  with  the  others.  The  other  is 
founded  in  the  policy  of  preventing  voting  by  fraudulent  proxies. 

M  Bla.  Com.  168;  Ang.  &  A.  Corp.,  Int.  20    Pitts.    L.    J.    (n.    s.) 

§128.  378;    18  Atl.   Kep.    990.     Where     the 

2  2  Kent  Com.  294.  charter    of  a   corporation  authorized 

3  Phillips  V.  Wickham,  1  Paige  (N.  subscribers  to  vote   in  person  or  by 
Y.),  590.  proxy  for  directors  at  the  original  or- 

*  Taylor     v.   Griswold,   14    N.    J.  gauization  of  the  corporation,  and  em- 

L.)  222;  s.  c  27  Am.  Dec.  33;  People  powered  the  directors  "  to  adopt  such 

V.    Twaddell,    18  Hun    (N.  Y.),  427;  by-laws,  rules,  and  regulations    .     .     . 

Brown  u.  Com.,  3  Grant  Cas.  (Pa.)  209.  as  maybe  deemed  expedient  to   the 

A  charter  provision  that  "  each  per-  well-being  of  the  corporation;"  and  a 

son  being  present  at  an  election  "  shall  supplement  to  the   charter  provided 

be  entitled  to  vote,  means  an  actual  that  the  supplement  should  not  go  into 

and  not  a  constructive  presence.  Ibid.  effect  "  until  approved   by  a   majority 

5  State  U.Tudor,  5  Day  (Conn.),  of  the  stockholders  present,  or  repre- 

329;  s.  c.   5  Am.  Dec.  162;    Peoples.  sented  by  proxy,"  —  it  was  held  that  a 

Crossley,   69  111.   195;    Com,   v.  Det-  by-law  permitting  voting  by  proxy  was 

wilier,  131  Pa.  St.  614;  s.  c.  7  L.  R.  valid.     Wilson    v.  Am.     Academy    of 

A.  357;    47  Phila.   Leg.  Int.    144;    20  Music,  2  Pa.  County  Ct.  280. 
578 


RIGHT  TO  VOTE.     [1  Thomp.  Corp.  §  738. 

^Neither  has  proved  sufficient,  in  the  case  of  joint-stock  cor- 
porations, to  maintain  the  rule  which  exchides  the  use  of 
proxies.  A  view  has  been  taken  which  restrains  the  right  to 
vote  by  proxy  to  mere  routine  matters,  and  which  denies  it  in 
case  of  a  vote  for  a  fundamental  change  in  the  corporation,  or 
a  surrender  of  its* charter.^ 

§  738.  Statutes  conferring    the  Right  to  Vote  hy  Proxy.  — 

The  division  of  judicial  opinion  stated  in  the  preceding  section  has  ceased 
to  be  of  much  practical  importance,  in  view  of  the  fact  of  statutes  exist- 
ing in  nearly  all  the  States  and  territories  providing  that  stockholders 
in  private  corporations  may,  at  all  meetings  therefor,  vote  either  in  per- 
son or  by  proxy  appointed  in  writing.  2  Some  of  these  statutes  impose 
restrictions  upon  the  right.  Thus,  in  New  York,  the  right  is  granted 
"subject  to  the  provisions  of  the  act  of  incorporation."  ^  Another 
Btatute  of  the  same  State  enacts  that  ' '  no  member  of  any  mutual  fire 
insurance  company,  organized  under  the  laws  of  this  State,  shall  be  al- 
lowed to  vote  by  proxy  for  a  director  or  directors  of  any  such  com- 
pany." *  "  No  share  shall  confer  the  right  to  vote  which  shall  not  have 
been  holden  three  calendar  months  previous  to  the  day  of  the  election,  nor 
unless  it  be  holden  by  the  person  in  whose  name  it  appears,  absolutely 
and  bona  fide,  in  his  own  right  or  that  of  liis  wife,  or  as  executor  or  ad- 
ministrator, trustee  or  guardian,  or  in  the  right  of  some  corporation, 
copartnership  or  society  of  which  he  or  she  may  be  a  member,  and  not 
in  trust  for  any  other  person :  every  person  voting  except  females,  shall 
do  so  in  their  own  proper  person  and  not  by  proxy:  Provided,  that  this 
pro\asion  shall  not  prevent  any  guardian  of  minor  children,  or  any  bona 
fide  trustee  who  holds  stock  in  a  fiduciary  capacity,  from  voting  upon 

1  Smith  V.  Smith,  3  Desau.  (S.  C.)  §  806;  Gen.  Laws  N.  H.  1878,  p.  556, 
557.  §  21 ;  Kev.  Stat.  N.  J.  1877,  p.  181,  §  21 ; 

2  Rev.  Stat.  Ariz.  (1887),  §  300;  Comp.  Laws  N.  M.  1884,  §  196;  3  Rev. 
2  Civ.  Code  Cal.  1885,  §  312;  Gen.  Stat.  N.  Y.  (BanliS  &  Brothers'  8th 
Stat.   Col.,  §  242;     Gen.  Stat.    Conn,  ed.),  p.  1730,  §  6;   1  Rev.  Stat.  Ohio, 

1888,  §  1925;  Lawsof  Del.,  p.  376,  §  2;  §  3245;  Hill's  Laves  Ore.,  §  8223;  1 
Const.  111.,  art.  6,  §  3;  2  Rev.  Stat.  Brightly's  Purd.  Dig.  Pa.  St.,  p.  342, 
Ind.    1888,    §   3002;  Gen.    Stat.    Kan.  §  28;  Pub.  Stat.  R.  I.  1882,  p.  368,  §  3; 

1889,  I  1185;  Rev.  Stat.  Me.  1883,  p.  Code  Tenn.  1884,  §  1706;  Rev.  Laws 
401,  §  13;  Rev.  Code  Md.  1878,  p.  321;  Vt.  1880,  §3313;  CodeVa.  1887,  §1116; 
§  52;  Pub.  Stat.    Mass.  1882,   p.  565,  1  Rev.  Stat.  W.  Va.,  p.  316,  §  44. 

§  5;  1  How.  Mich.  Stat.  1882,  §  48G1;  3  3  j^gy.  gt^t.  N.  Y.  (Banks  &  Bros. 

Gen.  Stat.  Minn.  p.  450,    §  160;  Rev.      8th  ed.),  p.  1730,  §  6. 
Code  Miss.  1871,  p.  530,  §2406;  1  Rev.  1  2  Rev.    Stat.  N.  Y.  1875,    p.  668, 

St^t.  Mo.  1889,  §2484;  Gen.  Stat.  Nev.,       §  70. 

579 


1  Thomp.  Corp.  §  740.]     corporate  elections. 

such  stock  at  any  election."  ^  A  statute  of  New  Hampshix-e  provides 
that,  except  in  cases  of  railway  corporations,  "  no  stockholder  shall  act 
as  proxy  for  any  other  stockholder,  nor  shall  any  person  act  as  proxy 
for  more  than  one  stockholder,  or  vote  as  proxy  for  shares  exceeding 
one-eighth  of  the  whole  capital  stock. ^  No  proxy  shall  confer  the  right 
to  vote  at  more  than  one  meeting,  which  shall  be  named  therein. ' '  ^ 

§  739.  Further  of   the  Right  to  Vote  hy    Proxy.  —  If  the 

governing  statute  requires  stock  to  be  voted  in  the  name  stand- 
ing on  the  transfer  book,  either  in  person  or  by  proxy,  a  proxy 
from  such  person  must  be  produced,  although  he  is  the  cashier 
of  the  corporation,  and  a  proxy  from  his  successor  in  office  will 
not  be  sufficient.*  A  proxy  may  be  revoked,  even  though  given 
for  a  valuable  consideration,  where  it  is  about  to  be  used  for  a 
fraudulent  purpose;^  and  an  injunction  y^'iW  lie  to  restrain  the 
voting  by  proxy,  in  fraud  and  in  violation  of  the  charter  of  the 
corporation.^ 

§  740.  Right  to  Vote  how  Affected  by  By-laws.  —  As  hereaf- 
ter seen,^  by-laws  have  been  authorized  by  statute  in  some  States 
which  so  so  far  as  to  reo-ulate  the  right  to  vote  at  cornorate  elec- 
tions ;  but  it  is  scarcely  necessary  to  say  that  if  the  right  to  vote 
by  proxy  is  given  by  the  charter,  it  cannot  be  restrained  by  any 
by-laws  which  the  corporation  may  enact,  at  least  against  the 
dissent  of  the  stockholder  claiming  the  right.  Neither  can  such 
a  right,  when  given  by  the  charter  or  by  statute,  be  limited  by  a 
mere  resolution,  passed  by  the  members  at  the  meeting.^  When, 
therefore,  the  charter  provided  that  life  members  should  be 
entitled  "  to  vote  at  all  elections  for  officers  thereof  by  proxy," 
it  was  held  that  a  resolution  that  no  proxy  should  be  voted  on  at 
any  meeting  of  the  society  unless  showing,  within  itself,  that  it 
was  specifically  intended  to  be  used  at  such  meeting,  was  repug- 
nant to  the  charter   and  void,  as  an  attempt  to  limit  the  power 

1  Bright.  Purd.  Dig.  Pa.  Stat.,  p.  ^  Reed  v.  Bank  of  Newburgh,  C 
162,  §  32.  Paige  (N.  Y.),  337. 

2  Gen.  Laws  N.  II.  (1878),  p.  356,  ^  Campbell  v.  Poultney,  6  Gill  &  J. 
§  21.  (Md.)  94;  s.  c.  26  Am.  Dec.  559. 

3  Gen.  Laws   N.  H.    1878,   p.    356,  ^  Post,  §§1050,  1052. 

§  22.  *  Re  Lighthall   Man.  Co.,  47   Hun 

4  Re  Mohawk  &c.  R.  Co.,  19  VTend.       (N.  Y.),  258. 
(N.  Y.)  135. 

580 


RIGHT  TO  VOTE.     [1  Tliomp.  Coip.  §  742. 

given  by  the  member  to  his  proxy  .^  A  regulation  of  a  corporation 
that  stockholders  shall  have  one  vote  for  each  share  held  by  them 
up  to  ten  shares,  and  fixing  the  proportion  which  his  votes  shall 
bear  to  his  shares  above  that  number,  is  a  reasonable  regulation, 
uniform  in  its  operation,  conflicts  with  no  law,  and  is  binding  on 
all  the  shareholders.^ 

§  741.  Injunction  to  Restrain  Fraudulent  or  Ultra  Vires 
Voting. —  An  injunction  will  be  granted  to  restrain  the  voting 
of  stock  of  a  corporation  in  violation  of  its  charter.'  Such  an 
injunction  was  allowed,  where  it  appeared  that  certain  shares 
were  transferred  without  consideration  to  divers  persons,  and 
that  powers  of  attorney  were  taken  back  by  the  real  owners,  to 
enable  them  to  cast  a  greater  number  of  votes  than  the  charter 
would  allow  to  the  single  holder  of  the  shares.^  The  bill  was 
not  faulty  for  not  joining  the  corporation  by  name  as  a  party, 
and  also  the  transferees  of  the  shares,  it  having  alleged  that 
they  were  unknown.^  But  an  injunction  will  not  be  granted  in 
one  State  to  restrain  ofiicers  of  a  corporation  from  voting  upon 
proxies  of  the  stockholders  at  an  approaching  meeting  2?i  another 
State,  upon  an  allegation  that  the  statutes  thereof  do  not  pro- 
vide for  voting  by  proxy .^  Nor  will  an  injunction  be  granted 
at  the  suit  of  one  who  is  a  stockholder  in  two  corporations,  to 
enjoin  the  owner  of  a  controlling  interest  in  one  of  the  corpora- 
tions from  voting  at  a  stockholders'  meeting  therein,  in  favor  of 
the  proposition  that  such  corporation  shall  engage  in  a  certain 
business,  on  the  ground  that,  engaging  in  such  business  would  be 
an  illegal  interference  with  the  rights  of  the  other  corporation.' 

§  742.  Statutory  Provisions  as  to  who  Entitled  to  Vote.  — 

The  statutes  which  speak  upon  the  question  almost  universally  pre- 
scribe that  shareholders  in  whose  names  shares  are  standing  upon  the 

1  Matter  of  White  V.  N.  Y.  Agricul-       (Md.)  94;  Webb   v.  Ridgely,    38  Md. 
tural  Soc,  45  Hun,  580;  s.  c.  10  N.  Y.      3G5;  Busey  v.  Hooper,  35  Md.  27. 

St.  Rep.  594.  *  Campbell  v.  Poultney,  supra. 

2  Com.  V.  Detwiller,  131  Pa.  St.  614;  ^  Ibid. 

s.   c.    7   L.   R.   A.    357;    25   W.  N.  C.  «  Woodruff    v.    Dubuque    &  Sioux 

329;  47  Piiila.  Leg.  Int.  144;  20  Pitts.  City  R.  Co.,  30  Fed.  Rep.  91. 

L.  J.  (n.  s.)  378;   18  At).  Rep.  990.  ">  Converse  v.  Hood.  149  Mass.  471; 

3  Campbell  v.  Poultney,  G  Gill  &  J.  s.  c.  21  Northeast.  Rep.  878. 

581 


1  Thomp.  Corp.  §  7i2.]     corporate  elections. 

corporate  books,  are  entitled  to  vote.^  In  Colorado,  corporate  elections 
are  by  ballot,  each  person  being  entitled  to  as  many  votes  as  he  has 
stock.-  In  the  same  State,  no  member  of  a  hariking  company  is  entitled 
to  vote,  while  his  paper  held  by  the  bank  or  liabilities  to  it  are  due  and 
unpaid. 3  In  Kentucky,  each  stockholder  is  entitled  to  vote  only  in  pro- 
portion to  the  amount  paid  on  his  subscribed  stock. ^  In  Oregon,  each 
stockholder  present  in  person  or  by  written  proxy,  shall  have  one  vote 
for  each  share  subscribed  by  him  ;  but  after  the  first  meeting  no  vote  can 
be  cast  on  unpaid  stock. ^  In  Wisconsin,  in  elections  of  directors  by 
railroad  companies,  each  stockholder  is  entitled  to  a  vote,  in  person  or 
by  proxy,  for  every  share  of  stock  owned  by  him,  for  thirty  c?a?/s  preced- 
ing the  election.  A  majority  of  the  stockholders  may  compel  the  pro- 
duction of  books  and  papers  to  determine  the  qualifications  of  members 
and  candidates.^  In  Michigan,  each  stockholder  is  entitled  to  cast,  in 
person  or  by  proxy,  one  vote  on  each  share  of  stock  owned  or  held  by 
him  ten  days  before  election  and  a  majority  of  the  votes  cast  are  requi- 
site to  an  election,  or  for  the  determination  of  any  question  voted 
upon.'''  In  Wisconsin,  every  stockholder  is  entitled  to  one  vote  for  each 
share  of  his  stock  at  stockholders'  meetings,  and  on  election  of  direct- 
ors, and  votes  in  person  or  by  proxy  (if  so  provided  by  company's  by- 
laws) ;  and  guardians,  executors,  etc.,  may  vote  shares  held  by  them.^ 
In  Missouri,  if  the  right  of  a  shareholder  to  vote  is  questioned,  the  in- 
spectors should  require  the  transfer  books  of  the  corporation  as  evi- 
dence of  the  stock  held  in  it,  and  stock  that  has  stood  on  those  books  in 
the  name  of  a  person  for  thirty  days  may  be  voted  directly  by  such  person, 
or  by  his  proxy.  Executors,  guardians,  trustees  and  pledgors,  may  vote 
upon  stock  held  by  them  or  in  their  name.^  In  mining  companies  in 
Colorado,  corporate  elections  are  by  ballot,  each  shareholder  casting  a 
number  of  votes  equal  to  his  number  of  shares,  and  a  majority  of  votes 
cast  elects.^"  In  the  same  State,  shareholders  vote  in  person  or  by  proxy, 
each  voter  casting  one  vote  for  each  share  owned  by  him  for  the  adoption 
of  a  change  of  name,  place  of  business,  number  of  directors,  amount 
of  capital  stock,  consoKdation  with  another  company  —  two-thirds  of  all 
the  stock  being  necessary  to  such  adoption.  ^^  In  California,  each  per- 
son acting  in  person  or  by  proxy,  must  be  a  member  or  bona  fide  stock- 

1  3  Rev.  Stat.  N.   Y.  1889  (Banks  &  '  How.  Mich.  Stat.  1882,  §  3315. 
Bros.  8th  ed.),  p.  1730,  §  6.  «  Rev.  Stat.  Wis.  1878,  §  1760. 

2  Gen.  Stat.   Colo.  1883,   chap.  19,  »  Rev.  Stat.  Mo.  1889,  §  2494. 

§  6.  1"  Gen.  Stat.   Colo.  1883,   chap.  19, 

^  Ibid.,  I,  37.  §  86. 

4  Gen.  Stat.  Ky.  1887,  p.  7G9,  §  2.              »'  Gen.    Stat.    Colo.    1883,    ch.     19, 

5  Hill  Laws  Ore.,  §  22.33.  §§  H  1,   1 12. 

6  Rev.  Stat.  Wis.  1878,  §  1822. 

582 


EIGHT  TO  VOTE,     [1  Thomp.  Corp.  §  743. 

holder,  having  stock  in  his  name,  at  least  ten  days  before  the  election. ^ 
In  Nebraska,  after  the  first  election,  no  person  may  vote  on  unpaid 
shares,  or  upon  shares  on  which  installments  are  due.^  In  Arkansas, 
in  railroad  companies,  a  majority  by  ballot,  in  person  or  by  proxy,  shall 
choose  directors,  and  each  stockholder  shall  give  one  vote  for  each  share 
of  his  stock  which  he  has  owned  30  days.-* 

§  743.  Non-Residents  and  Aliens.  — In  Pennsylvania,  a  non- 
resident stockholder  may  vote  in  respect  of  his  shares,  and,  where 
no  other  qualification  for  a  director  is  prescribed  by  the  govern- 
ing statute  or  by-laws  than  ownership  of  stock,  he  may  become 
a  director,*  An  executor,  to  whom  letters  of  administration  have 
been  granted  at  the  testator's  domicile  in  another  State,  is  a 
stockholder  within  the  meaning  of  a  statute  of  New  Jersey ;  ^ 
and  on  producing  before  the  inspectors  of  a  corporate  election 
an  exemplified  copy  of  his  letters,  he  is  entitled,  by  the  princi- 
ples of  comity,  to  vote  in  respect  of  the  stock  standing  on  the 
company's  book  in  the  name  of  his  testator.^  An  alien  domi- 
ciled and  holding  property  in  Pennsylvania  can  vote  as  a  stock- 
holder and  serve  as  a  director  in  corporations  created  by  the 
laws  of  that  State. ^  But  an  alien  stockholder  cannot  vote  by 
proxy  where,  by  the  terms  of  the  act  of  incorporation,  the  right 
so  to  vote  is  given  to  citizen  stockholders.** 


to' 


1  Deer.CodeCal.,part2,  §312.  <  Detwiller  v.  Com.,  131  Pa.  St.  6U; 

2  Comp.  Stat.  Neb.  1887,  chap.  16,  s.   c.    7  L.    R.  A.   357;    25  W.  N.  C. 
§  80.  329 ;  47  Phila.  Leg.  Int.  144 ;  20  Pitts. 

3  Ark.  Dig.  Stat.  1884,  §  5425.     An  L.  J.  (n.  s.)  378. 
executory   agreement  to  sell  and  de-  *  Rev.  Stat.  N.  J.  184,  §39. 

liver  to  a  railroad  corporation  reor-  ^  Re  Cape  May  &c.  Co.  (N.  J.),  16 

ganized  under  Swan  &  S.  (Ohio)  Stat.  Atl.  Rep.  191. 

127,  bonds  of  the  original  corporation,  '  Com.  v.  Hemingway,  131  Pa.  St. 

to  be   assumed  by  the  new  one,  does  614;  s.  c.  7  L.  R.  A.  360;  25  W.  N.  C. 

not,  without  the  ratification  of  the  di-  337;  18  Atl.  Rep.  992. 

rectors  and  stockholders,  divest  tlie  *  Re    Barker,     6     Wend.    (N.    Y.) 

holder's  title,  or  his  voting  privilege,  509. 

by  virtue  thereof.     State  v.  McDaniel, 

22  Ohio  Stat.  354. 

583 


1  Thomp.  Corp.  §  745.]     corporate  elections. 


Article  IV.     Conduct  of  the  Election. 

Section  Section 

745.  Appointment  of  inspectors.  752.  Votes   for  ineligible    candidates 

746.  Statutory   provisions    as   to   the  thrown  away. 

appointment  of  inspectors.  753,   Cumulative  voting. 

747.  Instances  of  an  election  void  be-       754.  Constitutional  provisions   as   to 

cause      inspectors       illegally  cumulative  voting, 

appointed.  755.  Statutory  provisions  as  to  cumu- 

748.  Their  duties  in  conducting  the  lative  voting. 

election.  756.  Judicial  decisions  on  the    sub- 

749.  Cannot  pass  upon  the  validity  of  jtct  of  cumulative  voting. 

proxies.  757.  Certificate  of  election. 

750.  Irregular  ballots.  758.  Statutory  provisions  as   to  con- 

751.  The  count.  duct  of  elections. 

§  745.  Appointment  of  Inspectors.  —  Statutes  exist  in  many 
States  providing  for  the  manner  in  which  corporate  elections 
shall  be  conducted.  W^here  these  exist,  their  provisions  must 
be  carefully  attended  to.  Where  there  are  no  such  statutes,  the 
subject  may  undoubtedly  be  regulated  by  the  corporation  by 
by-laws,  the  same  not  being  unreasonable  or  contrary  to  law;  ^ 
and  many  statutes,  as  already  seen,  remit  the  whole  subject  of 
corporate  elections  to  the  regulation  of  by-laws. ^  Decisions 
upon  such  statutes  are  occasionally  met  with.  A  statute  of  New 
York  relating  to  moneyed  corporations  requires  the  election  of 
three  inspectors  of  election,  by  the  persons  entitled  to  vote  for 
directors,  to  act  at  the  next  election,  any  two  of  whom  are  com- 
petent to  act,  and  also  authorizes  the  directors  to  supply  vacan- 
cies among  the  inspectors,  caused  by  death,  removal  of  residence, 
failure  to  serve  or  to  attend,  etc.^  Under  this  statute  it  has  been 
held  sufficient  if  two  inspectors  act,  whether  of  the  class  origi- 
nally elected  or  of  substitutes  lawfully  appointed.*  Another 
statute  of  New  York,  relating  to  religious  corporations,  provides 
that,  on  the  day  of  the  election  of  trustees,  two  of  the  elders  or 
church  wardens  shall  be  chosen  to  preside  as  inspectors  of  election, 
and  that,  if  there  be  no  such  officers,  then  two  members  of  the 

»  Fost,   §1050;    Com.  v.  Detwiller,  2  ^„^e,  §722;  post,  §§ 

131  Pa.  St.  614;    s.  c.  7  L.  R.  A.  357',  3  2  Rev.  Stat.  N.  Y.  (Banks  &  Bros. 

«.  c.  25  W.  N.  C.  329;    47  Phila.  Leg.  8th  ed.),  p.  1556,  §§  195,  196. 
Int.   144;    20  Pitts.  L.  J.  (n.  s.)378;  ^  Ke   Excelsior  Fire     Ins.    Co.,  Ifr 

18  Atl.  Rep.  990.  Abb.  Pr.  (N.  Y.)  8. 
584 


CONDUCT    OF    THE    ELECTION.        [1  Thoiup.   Corp.    §   746. 

church,  to  be  nominated  by  a  majority  present,  shall  preside  at 
such  election.  With  this  statute  in  force,  it  has  been  held  that 
inspectors  appointed  by  the  pastor,  not  being  elders  of  the  church, 
at  a  meeting  at  which  there  were  elders  present  who  might  be 
appointed,  was  such  a  violation  of  the  statute  as  rendered  the 
election  of  no  validity.^  By  a  statute  of  Ohio^  the  right  to  choose 
inspectors  of  elections  is  vested  in  the  stockholders,  and  not  in 
the  directors. 3  But  where,  as  in  New  York,  the  appointment  is 
vested  in  certain  officers,  and  an  emergency  arises  from  the  fact 
that  the  offices  are  vacated  whose  officers  are  vested  with  the 
power,  it  has  been  held  competent  for  the  corporators  themselves 
to  exercise  the  power  of  election,  and  provide  for  the  appoint- 
ment of  inspectors  for  that  purpose.*  Bwt  i\iQ  president  of  the 
corporation  has  no  power  to  assume  the  office  of  inspector,  and 
to  pass  upon  the  right  of  a  member  to  vote  in  respect  of  a  proxy, 
unless  tlie  charter  or  by-laws  give  him  such  power,  — though  the 
member,  hj  acquiescing ,  may  estop  himself  from  claiming  that  he 
was  thereby  deprived  of  the  right  to  vote.^  The  fact  that  a 
shareholder  is  a  candidate  for  the  office  of  director  has  been 
held  not  to  disqualify  him  from  acting  as  an  inspector  at  an 
election.^  But  when  the  inspectors  who  acted  at  a  corporate 
election  were  selected  at  a  meeting  at  which  only  the  president 
of  the  corporation  and  a  director  were  present,  who  appointed 
themselves  and  another  director  such  inspectors,  and  the  full 
board  was  composed  of  nine  directors,  it  was  held  that  the  elec- 
tion was  void.''  An  election,  otherwise  valid,  will  not  be  set 
aside  on  the  ground  that  the  inspectors  were  not  sivorn  in  the 
form  prescribed  by  the  statute;  ^  or  because  the  oath,  actually 
administered  to  the  inspectors,  was  not  subscribed  by  them.'' 

§  746.  Statutory    Provisions     as    to    Appointment    of    In- 
spectors. —  By  statute  in  Missouri,  corporatious  with  ten  or  less  resi- 

i  People  V.  Peck,  11  Wend.  (N.  Y.)  •=  Ex  parte   Willcocks,  7  Cow.    (N. 

604;  s.  c.  27  Am.  Dec.  104;  more  fully  Y.)  402;  s.  c.  17  Am.  Dec.  525. 
stated,  post  §  747.  ''  Ex  parte  Willcocks,  7  Cow.    (N. 

2  Rev.  Stat.  Ohio,  §  324.W.  Y.)  402;  s.  c.  17  Am.  Dec.  625. 

s  State  V.  Merchant,  37   Ohio    St.  »  Chenango  &c.  lus.  Co.,  19  Wend. 

251.  (N.  Y.)  635. 

*  Matter  of  Wheeler,  2  Abb.  Pr.  (n.  »  Matter  of  Wheeler,  2  Abb.  Pr.  (N. 

8.)  (N.  Y.)  361.  s.)  (N.Y.)361. 


5  State  V.  Chute,  34  Minn.  135. 


585 


1  Thomp.  Corp.  §  747.]     couporate  elections. 

dent  stockholders,  ina_y,  by  by-laioti,  regulate  the  appointment,  number 
and  qualifications  of  inspectors  of  corporate  elections.^  By  the  statute 
of  Oregon,  the  president  of  the  corporation  is  the  inspector  and  certifies 
who  are  elected  as  directors. ^  By  the  statute  of  Missouri,  if  the  ob- 
ject of  a  corporate  meeting  be  to  elect  directors  or  to  take  the  vote  of 
the  stockholders  on  any  proposition,  the  j^Tesident  shall  appoint  not  less 
than  two  shareholders,  who  are  not  directors,  as  inspectors,  who  shall 
receive  and  canvass  the  votes  cast  at  the  meeting  and  certify  to  him  the 
result.^  B}^  the  statute  of  Nebraska,  relating  to  the  first  election  held 
by  railroad  companies,  the  persons  named  in  the  certificate  of  incorpo- 
ration, or  such  of  them  as  shall  be  present,  shall  be  inspectors  of  the 
election.*  By  the  statute  of  New  York,  at  a  special  election  called  in 
default  of  a  regular  election  to  elect  directors,  the  stockholders  shall 
elect  two  or  more  inspectors  of  the  election.^  By  the  statute  of  Oregon, 
relating  to  the  first  meetings  of  the  stockholders  of  any  private  corpora- 
tion, the  incorporators  present  at  the  meeting  shall  be  inspectors  of  the 
election,  and  shall  certify  who  are  elected  directors.^  By  the  statute  o^ 
Wisconsin,  relating  to  elections  for  directors  of  railroad  companies,  the 
inspectors  shall  be  appointed  in  the  mode  pointed  out  by  the  by-laws ;'' 
and  the  directors  are  elected  at  the  time,  in  the  manner,  and  for  the 
term  fixed  by  the  by-laws.^  By  a  statute  of  Ohio,  within  15  days  be- 
fore meeting  for  election  of  directors,  or  determining  any  question  by 
the  stockholders,  or  by  subscribers  to  stock,  or  stockholders  and  credit- 
ors of  corporation  for  organization,  any  one  entitled  to  vote  at  said 
meeting  owning  one-tenth  interest  in  corporate  stock  may  apply  to  a 
court  of  common  pleas,  or  if  the  court  is  not  in  session  to  any  judge 
thereof,  or  if  the  judge  is  absent  or  under  disability  to  probate 
court  of  county  in  which  the  meeting  is  to  be  held,  for  the  appoint- 
ment of  inspectors  of  such  election.  But  notice  must  be  served  on 
corporation,  and  court  may  require  newspaper  publication.^  If  court 
deems  such  appointment  proper,  it  shall  appoint  three  disinterested  per- 
sons as  inspectors,  retaining  the  right  to  vacate  one  or  all  such  appoint- 
ments and  supply  them  with  others.  If  any  inspector  fails  to  come,  his 
vacancy  may  be  supplied  by  the  stockholders.  ^°  By  a  statute  of  Ar- 
kansas, relating  to  the  first  election  of  directors  of  a  railroad  company, 
the  commissioners  for  opening  books  of  subscription  named  in  the  articles 

1  1  Rev.  Stat.  Mo.  1889,  §  2484.  «  Hill  Laws  Ore.,  §  3223. 

2  Hil!  Laws  Ore.,  §  3227.  '  Rev.  Stat.  Wis.  1878,  §  1822. 

3  1  Rev.  Stat.  Mo.  1889,  §  2484.  «  Ihid. 

*  Comp.  Stat.  Neb.  1887,  chap.  16,  »  Rev.     Stat.     Ohio     (Giauque"),    § 

§  80.  3245a. 

5  3  Rev.  Stat.  N.  Y.  1889  (Banks  &  ^  Rev.  Stat.   (Giauque),  §  32456. 

Bros,  ed.),  p.  1726,  §  3. 
58(5 


CONDUCT  OF  THE  ELECTION.     [1  Thomp.  Corp.  §  747. 

of  association  shall  be  inspectors  of  the  election. i  By  statute  in  New 
York  and  Missouri,  inspectors  must  take  and  subscribe  the  following 
oath :  "  I  do  solemnly  swear  that  I  will  execute  the  duties  of  inspector 
of  the  election  now  to  be  held  with  strict  impartiality  and  according  to 
the  best  of  my  ability."  ^ 

§  747.  Instance   of   an  Election  Void   because   Inspectors 
Illegally  Appointed.  — The  third  section  of  the  statute  of  New  York, 
for  the  incorporation  of  religious  societies,  proxides  that  on  the  day  of 
the  election  of  trustees  two  of  the  elders  or  clmrch  wardens  shall  be 
chosen  to  proceed  as  inspectors  of  the  election ;  and  if  there  are  no  such 
officers,  then  two  of  the  members  of  the  church,  to  be  nominated  by  a 
majority  present,  shall  preside  at  such  election.     In  a  case  under  this 
statute  it  appeared  that  the  church  was  di\aded  into  two  factions,  one 
of  which  was  attached  to  the  clergyman  and  the  other  to  a  member 
uamed  Knapp,  who  acted  in  opposition  to  the  clergyman.     The  Knapp 
faction  worshiped  elsewhere  from  the  regular  meeting-house,  but  were 
entitled  to  attend  and  participate  in  the  election  of  trustees.     Such  an 
election  took  place  under  the  following  circumstances :    The  pastor  had 
assembled  the  congregation  for  the  purpose  of  delivering  an  address  to 
the  scholars  of  the  Sunday-school.     Immediately  after  the  conclusion  of 
the  address,  and  before  leaving  the  pulpit„he  announced  that  the  time 
had  arrived  for  the  election  of  trustees,  and  he  immediately  nominated 
two  members  of  the  church,  lolio  loere  not  elders,  to  preside  as  inspect- 
ors.    A   number  of   the  opposing  faction,  who  had  remained  outside 
the  church,  not  expecting  that  such  a  coup  d'etat  as  this  would  take 
place,  crowded  into  the  church  and  objected  to  these  persons  acting  as 
inspectors,  on  the  ground  that  they  were  not  elders.     Whilst  the  ques- 
tion was  under  discussion,  the  pastor  proposed  that  certain  resolutions 
should  be  read,  which  had  been  passed  by  the  church  on  the  morning 
of  that  day,  containing  censures  of  certain  members,  and  designating 
those  who  had  a  right  to  vote.     The  question  was  put,  and  the  reading 
of  the  resolutions  was  ordered  by  a  majority  of  the  meeting,  and  one  of 
the  inspectors  commenced  reading   them.     Thereupon   a   disturbance 
arose,  in  the  midst  of  which  Mr.  Knapp,  the  leader  of  the  opposing 
faction,  who  was  a  trustee  of  the  church,  nominated  two  deacons  of  the 
-church  (who  it  seems  from  the  opinion  of  the  court,  were  elders),  as 
inspectors  of  the  election,  and  put  the  motion  to  vote.     It  was  carried 
by  a  number  of  voices,  and  not  dissented  to  by  any.     Then  there  was  a 
scramble  for  the  ballot  box.     The  faction  attached  to  Mr.  Knapp  suc- 

1  Ark.  Dig.  Stat.  1884,  §  5427.  ^  Kev.  Stat.  Mo.  1889,  §  2485;  2  Rev. 

Stat.  N.  Y.  1882,  p.  1536,  §  6. 
587 


1  Thomp.  Corp.  §  74:8.]     corporate  elections. 

ceeded  in  obtaining  it.  They  held  their  election  immediately  in  one 
part  of  the  church,  while  the  faction  attached  to  the  pastor  held  their 
election  in  another  part.  Thus  there  were  two  elections  held,  which 
resulted  in  the  election  of  two  sets  of  trustees.  The  inspectors  of  the 
faction  adhering  to  Mr.  Knapp  issued  certificates  of  the  election  to  those 
who  had  been  chosen  at  the  election  held  by  them,  and,  for  some  reason 
not  disclosed,  they  issued  new  certificates  six  months  later.  On  an  in- 
formation in  the  nature  of  a  quo  ivarranto  brought,  on  the  relation  of 
those  who  had  been  chosen  trustees  by  the  faction  adhering  to  the  pastor, 
there  was  a  verdict  and  judgment  in  favor  of  the  defendants.  It  was 
held  that  the  verdict  was  well  supported  by  the  evidence,  and  that  the 
judgment  was  according  to  law.  The  conduct  of  the  pastor,  in  proceed- 
ing in  the  manner  in  which  he  did,  was  censured  by  the  court;  and  it 
was  held  that  the  inspectors  appointed  by  him,  not  being  elders  of  the 
chm'ch  and  there  being  elders  present  who  might  be  appointed,  their 
appointment  was  in  \iolation  of  the  statutes  and  illegal,  and  that  the 
pretended  election  held  by  them  was  of  no  validity.  It  was  further 
held  that  the  election  held  by  the  opposing  party  under  inspectors  who 
had  been  chosen  by  those  present  without  any  dissenting  voices,  which 
inspectors  were  quahfied  to  act  under  the  statute,  was  legal  and  valid, 
and  hence  that  the  trustees  chosen  by  them  were  entitled  to  their  offices. ^ 

§  748.  Their  Duties  in  Conducting  the   Election. —  If  the 

charter  or  governing  statute  prescribes  the  mode  of  conducting 
the  election,  that  must  be  followed;  if  not,  then  the  mode  pre- 
scribed by  the  by-laws,  if  there  are  such  and  if  they  are  valid, 
must  of  course  be  pursued;  but  an  election  which  conforms 
neither  to  the  charter  nor  to  the  by-laws  may  be  held  void.^  In 
the  absence  of  a  statute,^  it  seems  that  the  duties  of  the  inspect- 

1  People  V.  Peck,  11  Wend.  (N.  Y.)  that  the  election  was  void,  because  it 
604;  s.  c.  27  Am.  Dec.  104.  pursued  neither  the  charter  nor  the 

2  Thus,  where  there  was  a  charter  by-law.  "It  is  not  under  the  char- 
provision  requiring  the  mayor  of  the  ter,  for  that  says  it  must  be  out  of  the 
borough  to  be  choseu  out  of  the  capi-  capital  burgesses  at  large,  and  here 
tal  burgesses,  twenty-four  in  number,  they  confined  themselves  to  eight;  nor 
and  there  was  also  a  custom  founded  is  it  according  to  the  usage  (founded 
on  a  by-law,  by  which  the  burgesses  on  the  by-law),  because  more  than 
at  large  first  named  five  burgesses  out  five  were  nominated ;  which  brings  in 
of  the  whole  numbei-,  and  from  this  all  the  confusion  that  was  designed 
five  the  mayor  was  elected;  and  in-  to  be  avoided  by  that  provision.", 
stiad  of  pursuing  this  mode,  the  bur-  Barber  v.  Boulton,  1  Strange,  314. 
gesses  at  large  nominated  eight  of  3  gy  a  recent  statute  of  Pennsyl- 
their  number,  out  of  which  number  vania,  "  the  certificate  of  stock  and 
the  mayor  was  elected, —  it  was  held  transfer  books,   or  either,  of  any  cor- 

588 


CONDUCT    OF    THE    ELECTION.        [1  TllOmi).  Coi'p.    §  749. 

ors  are  ministerial  merely,  and  that,  in  case  the  right  of  a 
member  to  vote  is  challenged,  they  must  determine  the  right  by 
what  appears  on  the  transfer  books  of  the  company,  and  cannot 
look  beyond  them,i  qj.  inquire  into  the  equities  on  which  the 
stock  is  held,2  or  require  the  corporator  to  prove  his  rigid  to 
vote  by  his  oath,  as  in  the  case  of  a  public  election,  when  such 
right  is  challenged. 2  Under  the  statutes  of  New  York,  in  the 
case  of  an  election  in  a  religious  corporation,  after  the  ballots 
have  been  received  by  the  inspectors,  without  challenge  or  ob- 
jection, their  right  to  inquire  into  the  character  of  the  voter 
ceases.  The  only  duty  which  remains  for  them  to  perform  is  to 
count  the  ballots,  and  return  the  number  of  votes  received,  and 
the  names  of  those  having  the  greatest  number.* 

§  749.  Cannot  Pass  upon  Validity  of  Proxies. —  The  in- 
spectors of  election  have  no  power  to  try  and  determine  the  gen- 
uineness of  the  proxies  offered  by  the  membeis  present ;  but  if 
a  proxy  is  apparently  the  act  of  a  stockholder,  and  regular  on 
its  face,  they  must  admit   the  right  to  vote  in   respect  of  it.s 


poration  .  .  .  shall  be  prima  facie 
evidence  of  the  right  to  vote  thereon, 
by  the  person  named  therein  as  the 
ov?ner,  either  personally  or  by  proxy." 
But,  on  objection  by  a  stockholder, 
that  the  stock  is  not  owned  absolutely 
and  bona  fide  by  such  person,  the 
judges  of  election  shall  inquire  into 
and  determine  the  question  summarily, 
and  if  found  to  be  not  so  owned,  his 
votes  shall  be  rejected;  and  in  such  a 
case  the  beneficial  owner  thereof  shall 
be  entitled  to  vote.  Penn.  Act  May  7, 
1889;  Pub.  Laws  Penn.  1889,  No.  108, 
p.  102. 

1  Matter  of  Long  Island  Railroad, 
19  Wend.  (N.  Y.)  37. 

2  People  V.  Kip,  4  Cow.  (N.  Y.)  382, 
note. 

3  People  V.  Tibbetts,  4  Cow.  (N.  Y.) 
358;  People  v.  Kip,  4  Cow.  (N.  Y.) 
382,  note.  The  act  of  incorporation 
of  a  bank  provided  "  that  each  stock- 
holder shall  be  entitled  to  one  vote  for 
each  share  of  the  st»ck  of  the  bank, 


which  he  shall  have  held  in  his  own 
name  at  least  fourteen  days  previous 
to  the  time  of  voting."  It  was  held, 
under  this  statute,  that  the  inspectors 
of  an  election  of  the  corporation  had 
no  right  to  inquire  beyond  the  legal 
ownership  of  the  stock  for  the  length 
of  days  prior  to  the  election  men- 
tioned; that  it  was  not  competent  for 
them  to  pass  a  by-law  under  which  the 
inspectors  of  the  election  might  in- 
quire upon  the  oath  of  persons  offer- 
ing to  vote,  into  the  equities  upon 
which  they  held  the  shares  of  stock  in 
respect  of  which  they  tendered  their 
votes.  People  v.  Kip,  4  Cow.  (N.  Y.) 
382,  384,  note. 

<  People  V.  White,  11  Abb.  Pr.  (N. 
Y.)  1G8;  Hart  v.  Harvey,  32  Barb. 
(N.  Y.)  55;  s.  c.  10  Ab.  Pr.  CN.  Y.) 
321;   19  How.  Pr.  (N.  Y.)  245. 

5  Re  Cecil,  3G  How.  Pr.  (N.  Y.)  477. 
Thus  in  an  election  of  officers  of  a  cor- 
poration, one  stockholder  claimed  to 
represent  another  as  proxy,  and 
589 


1  Thomp.  Corp.  §  750.]     corporate  elections. 

They  cannot  reject  a  written  proxy,  reo;ular  in  form  and  appar- 
ently the  act  of  the  stockholder,  on  the  ground  that  it  is  not  ac- 
knowledged or  proved  by  a  subscribing  loitness,^  But  the  mere 
announcement  by  the  president,  that  a  proxy  which  has  been  pre- 
sented cannot  be  voted  upon,  does  not  entitle  the  holder  to  com- 
plain, if  he  acquiesces  and  refrains  from  offering  the  vote  upon  it 
when  the  vote  is  taken ;  for  the  action  of  the  president  being  un- 
authorized and  nugatory,  his  vote  has  not  been  in  fact  excluded. ^ 

§  750.  Irregular  Ballots.  —  The  intention  of  the  elector  can- 
not be  inquired  into,  even  in  a  proceeding  in  the  nature  of  a  quo 
warranto,  except  in  so  far  as  it  can  be  discovered  in  the  ballot 
which  he  has  deposited  in  the  box.  It  is  not  permissible  to 
prove  that  he  intended  to  vote  for  one  man,  when  he  actually 
cast  his  ballot  for  another  man.^  Thus,  if  two  ballots  he  folded 
together,  one  for  one  candidate  and  the  other  for  the  opposing 
candidate,  it  is  inadmissible  to  allow  the  person  who  deposited 
them  to  prove  by  his  oath,  for  which  candidate  he  intended  to 
vote.*  So,  it  has  been  held  that  where,  at  an  annual  town  meet- 
hiff,  the  electors  had  limited  the  number  of  constables  to  be  chosen 
to  four,  ballots  containing  the  names  of  more  than  four  persons, 
designated  as  voted  for  for  the  office  of  constable,  could  not  be 
canvassed,  but  must  be  rejected,  since  it  could  not  be  told  which 
ones  were  really  the  choice  of  the  voter. ^  But  a  ballot  cast  for 
a  candidate  for  office,  in  which  only  the  initial  letters  of  his 
Christian  name  are  inserted,  —  as  J.  R.  Eastman  for  John  R. 

showed  a  power  of  attorney.     He  also  •'People  v.    Seaman,    5  Denio  (N. 

had  a  letter  of  Instructions,  of  which  Y.),  409,  412. 

he  informed  the  inspectors,  but  they,  ^  People  v.   Loorais,   8  Wend.    (N. 

without  asking  to  see  it,  rejected  the  Y.)  396.     A   meeting  of  the  directors 

proxy,  on  the  ground   that  the  omis-  of   the    branch    bank   was    called   to 

sion  of  the  date  in  the  power  of  attor-  choose  three  directors.     At  this  meet- 

ney  excited  their  suspicions.     It  was  Ing,  a  part  of  the   stockholders  voted 

held  that  the  proxy  should  have  been  a  ticket    having   three  names  on  it. 

received.     Re  St.  Lawrence  Steamboat  The  number  of  tickets  voted  with  five 

Co.,  44  N.  J.  L.  529.  names  was  two  hundred  and  twelve^ 

1  Matter  of  Cecil,  36  How.  Pr.  (N.  of  the  tickets  with  three  names  eighty- 
Y.)  477.  eight.     The  three  candidates  were  de- 

2  State  V.  Chute,  34  Minn.  135;  s.  c.  clared  elected.  Held,  that  they  were 
24  N.  \V.  Rep.  353.  duly  elected.     State  v.  Thompson,  27 

3  Loubat  V.  LeRoy,  15  Abb.  Pr.  (n.  Mo.  365. 
8.)  (N.  Y.)  14. 

590 


CONDUCT    OF   THE   ELECTION.       [1  Tliomp.  Coip.   §  753. 

Eastman,  — is  a  legal  ballot  for  the  person  designated  by  such 
initials,  provided  that  it  be  found,  in  a  proceeding  in  the  nature 
of  a  quo  warranto^  by  the  verdict  of  a  jury,  that  he  was  the  per- 
son whom  the  electors  intended  to  designate  by  such  name.^ 

§  751.  The  Count.  — Under  the  provisions  of  the  New  York 
statute  relating  to  religious  corporations^  the  judges  of  an  election 
for  trustees  of  a  religious  corporation  have  no  power  to  pass 
upon  the  qualifications  of  voters,  and  reject  votes  after  they 
have  been  once  received.  The  reason  is,  that  the  voter  is  en- 
titled, when  he  is  challenged,  to  be  heard,  and  that  the  judges  can- 
not be  presumed  to  know  the  contents  of  the  ballot  so  as  to  sep- 
arate the  legal  from  the  illegal.^ 

§  752.  Votes  for  Ineligible  Candidates  «*  Thrown  Away."  — 

Votes  which  the  returning  officers  are  clearly  bound  not  to  count, 
stand  precisely  the  same  as  no  votes  at  all,  and  those  who  cast 
them  are  deemed  to  have  assented  to  the  votes  which  were  law- 
fully cast.  It  was  so  held  in  an  old  unreported  case  of  a  corpo- 
rate election,  •'  where  ten  voted  for  Roberts  and  ten  for  Bos- 
cawen,  a  non-inhabitant:  the  votes  given  for  the  non-inhabitant 
where  inhabitancy  was  necessary,  were  holden  to  be  thrown 
away."  ^  In  another  case,  "  where,  out  of  eleven  voters,  five 
voted  and  six  refused,  the  court  held  that  the  six  virtuall}'  as- 
sented." *  This  case  is  said,  in  a  note,  to  have  been  a  case  con- 
cerning "  an  election  of  a  burgess  of  Westbury  upon  a  single  va- 
cancy. Six  voted  for  Withers  singly  ;  six  others  voted  for  two 
persons  jointly, though  it  was  upon  a  single  vacancy.  The  court 
held  clearly  that  the  double  votes  were  absolutely  thrown  away, 
and  refused  to  grant  an  information  against  Withers."  ^  A  more 
recent  authority  is  to  the  effect  that  votes  cast  for  a  candidate 
who  is  ineligible  will  not  be  discarded,  so  as  to  give  the  election 

1  People  V.  Seaman,  5  Denio  (N.  been  ruled  in  the  case  of  Taylor  v. 
Y.),  409.  See  also  People  v.  Ferguson,  Mayor  of  Bath,  temp.  Ld.  Ch.  J.  Lee, 
8  Cow.  (N.  Y.)  102.  B.  R. 

2  Ilartt  V.  Harvey,  10  Abb.  Pr.  (n.  ^  Rex  v.  Withers,  as  quoted  by  Mr. 
8.)  (N.  Y.)  331.  Justice  Wilmot  in  2  Burr.  1020. 

3  Reg.  V.  Boscawen,  cited   2   Burr.  ^  Ibid.,  2  Burr.  1020,  note. 
1021,  note.     The  same  is  said  to  have 

591 


1  Thomp.  Corp.  §  751.]     couporate  elections. 

to   a  candidate  having  a  minority  of  votes,  unless  the  electors 
knew  of  the  ineligibility  of  the  candidate  voted  for.^ 

§  753.  Cumulative  Voting. —  For  the  protection  of  the  rights 
of  minorities  in  corporations,  and  in  order  to  prevent  a  majority 
of  the  shareholders  from  filling  the  board  of  directors  with  them- 
selves or  their  nominees,  the  principle  of  cumulative  voting  at 
elections  for  directors  has  been  devised  and  established,  in  sev- 
eral States  by  constitutional  provisions,  and  in  others  by  statutory 
enactments.  The  theory  of  these  provisions  is  that  any  share- 
holder may,  at  hispleasure,  vote  for  an  entire  ticket,  so  to  speak, 
that  is,  for  as  many  persons  as  there  are  directors  to  be  elected, 
or  he  may  cast  for  one  particular  director  as  many  times  the  same 
number  of  votes  as  there  are  directors  to  be  elected.  To  illus- 
trate :  suppose  that  there  are  five  directors  to  be  elected,  and  a 
particular  shareholder  is  entitled  to  vote  in  respect  of  one-fifth 
of  the  shares.  He  may  cast  one  vote  for  five  persons  named  on 
his  ballot,  or  he  may  cast  five  votes  for  one  person, —  and  so  in 
that  proportion. 

§  754.  Constitutional  Provisions  as  to  Cumulative  Voting. — 

"  In  all  elections  for  directors  or  managers  of  corporations,  every  stock- 
holder shall  have  the  right  to  vote,  in  person  or  by  proxy,  the  number 
of  shares  of  stock  owned  by  him  for  as  many  persons  as  there  are  di- 
rectors or  managers  to  be  elected,  or  cumulate  said  shares  and  give  one 
candidate  as  many  votes  as  the  number  of  directors  multiplied  by  the 
number  of  his  shares  of  stock  shall  equal,  or  to  distribute  them,  on  the 
same  principle,  among  as  many  candidates  as  he  shall  think  fit ;  and  such 
directors  or  managers  shall  not  be  elected  in  any  other  manner,  except 
that  members  of  co-operative  societies  formed  for  agricultural,  mercantile 
and  manufacturing  purposes,  may  vote  on  all  questions  affecting  such 
societies  in  manner  prescribed  by  law. "  2  -  -  .  -  "  The  general  as- 
sembly shall  proWde  by  law  that  in  all  elections  for  directors  or  man- 
agers of  incorporated  companies  every  stockholder  shall  have  the  right 
to  vote,  in  person  or  by  proxy,  for  the  number  of  shares  of  stock  owned 
by  him,  for  as  many  persons  as  there   are   directors  or  managers  to  be 

1  ReSt.  Lawrence  Steamboat  Co.,  44  only  be  raised  in  the  courts.     Re  St. 

N.J.  L.  529.     In>;pectors  of  an  election  Lawrence  Steamboat  Co.,  44  N.  J.  L. 

for  directors  have  no  power  to  pass  529. 

upon  the  eligibility  of  the  person  for  2  cal.  State  Const.    1879,   art.    12, 

whom  the   votes   are  proposed  to  be  §  12. 
cast.    The  question  of  eligibility  can 
592 


CONDUCT    OF    THE    ELECTION.       [1  Thomp.  Coi'p.    §   755. 

■elected,  or  to  cumulate  said  shares,  and  give  one  candidate  as  many  votes 
as  the  number  of  directors  multipHed  by  the  number  of  his  shares  of  stock 
shall  equal,  or  to  distribute  them  on  the  same  principle  among  as  many 
candidates  as  he  shall  think  fit ;  and  such  directors  or  managers  shall  not 
be  elected  in  any  other  manner."  1  -  -  -  -  "  In  all  elections  for 
directors  or  managers  of  any  incorporated  company,  each  shareholder 
shall  have  the  right  to  cast  as  many  votes  in  the  aggregate  as  shall  equal 
the  number  of  shares  so  held  by  him  or  her  in  said  company,  multipUed 
by  the  number  of  directors  or  managers  to  be  elected  at  such  election ; 
and  each  shareholder  may  cast  the  whole  number  of  votes,  either  in  per- 
son or  by  proxy,  for  one  candidate,  or  distribute  such  votes  among  two 
or  more  candidates  ;  and  such  directors  or  managers  shall  not  be  elected 
in  any  other  manner.  "^  .  .  _  -  A  similar  provision  exists  in  the 
present  constitution  of  Pennsylvania.  ^  It  was  held  to  be  self-enforcing, 
and  not  merely  directory  to  the  legislature.* 

§  755.  Statutory  Provisions  as  to  Cumulative  Voting.  —The 
right  of  cumulative  voting  is  also  provided  for  in  many  of  the  States  by 
statute.  Thus,  in  IlUnois,  following  the  constitution  of  that  State,  it  is 
provided  that  every  subscriber  shall  have  the  right  to  vote,  in  person 
or  by  proxy,  for  his  number  of  shares,  for  as  many  persons  as  there  are 
directors  or  managers  to  be  elected,  or  may  consolidate  his  votes  and 
cast  as  many  for  one  candidate  as  the  number  of  his  shares,  multiplied 
by  the  whole  number  to  be  elected  or  to  distribute  them  on  the  same 
principle  among  as  many  candidates  as  he  shall  think  fit ;  and  that 
directors  or  managers  may  not  be  elected  in  any  other  manner.^  A 
similar  pro\'ision  exists  in  Kansas,  but  with  the  proviso  that,  in  elec- 
tions of  directors  for  corporative  associations,  no  stockholder  shall  be 
allowed  to  cast  more  than  one  vote  multiplied  by  the  number  of  di- 
rectors of  the  association.^  In  Missouri,  in  elections  for  directors  or 
managers,  each  elector  shall  cast  as  many  votes  as  he  has  shares  of 
stock,  multiplied  by  the  number  of  directors  or  managers  to  be  elected, 
and  he  may  distribute  said  votes  among  two  or  more  candidates,  or  cast 

1  111,  Const,  of  1870,  art.  11,  §  3.  Neb.  Const.  1875,  art.  11,  §  5,  with  un- 

2  Mo.  Const,  of  1875,  art.  12,  §  6.  important  verbal  variations;  W.  Va. 
Const.  Idaho,  1889,  art.  11,  §  4  (ex-  Const.  1872,  art.  11,  §4  (substituting 
(cept  the  word  "  legislature  "  used  the  word  "  legislature  "  for  "  general 
instead    of    "general    assembly");  assembly"). 

Const.  Montana,  1889,  art.  15,  §  4  (ex-  ^  Const.   Penn.    1874,  art.    IG,    §  4. 

cept  that  the  words  "legislative  as-  ■•  Pierce  v.  Commonwealth,  104  Pa. 

sembly  "  are  used  instead  of  "  general  St.  150. 

assembly,"  and  the  words  "directors  ^  starr    &  Curt.    111.  Stat.,   p.  010, 

or  trustees  "  are  used  instead  of  the  §  3. 

words    "directors    or    managers");  "  Gen.  Stat.  Kan.  1889,  §  1185. 

38  593 


1  Thomp.  Corp.  §  756.]     corporate  elections. 

all  for  one.  This  mode  of  election  is  exclusive.^  Similar  provisions 
exist  in  Texas. ^  In  California,  the  statute  provides  that  all  elections 
shall  be  by  ballot,  each  person  having  the  right  to  vote,  in  person  or 
by  proxy,  all  the  shares  standing  in  his  name  at  least  ten  days  before 
the  election,  for  as  many  persons  as  there  are  directors  to  be  elected, 
or  cumulate  and  give  one  candidate  as  many  votes  as  his  number  of 
shares  multiplied  by  the  number  of  directors  to  be  elected,  or  dis- 
tribute them  on  the  same  principle  among  the  candidates,  as  he  sees 
fit.  In  corporations  having  no  capital  stock  each  member  may  give  one 
director  as  many  votes  as  there  are  directors  to  be  elected. ^ 

§  756.  Judicial  Decisions  on  the  Subject  of  Cumulative 
Voting. — This  right  of  cumulative  voting  does  not  exist,  unless 
it  is  expressly  conferred  by  an  operative  constitutional  provision 
or  statute.*  Constitutional  provisions  of  this  kind  are  not  retroac- 
tive.^ They  do  not  operate  upon  existing  charters,  unless  such 
charters  are  subject  to  the  power  of  the  legislature  to  modify  or 
repeal  them,  under  principles  elsewhere  stated.^  Construing  the 
provision  of  the  Missouri  constitution,  it  has  been  reasoned 
that,  although  the  language  is  broad  enough  to  include  all  cor- 
porations, those  previously  in  existence  as  well  as  those  there- 
after to  be  created,  yet,  on  a  familiar  rule  of  interpretation,  it 
would  not  be  regarded  as  applying  to  corporations  previously 
created  with  an  express  exemption  in  their  charters  from  the 
operation  of  the  general  law  by  which  the  legislature  was  author- 
ized to  repeal,  alter,  or  suspend  the  charter  of  every  corporation. 
An  intention  thus  to  interfere  with  existing  franchises  would  not 
be  imputable  to  the  convention  which  framed  the  constitution, 
unless  their  purpose  had  been  couched  in  explicit  language.  If 
such  were  the  purpose  of  the  constitutional  provision,  it  would 
be  void  under  the  Federal  constitution,  as  interpreted  in  the 
Dartmouth  College  Case,^  in  respect  of  such  prior  corporations, 

»  1  Rev.  Stat.  Mo.  1889,  §  2490.  State  v.  Greer,  78  Mo.  188;  reversing 

2  2  Sayle  Tex.  Civ.  Stat.  1888,   art.      s.  c.  9  Mo.  App.  219. 
4128.  ^  Ante,  §  89. 

3  Deer.  Code  Cal.,vol.  2,  §  307.  ''  Trustees  of  Dartmouth  v.  Wood- 
*  State  r.Stockley,  45  Ohio  St.  304;      ward,  4   Wheat.    (U.    S.)    518.       See 

19  Am.  &  Eng.  Corp.  Cas.  143;  13  also  Sloau  v.  Railroad  Co.,  61  Mo. 
Nortlieast.  Rep.  279 ;  11  West.  Rep. 259;      24,  30;   Scotland  Co.  v.  Railroad  Co.,. 

2  Rail.  &  Corp.  L.  J.  474.  65  Mo.  123,  135. 

5  Baker's  Appeal,  109  Pa.  St.  461 
594 


CONDUCT    OF    THE    ELECTION.        [1  Thomp.   Coi'p.    §   757. 

as  iinpairing  the  obligation  of  the  contract  subsisting  in  the 
special  charters  granted  them  by  the  legislature  and  accepted  by 
them.  Nor  was  it  an  answer  to  this  position  to  say  that  the 
right  of  voting,  under  the  prior  system,  w^as  not  a  right  of  sub- 
stantial value,  upon  the  faith  of  which  corporators  could  be  sup- 
posed to  have  embarked  their  capital  in  corporate  enterprises.^ 
Nor,  in  the  opinion  of  the  Supreme  Court  of  Missouri,  could  such 
a  constitutional  provision  be  upheld  on  the  theory  of  beinga  neces- 
sary police  regulation,  and  hence  not  within  the  doctrine  of  the 
Dartmouth  College  Case.^  On  principles  elsewhere  discussed,^  it 
is  not  competent  for  the  directors  of  a  corporation,  to  accept  for  the 
corporation  such  a  constitutional  provision  ;  since  such  an  accept- 
ance involves  a  constituent  change  in  the  corporation,  which  re- 
quires unanimous  consent,^  or  according  to  one  view,  the  concur- 
rence of  a  majority  in  value,  by  a  regular  vote  at  a  meeting  duly 
called  for  that  purpose.^  An  election  held  for  seven  directors  of 
a  private  corporation  created  under  Pennsylvania  general  cor- 
poration act  of  1873,  at  which  the  cumulative  system  of  voting 
was  employed,  and  five  directors  only  received  the  necessary 
pluralities,  is  valid  as  to  the  five  so  elected,  and  they  have  full 
power  to  act  as  a  board,  even  though  two  remaining  directors 
were  not  chosen.® 

§  757.  Certificate  of  Election.  —  If  the  statute  requires  the 
inspectors  to  make  out  and  give  to  the  successful  candidates  a 
certificate  of  their  election,  it  may  become  a  question  what  force 
and  effect  are  to  be  ascribed  to  such  a  certificate  ;  and  here,  as 
in  other  cases,  the  language  of  the  applicatory  statute  must  be 
carefully  considered.  The  subject  is  illustrated  by  several  of 
the  earlier  cases  in  New  York,  where  such  a  statute  was  in  ex- 
istence. In  one  of  them  it  was  laid  down  that  a  certificate  is  not 
essential  to  enable  a  person  elected  a  trustee  to  take  the  office  ; 
and  that  if  the  inspectors  neglect  or  refuse  to  give  a  certificate, 

1  State  V.  Greer,  78  Mo.  188;  re-  Vt.  140;  Sloan  v.  Pacific  R.  Co.,  61 
versing  s.  c.  9  Mo.  App.  219.     Com-      Mo.  24;  Broom  Leg.  Max.  394. 

pare    Hays  ■».    Com.,  82  Pa.  St.   518,  3  Ante,  §  86, 

523,  cited  by  both  of  the   Missouri  *  ylHfe,  §  71,  e«  seg. 

courts.  5  Baker's  Appeal,  109  Pa.  St.  461. 

2  State  V.  Greer,  supra;  citing  ^  Wright  v.  Commonwealth,  109 Pa. 
Thorpe    t?.   Rutland  &c.    R.    Co.,   27  St.  560. 

595 


1  Thorn  p.  Corp.  §  757.]     corporate  elections. 

the  party  entitled  to  the  office  may  have  his  ri^^ht  to  it  declared 
in  a  judicial  proceeding.^  Again,  it  has  been  held,  under  the 
same  statute,  that  a  certificate,  under  the  hands  and  seals  of  the 
inspectors  of  the  election,  that  a  person  has  been  duly  elected  a 
trustee,  is  prima  facie  evidence  of  his  right  to  the  ofBce.  But 
this  applies  only  to  certificates  which  have  no  vitiating  quality  on 
their  face.  If  a  certificate  recites  facts  which  show  that  the  per- 
sons whom  the  inspectors  have  declared  to  be  elected  were  not 
elected,  of  course  it  is  not  evidence  of  their  right  to  the  office, 
but,  on  the  contrary,  it  demonstrates  that  no  such  right  exists. 
The  reasoning  is  that  the  statute  merely  provides  that  the  cer- 
tificate shall  entitle  the  party  who  has  been  elected  to  hold  the 
office.  It  is  the  fact  of  the  election,  sinA  not  the  possession  of 
the  certificate,  which  lies  at  the  foundation  of  the  right.  Where 
there  is  no  election  there  i-4  no  right,  and  the  certificate  cannot 
create  a  right.  The  certificate  being  merely  prima  facie  evi- 
dence of  the  right,  it  is  competent  to  go  behind  it  and  inquire 
into  the  facts  of  the  election.^  The  established  principle  seems 
to  be  that,  in  a  proceeding  in  the  nature  of  a  quo  warranto  to  try 
the  title  to  a  public  cr  corporate  office,  it  is  competent  to  go  be- 
hind the  certificate  of  election,  which  has  been  given  by  the 
proper  authority  to  the  defendant,  which  certificate  would  other- 
wise be  conclusive,  for  the  purpose  of  ascertaining  the  real  facts 
of  the  case.^ 


1  People  V.  Peck,  11  Weud.  (N.  Y.)  down,  on  what  they  called  a  canvass 
604,  611.  sheet,  the  number  of  votes  given  to 

2  Hartt  V.  Harvey,  10  Abb.  Pr.  (N.  each  of  the  candidates  for  the  office 
Y.)  321.  contested,  but  in  making  their  final 

2  People  V.  Seaman,   5   Denio  (N.  statement,  after    stating    the    whole 

Y.),  409;  People  u.  Ferguson,  8  Cow.  number  of    votes,   they  omitted,   by 

(N.  Y.)  102;  People  v.  Vail,  20  Wend,  mistalie,  to  add  how  many  were  given 

12;    People    v.    Van    Slyck,    4    Cow.  to  each  of  the  persons  voted  for  by 

(N.  Y.)  297.     Thus,  it  is  held  In  New  the  electors, — it  was  held  competent 

York  that  It  is  competent.  In  a  pro-  to  hear  evidence  tending  to  show  that 

ceeding  by  an  information,  in  the  na-  the   relator,   and  not  the  defendant, 

ture  of  a  quo  warranto,  to  go  behind  had  been  elected  by  the  greater  num- 

thecert'flcate  of  the  county  canvassers  ber  of  votes;  and  accordingly  it  was 

as  to  the  town  canvass,  and  rectify  an  adjudged  by  the  court,  contrary  to  the 

error  in  the  statement  of  the  inspect-  certificate  of  the  county  canvassers  in 

ors;  and  it  appearing  that  the  votes  the  particular  case,    that   the  relator 

in  a  part'cular  town  were  regularly  was  duly  elected.     People  v.  Vail,  20 

canvassed,  and  that  the  inspectors  set  Weud.  (N.  Y.)  12. 
596 


CONDUCT  OF  THE  ELECTION.     [1  Thomp.  Corp.  §  758. 

§  758.  statutory  Provisions  as  to  Conduct  of  Elections.  — 

By  the  statute  of  Missouri,  the  meeting  shall  convene  at   9  a.  m.  and 
continue  three  hours,  unless  its  object  is  sooner  accomphshed.     But  if  it 
be  convened  for  any  other  purpose  than  holding  an  electidn  or  voting  on 
a  proposition,  it  shall  be  regulated  by  the  by-laivs,  as  to  the  manner  and 
time  of  convening  it  and  the  manner  of  conducting  it.^    By  the  statute 
of  New  York,  when    the  right  of    any  person  to  vote  is  challenged, 
the  inspectors  shall  require  the    transfer  books  of   the  company,   and 
from  those  books  shall  decide  the  challenge ;  and  all  shares  standing 
on  such  books  in  the  name  of  any  person  shall  be  voted   by  him  or 
by  his  proxy,  subject  to  other  provisions  of  the  statute.^     By  a  statute 
of  Ohio,  an  agent  of  the  corporation,  must  make  out  a  list  of  stock- 
holders from  the  transfer  book,  showing  number  and  class  of  shares  of 
each  on  date  of  closing  transfers  before  the  meeting,  and  if  no   such 
time  is  fixed,  ten  days  before  the  meeting.     This  shall  be  given  to  the 
inspectors,  and  shall  be  prima  facie  evidence  of  the  ownership  of  stock. 
In  case  this  is  absent,  inspectors  shall  ascertain  the  ownership  by  cor- 
porate books,  certificates  of  stock,  or  other  satisfactory  proof.     They 
shall  receive  and  count   the  votes    cast  at    such  meeting,  or   at   any 
adjournment  thereof,  either  upon  an  election,  or  for  the  decision  of  a 
question,  and  determine  the  result,  and  their  return  shall  be  ^9rM?^a/ac^■e 
evidence  thereof. ^     By  the  statute  of   Arkansas,  apphcable  to  railroad 
companies,  the  inspectors  appointed  by  the  commissioners  must  openly 
count  the  votes  and  declare   the  result,  and  within  10  days  file  a  certi- 
ficate, subscribed  by  a  majority  of  them,  with  the  Secretary  of  State, 
and  with  county  clerk  in  each  county  through  which   proposed  line 
passes.*    By  statute  in  New  York,  when  the  directors  of  any  corporation 
shall  neglect  to  adopt  a  by-law  providing  for  the  annual   election  of 
directors,  for  sixty  days  after  the  first  year  of   corporate  existence,  the 
stockholders  may  elect  directors  in  the  place  of  the  directors  holding  over, 
in  the  manner  pointed  out  by  such  statute.    If  at  the  meeting  held  to  elect 
such  directors,  the  books  of  the  corporation,  showing  who  were  and  are 
stockholders  of  the  association,  are  absent,  each  stockholder,  in  order  to 
be  entitled  to  vote  at  such  election,  must  make  or  present  a  statement  in 
writing  signed  and  verified  by  him,  setting  forth  the  number  of  shares  of 
the  stock  of  such  corporation  standing  in  his  name  on  its  books  and  upon 
which  he  is  entitled  to  vote,  and  file  the  same  with  the  inspectors  of  elec- 
tion.    Thereupon  he  is  entitled  to  vote  on  such  stock,  so  appearing  to  be 
owned  by  him,  and  standing  on  the  books  of  the  corporation  in  his  name.^ 

1  1  Rev.  Stat.  Mo.  1889,  §  2484.  *  Ark.  Dig.  Stat.  1884,  §  5427. 

2  2Kev.  Stat.  N.  Y.  1882,  p.  1535,  §  6.  «  3  Rev.  Stat.  N,  Y.  (Ranks  &  Bros. 

3  Rev.      Stat.      Ohio       (Giauque)  8th  ed.),  p.  1726,  §  3. 
§  3245  (5). 

597 


1  Thomp.  Corp.  §  761.]     corporate  elections. 


Article  V.  Right  to  the  Office  :  Contesting  the   Election. 


763 
764 


765. 


Section 

761.  Inadequacy  of  the  remedy  by  cer- 

tiorari. 

762.  Inadequacy    of    the    remedy  by 

mandamus. 

Instances  of  the  use  of  mandamus. 

No  remedy  in  equity  except  when 
the  question  arises  collater- 
ally. 

Statutory  proceedings  to  contest 
corporate  elections. 

766.  Informatiou  in  the  nature  of  quo 

warranto. 

767.  A  civil  proceeding. 

768.  This  remedy   denied  in  the  case 

of  ofBcers  who  are  meie  serv- 
ants or  employes  and  removable 
at  pleasure. 

769.  Any  person  interested  may  be  re- 

lator. 

Information  filed  by  the  attorney- 
general  or  prosecuting  attor- 
ney. 

What  the  information  must  al- 
lege. 

The  plea. 

Misjoinder  of  parties. 

774.  Leave  to    file  discretionary  with 

court. 

775.  When  the  relator  bound  to  show 

title. 

776.  Distinctions  as   to  the  burden  of 

proof. 


770. 


771. 

772. 
773. 


781. 


782. 


Section 

777.  The  rule  in  New  York. 

778.  Remedy    exists  only    against    a 

party  in  possession. 

779.  Matters  of  evidence. 

780.  Remedy  does  not  extend  to  mere 

irregularities,  mistakes,  etc. 

Rules  of  decision  in  cases  where 
legal  votes  have  been  rejected 
or  illegal  votes  received. 

Where  two  factions  organize  two 
meetings. 

783.  Party  receiving  the  next  highest 

number  of  votes,  where  suc- 
cessful candidate  disqualified. 

784.  Validity  of  election  where  whole 

number  not  elected. 

785.  Judgment  where  term  of  office  has 

expired. 

786.  Proceeding  against  an  incumbent 

who  is  disqualified. 

787.  Estoppel  to  raise  objection. 

788.  Title  to  corporate  office  not  im- 

peached collaterally. 

Presumptions  in  favor  of  regu- 
larity. 

Eligibility  for  the  office  of  di- 
rector. 

Classification  of  directors. 

Holding  over. 

Statutory  provisions  that  direct- 
ors shall  hold  over. 

Resignation  of  a  corporate  office. 


789; 

790. 

791. 
792. 
793. 

794, 


§  761.  Inadequacy  of  the  Remedy  by  Certiorari.  —  In  case 
of  the  illegal  election  or  appointment  of  public  officers  or 
the  legal  removal  of  such  officers,  a  remedy  frequently  re- 
sorted to  is  the  common  law  certiorari.  This  remedy  has 
been  considerably  used  in  New  York.^  But  the  inadequacy  of 
the  remedy  by  certiorari   has   been    perceived  in    that    State, 


1  As  to  the  use  of  this  remedy  in 
such    cases,   see  Wood    v.   Peake,   8 
.Johns,    (N.  Y.)    69;  Wildy  v.  Wash- 
burn, 16  Johns.  (N.  Y.)  49;  Lawton  ». 
598 


Commissioners,  2  Caines  (N.  Y.),  179; 
People  V.  Van  Slyck,  4  Cow.  (N.  Y.) 
297. 


CONTESTING    THE    ELECTION,  ETC.       [1  Thomp.  Corp.    §  762, 

and  it  has  been  pointed  out  that  an  information  in  the  na- 
ture of  quo  warranto  is  specially  adapted  to  such  cases,  and  is 
peculiarly  appropriate  to  try  the  right  to  the  office,  and  to  give 
the  full  measure  of  redress  in  case  of  success.^ 

§  762.  Inadequacy    of   the    Remedy    by  Mandamus. — On 

principle,  it  would  seem  that  a  mandamus  cannot  be  made  to 
take  the  place  of  a  quo  warranto  as  to  oust  an  usurper  from  a 
corporate  office.^  According  to  the  practice  of  the  Court  of 
King's  Bench,  the  writ  of  mandamus  was  never  used  to  vindicate 
a  mere  private  right ;  its  office  was  restricted  to  rights  of  a  pub- 
lic nature.  It  was  therefore  denied  where  it  was  applied  for  to 
restore  officers  of  strictly  private  corporations  who  had  been 
ousted  from  their  offices.^  This  restriction  upon  the  use  of  the 
writ  of  mandamus  has  disappeared  for  the  most  part  in  the 
United  States  ;  and  it  has  been  held  in  Massachusetts,  upon  a 
learned  review  of  the  precedents,  that  a  writ  of  mandamus  may 
be  used,  where  a  manufacturing  corporation  is  in  fact  and  theory 
the  petitioner,  to  compel  a  board  of  usurping  corporate  officers, 
elected  by  the  casting  of  illegal  votes,  to  surrender  their  offices 
to  those  having  the  highest  number  of  votes,  after  rejecting  the 
illegal  votes.*  This  remedy  was,  however,  resorted  to  in  numer- 
ous cases,  in  respect  of  officers  of  boroughs  and  other  municipal 
corporations;  and,  as  hereafter  seen,  this  use  of  it  is  strictly 
analogous  to  the  common  use  of  it  in  respect  of  officers  of  cor- 
porations who  have  been  improperly  amoved,  or  in  restoring 
members  who  have  been  illegally  suspended,  expelled  or  other- 

1  People  V.  Seaman,  5  Denio  (N.  In  like  manner  "  a  mandamus  to  re- 
Y.),  40i),  412.  store  a  clerk  of  the  dean  and  chapter 

2  The  question  was  discussed  at  was  denied,  for  he  hath  nothing  to  do 
length  in  an  old  case  where  it  was  with  tiie  public  (his  office  being  only 
sought  by  mandamus  to  remove  the  to  enter  leases  granted,  etc.),  and  it 
visitor  of  a  college  for  not  taking  tlio  don't  lie  for  him  any  more  than  for  the 
oaths.  The  mandamus  was  denied,  bailiff  of  a  manor,  the  same  law  of  a 
but  chiefly  upon  the  ground  that  tlie  register  of  a  dean  and  chapter  unless 
fellows  were  not  parties  to  the  pro-  there  Is  an  affidavit  that  they  have 
ceeding.  Rex  v.  St.  John's  College,  ecclesiastical  jurisdiction."  Anon., 
Comb.  279.  Comb.  133;  Ilex  and  Middleton's  Case, 

3  "  A  mandamus  to  restore  a  surgeon  1  Keb.  625  and  029. 

to  an  ho-<pital  was  denied,  because  it  "^  American   Railway    Frog   Co.   v. 

is  not  in  the  power  of  the  court,  nor  is      Haven,  lOI  Mass.  398;  s.c.  3  Am.  Rep. 
it  a  public  office."     Anon.,  Comb.  41.      377. 

599 


1  Thomp.  Corp.  §  763.]     corporate  elections. 

wise  disfranchised.  Some  courts  have  denied  the  remedy  by 
mandamus:  on  the  ground  that  the  appropriate  remedy  is  by  quo 
warranto.^ 

§  763.  Instances  of  the  Use  of  Mandamus.  —  Writs  of  Man- 
damus were  constautly  granted  to  corapel  an  oliicer  of  a  corporation  to 
sivear  in  an  officer  who  had  been  elected  to  an  office  in  the  corporation 
according  to  the  custom  of  the  corporation  or  to  its  charter  and  by- 
laws. Thns,  it  was  granted  in  one  case  to  compel  the  swearing  in  of  the 
clerk  of  a  parish. 2  In  another  case  it  was  admitted  that  it  lay  to  restore 
a  school-master  or  parish  clerk. ^  It  was  granted  in  another  case  to 
compel  the  mayor  of  Bristol  to  restore  a  person  to  the  office  of  sword- 
bearer  ;  *  to  restore  a  fellow  of  a  college  who  had  been  expelled  from  his 
fellowship  ;  ^  but  it  was  refused  in  a  subsequent  case  on  the  ground  that 
the  only  remedy  of  the  expelled  fellow  was  an  appeal  to  the  officers  of 
the  corporation.^  An  instance  is  found  in  which  the  writ  of  mandamus 
was  granted  to  swear  in  a  chui'ch  warden.  In  one  case  excuse  was 
pleaded  against  being  compelled  to  swear  in  a  church  warden,  "  in  re- 
gard that  he  should  swear  him,  another  being  peacefully  in,  his  superior 
wiU  punish  him.  But,  per  curiam,  they  cannot  punish  for  obeying  the 
king's  writ."  '^  In  an  old  case  it  is  said  that  "  Kelling  prayed  a  manda- 
mus to  swear  the  party,  being  elect  town  clerk  of  Southampton,  which 
the  court  granted,  they  refusing  to  doe  it  without  money. ' '  ^  So,  where  it 
appeared  that  one  Audley  had  a  grant  of  the  town  clei'kship  of  Bedford 
in  reversion,  and  the  present  town  clerk  had  died,  and  the  corporation  had 
granted  the  town  clerkship  to  one  Joy,  who  was  in  possession,  a  writ  of 
restitution  was  granted  Audley  by  Justice  Dodridge  ;  ^  and  considerable 
discussion  is  had  in  what  seems  to  be  very  good  law  French,  of  the 
practice  of  issuing  writs  of  restitution  in  such  cases.  Although,  by 
the  principles  of  the  common  law  of  England,  a,  mandamus  did  not  lie  to 
induct  or  restore  an  officer  of  an  ecclesiastical  corporation  on  the 
ground  that  the  courts  of  law  had  no  conusance  of  such  corporations, ^"^ — 
yet  this  principle  does  not  seem  to  have  obtained  in  America.  It 
has  been  held  that  a  mandamus  lies  to  compel  the  trustees  of  a  i-eligious 
corporation  to  induct  a  pastor  regularly  appointed  by  the  proper  eccle- 
siastical authority.     The  court  proceeded  upon  the  ground  that  where 

1  Aikin  v.  Matterson,  17  111.  167;  ^  Appleford's  Case,  1  Mod.  82. 
St.  Louis  County  Court  v.  Sparks,  10  *  Parkiuson's  Case,  Comb.  143. 
Mo.  117.  '  Dr.  King's  Case,  1  Keb.  517. 

2  Anon.,  Comb.  105.  ^  Rex  v.  Knopton,  2  Keb.  445. 

3  Parkinson's  Case,  Comb.  143.  ^  Audley's  Case,  Latch.  123. 

4  Roe's  Case,  Comb.  145;  s.  c,  2  '"  Fost,  §  829. 
Keb.  799. 

600 


CONTESTING    THE    ELECTION,  ETC       [1  Thoilip.   Corp.    §  764. 

there  is  a  right  to  execute  an  office,  perform  a  service,  or  exercise  a  fran- 
chise (more  especially  if  it  be  in  a  matter  of  pubUc  concern,  or  attended 
with  profit),  and  a  person  is  kept  out  of  possession,  or  dispossessed  of 
such  right,  and  has  no  other  specific  legal  remedy,  the  com't  ought  to 
assist  by  a  mandamus.^  Moreover,  even  in  cases  where  the  writ  of 
mandarmis  cannot  be  used  to  contest  the  right  to  the  office,  it  will  be 
granted  to  compel  the  doing  of  that  which  may  be  necessary  to  enable 
the  claimant  of  an  office  to  make  such  a  contest.  Thus,  it  has  been 
held  by  one  court  that  a  mandamus  will  lie  to  a  board  of  examiners  to 
compel  them  to  give  a  ceHificate  of  his  election  to  a  county  commissioner, 
although  he  may  likewise  be  compelled  to  resort  to  a  quo  warranto  to 
remove  an  incumbent  chosen  at  a  new  election  which  the  commissioners 
ordered ;  2  and  by  another  court  that  it  will  lie  to  compel  a  judge  to 
receive  the  bond,  if  found  to  be  good,  and  sufficient,  tendered  by  the 
claimant  of  the  office  of  clerk  of  the  court  of  which  the  respondent  is 
judge,  to  the  end  that  the  claimant  may  contest  his  right  to  the  office  in 
the  mode  provided  by  law,  without  meeting  the  objection  in  limine  that 
he  is  not  qualified  to  hold  it.^ 

§  764.  No  Remedy  in  Equity  except  when  the  Question 
Arises  Collaterally. —  A  court  of  equity  has  no  authority  to 
determine  the  validity  of  the  election  of  the  officers  of  a  private 
corporation,  and  pronounce  judgment  of  amotion.^  The  title 
of  directors,  who  are  in  office  under  color  of  an  election,  and 
who  are  at  most  irregularly  chosen,  cannot  be  inquired  into  in  a 
suit  in  equity,  instituted  to  restrain  them  from  exercising  the 
functions  of  their  offices,  upon  the  ground  of  irregularity  in  their 
election, — the  theory  of  the  courts  being  that  this  would  be  tan- 
tamount to  inquiring  into  their  title  collaterally.^  Again,  it  has 
been  held  that  an  injunction  cannot  be  granted  in  an  action  be- 
tween individuals  to  try  the  right  to  an  office  in  a  religious  cor- 
poration, the  remedy  being  by  an  action  in  the  nature  of  quo 
warranto.^  Nor  can  a  bill  in  equity  be  maintained  to  test  the 
rights  of  a  person  claiming  to  be  an  officer  of  a  borough,  under 

1  People  V.  Steele,  2  Barb.  (N.  Y.)  Mozley  v.  Alston,  11  Jur.  315;  IC  Law 
397,  41(i.  But  see  People  v.  Dikeman,  J.  (n.  s.)  Ch.  217;  1  Phill.  Rep.  (Ch.) 
7  How.  Pr.  {N.  Y.)  124.  790;  i  Kailw.  Cas.   (Eng.)  636;  post, 

2  Strong,      Petitioner,      20     Pick.  §  788. 

(Mass.)  484.  ^  Hartt   v.  Ilarvey,  32    Barb.     (N. 

3  State  V.  Wear,  37  Mo.  App.  325.  Y.)  55;  s.  c.  10  Abb.  Pr.  (N.  Y.)   321- 


*  Post,  §  826.  19  How.  Pr.  (N.  Y.)  245. 

"  Huglies  V.  Parker,   20  N.  II.   58; 


GOl 


1  Thomp.  Corp.  §  765.]     coRroRATE  elections. 

the  appointment  of  the  council,  although,  as  alleged,  the  ap- 
pointee has  not  entered  upon  or  exercised,  or  attempted  to  exer- 
cise the  duties  of  the  office.  Here  again  the  theory  is  that  the 
remedy  is  at  law  by  a  quo  warranto^  to  oust  the  appointee  after 
entering  upon  the  duties  of  the  office,  in  case  it  is  found  to  be  a 
usurpation.^  In  like  manner,  a  court  of  equity  will  not  grant  an 
injunction  to  restrain  the  president  and  directors  of  a  banking 
corporation  from  enforcing  the  payment  of  a  stock  subscription, 
made  to  commissioners  for  the  organization  of  the  corporation, 
when  their  election  as  directors  was  affected  at  moi^t,by  mere 
irregularities.  To  authorize  it  the  court  ought  to  be  satisfied 
that  the  election  was  entirely  without  authority  and  void.^  But 
when  the  question  of  the  validity  of  such  an  election  necessarily 
arises  in  the  determination  of  a  suit  properly  cognizable  by  a 
court  of  equity,  such  court  will  determine  it,  as  it  would  any 
other  question  of  law  or  fact  necessary  to  be  decided  to  settle 
the  rights  of  the  parties.^  In  Georgia,  the  view  has  been  taken 
that  a  bill  in  equity  is  the  proper  remedy  in  the  case  of  a  public 
incorporated  company,  where  the  old  board  of  trustees  refused 
to  surrender  the  control  of  the  corporation  to  a  new  board  duly 
constituted,  —  the  court  proceeding  upon  the  view  that  the  writ 
of  quo  zvarranto  tries  the  right  only,  but  that  this  legal  remedy 
is  inadequate  to  give  relief,  and  that  equity  will  step  in  and  give 
relief,  where  there  are  grave  charges  of  a  breach  of  trusts  The 
decision  is  entirely  out  of  the  current  of  authority. 

§  765.  Statutory  Proceedings  to  Contest  Corporate  Elec- 
tions.—  A  statute  of  New  York  ^  authorizes  any  person  who 
"  may  be  aggrieved  by,  or  may  complain  of,  any  election  "  by 
directors  of  a  corporation,  to  make  application  to  the  Supreme 
Court  to  compel  a  new  election.  No  one  but  a  person  aggrieved 
is  entitled  to  be  heard  under  this  statute.  A  notice,  given  by 
one  as  attorney  for  A.  B.  and  others^  entitles  only  A.  B.  to  be 
heard. ^     A  stockholder  is  a  person  aggrieved  within  the  mean- 

^  Updegraff  v.  Crans,  47  Pa.  St.  103.  *  Dart  v.  Houston,  22  Ga.  506. 

2  Hardenburgh     v.    Farmers'     &c.  «  1  N.Y.  Rev.  Stat.  603,  §  5.     ■ 
Bank,  3N.  J.  Eq.  68.  ^  Matter  of  Mohawk  &c.  R.  Co.,  19 

3  Mechanics'      Bank      v.      Burnet  Wend.  (N.  Y.)  135. 
Mauf.  Co.,  32  N.  J.  Eq.  236. 

602 


CONTESTING    THE    ELECTION,  ETC.       [1  Tliomp.  Corp.    §   765. 

ing  of  this  statute,  and  the  fact  that  the  trustees  in  question 
join  in  the  application,  forms  no  objection  to  granting  the  relief.^ 
This  provision  of  law  cannot  be  invoked  by  one  who  was  not  a 
stockholder  at  the  time  of  the  election  complained  of,  and  who 
received  his  stock  from  one  of  the  authors  of  the  wrong  com- 
plained of.2  This  statute  is  not  restricted  to  moneyed  corpora- 
tions.^ Where  votes  rejected  by  inspectors  at  an  election  of 
directors,  and  which,  if  received,  would  have  elected  a  certain 
ticket,  are  adjudged  to  have  been  erroneously  rejected,  the  only 
remedy  is  to  proceed  under  this  statute  to  set  aside  the  election.* 
Under  the  California  statute  ^  a  stockholder  may  maintain  an 
action  to  set  aside  an  election  of  directors,  although  at  the  time 
of  the  election  no  stock  had  stood  in  his  name  on  the  books  of 
the  corporation  sufficiently  long  to  entitle  him  to  vote.®  A 
State,  when  a  stockholder  in  a  corporation,  may  contest  an  elec- 
tion of  directors.^  A  statute  of  New  Jersey^  makes  it  the  duty 
of  the  Supreme  Court,  upon  the  application  of  persons  com- 
plaining regarding  any  election,  to  give  a  hearing,  and  "there- 
upon establish  the  election  so  complained  of,  or  to  order  a  new 
election,  or  to  make  such  order  and  give  such  relief  in  the 
premises  as  right  and  justice  may  appear  to  said  Supreme  Court 
to  require."  It  was  held,  that  the  statute  applied  to  elections  of 
officers  of  private  corporations,  and  that  the  court,  having  de- 
termined who  would  have  been  elected  if  all  the  legal  votes  ten- 
dered had  been  received,  could  put  such  persons  in  office  and  put 
out  intruders.® 


1  Matter  of  Pioneer  Paper  Co.,  36  23  Hun  (N.  Y.),  615.     This  exempting 
How.  Pr.  (N.  Y.)  HI.  was  liowever  repealed  tlie  nest  year. 

2  Re    Syracuse    &c.     R.     Co.,    91  Laws  N.  Y.  1881,  p.  161. 

N.  Y.  1.  "^  Matter  of  Long  Island  Railroad, 

3  Matter  of  Cecil,    36     How.    Pr.  19  Wend.    (N.  Y.)   37;  s.  c.   32  Am. 
(N.  Y.)  477.     By  a  later  Statule(Law8  Dec.  429. 

N.  Y.    1880,    p.    381),  manufacturing  «  2  Deer.  Cal.  Code,  §  312. 

companies  exempted  from  the  opera-  ^  Wright  v.  Central  &c.  Water  Co., 

tions  of  §§  5,  0  and  8  of  this  chapter,  67  Cal.  532. 

and  this  exempting  statute  operated  '  State  v.  New  Orleans  &c.  R.  Co., 

retrospectively,  and  preveuted  further  20  La.  An.  489. 

prosecution   of   proceedings   thereto-  *  N.  J.  Rev.  Stat.,  p.  184,  §  44. 

fore    commenced    under   the    former  ^  Re   St.  Lawrence  Steamboat  Co., 

statute.    Re  New  York  Express  Co.,  44  N.  J.  L.  529. 

603 


1  Thomp.  Corp.  §  766.]     corpoeate  elections. 

§  766.  Information  in  tlie  Nature  of  Quo  Warranto.  —  By 

the  ancient  couimon  law,  the  writ  of  quo  2varranfo  was  the  regu- 
hir  remedy  resorted  to  on  behalf  of  the  crown  to  oust  an  intruder 
from  a  public  office.  In  the  place  of  the  ancient  writ,  the  more 
flexible  remedy  of  an  information  in  the  nature  of  a  quo  warranto 
was  substituted,  and  this  remedy  is  in  ordinary  use  in  the  United 
States, 1  with  few  exceptions.^  By  analogy  to  the  use  of  this 
remedy  in  the  case  of  public  oflSces,  it  is  very  generally  held  that 
the  same  remedy  exists  to  oust  persons  who  have  usurped  or  in- 
truded into  the  olfices  of  either  public  or  private  corporations.^ 
It  lies  to  restrain  the  appointment  of  professors  by  an  incorpo- 
rated college  not  authorized  by  its  charter  to  make  such  appoint- 
ment.* It  lies  against  individuals  usurping  the  office  of  trustees 
of  an  incorporated  church.^  It  has  been  held  the  proper  remedy 
where  a  cemetery  association  attempted  by  suit  to  collect  of  its 
de  facto  treasurer  money  remaining  in  his  hands,  which  he  re- 
fused to  pay  over  to  a  newly  elected  treasurer  on  the  ground 
that  the  election  was  illegal.^  It  has  beeiji  held  the  proper  remedy 
to  oust  bank  directors  who  have  come  into  their  offices  through 
the  forms  of  law,  and  are  hence  de  facto  officers,  if  they  have 
been  in  fact  illegally  elected.^  Some  hokiings  restrain  the  use 
of  this  remedy  to  cases  of  persons  claiming  to  exercise  some 
public  office  or  authority.^     In  England,  until  after  a  regular  amo- 

1  Respublica    v.  Wray,  3  Dall.  (U  .        ^  Terry    v.    Stauffer,    17     La.    An. 

S.)  490;  Palmer  v.  Woodbury,  14  Cal.  306. 

43;   Peoples.    Scanoell,  7    Cal.   432;  3  peoples.  Tibbets  4Cow.  358;  Peo- 

People  V.  Forquer,  1  111.  68;  Sudbury  pie  v.  Kip,  4  Cow.  (N.  Y.)  382,  uote; 

u.  Stearns,  21  Pick.  (Mass.)  148;  Lind-  State  v.   Buchauan,   Wright    (Ohio), 

sey  V.  Attorney-General,  33  Miss.  508;  233;   State  v.  Coffee,  59  Mo.  59. 
Exp.   Bellows,  1   Mo.  115;   People  v.  ^  People    v.    Trustees    of    Geneva 

Van  Slyck,  4  Cow.  (N.  Y.)  297;  Lewis  College,  5  Wend.  (N.  Y.)  211. 
V.    Oliver,    4    Abb.  Pr.    (N.   Y.)  121;  ^  Commonwealth  ?;.  Graham,  64  Pa. 

Mayor  &c.  of  New  York  v.  Conover,  5  St.  389. 

Id.  171;    Commonwealth  v.  Cullen,  13  «  Hunt   v.  Pleasant  Hill   Cemetery 

Pa.  St.  133;   Clark  v.  Commonwealth,  Association,  27  Kan.  734. 
2d  Id.  129;  Commonwealth  v.  Fowler,  '  Smith  v.  State  Bank,  18  Ind.  327; 

10  Mass.  290;  State  i?.  Deliesscline,  1  State  v.  Ashley,  1  Ark.  613;    State  v. 

McCord  (S.   C),  52;  Akin  v.  Matter-  Harris,  3  Ark.  570. 
son,    17   HI.    167;  St.  Louis    County  ^  Commonwealth  v.   Dearborn,  15 

Court  V.  Sparks,    10  Mo.  117.     Com-  Mass.  125. 
pare  State  v.  Wadkins,  1  Rich.  (S.  C.) 
42;  State  v.  Evans,  3  Ark.  585. 
604 


CONTESTING    THE    ELECTION,  ETC.       [1  Thomp.   Coip.    §   768. 

tion  from  ofl5ce  by  the  corporation,  the  court  will  not  grant  a 
quo  warranto  to  oust  an  officer.^ 

§  767.  A  Civil  Proceeding.  —  An  information  in  the  nature 
of  a  writ  of  quo  warranto  to  try  the  right  to  a  corporate  office, 
although  partaking  of  the  character  of  a  criminal  proceeding  in 
its  origin  and  form,  is  essentially  a  civil  proceeding. ^  The  in- 
formation, answer  and  reply,  are  in  Missouri,  subject  to  the  rules 
governing  corresponding  pleadings  in  strictly  civil  cases, — the 
information  answering  to  the  petition  in  an  ordinary  civil  suit.^ 

§  768.  This  Remedy  Denied  in  tlie  Case  of  OflQcers  who  are 
mere  Servants  or  Employes  and  Removable  at  Pleasure.  — 

Although  this  remedy  has,  by  a  seeming  aberration  in  Missouri, 
been  allowed  to  exist  in  the  case  of  a  contest  over  the  office  of 
secretary  of  an  insurance  company,*  yet  the  better  view  is  that  it 
does  notexistin  the  case  of  anoffi(;erof  a  private  corporation,  who 
is  the  mere  servant  or  agent  of  the  company,  and  holds  at  the  pleas- 
ure and  will  of  the  directors.  The  reason  is  that  a  judgment 
against  the  defendant  would  be  merely  nugatory,  for  the  directors 
might  immediately  reinstate  him.^  In  other  words,  this  right 
plainly  does  not  exist  in  the  case  of  a  corporate  officer  whose 
office  is  of  such  a  nature  that  he  is  removable  at  the  pleasure  of 
the  corporation.  Where  an  officer  is  thus  removable,  he  has  no 
right  to  a  notice  of  a  proceeding  to  remove  him,  such  as  exists  in 
other  cases.^  Although,  as  hereafter  seen,^  mandamus  is  the 
ordinary  remedy  to  restore  an  officer  of  a  corporation  where, 
under  the  principles  of  the  common  law,  there  is  a  right  in  the 
office  in  the  nature  of  property  or  in  the  nature  of  a  franchise, 

1  Rex  17.  Heaven,  2  Durnf.  &  E.  772;  «  People  v.  Hills,  1  Lans.  (N.  Y.) 
Rex  V.  Ponsonby,  2  Bro.  P.  C.  311;  202.  And  see  States. Curtis,  36  Conn. 
Rex  V.  Mayor  &c.  of  Truro,  3  Bam.  &      374;  pos«,  §  805. 

Aid.  590.  "  Dighton  v.  Stratford-on-Avon,  2 

2  State  u.  Kupferle,  44  Mo.  154;  Keb.641.  It  lias  been  held  in  a  modern 
s.c.  100  Am.  Dec.  205;  State  v.  Lingo,  case  that  stoclvholders  in  a  joint  stock 
26  Mo.  490;  Rtat(3  V.  Stewart,  32  Mo.  corporation,  in  which  the  general 
379;  State  v.  Lawrence,  38  Mo.  535.  public  has  no  interest,  may  depose  the 

3  State  u.  Kupferle,  44  Mo.  154;  s.c.  oOiccrs  of  the  corporation  without 
100  Am.  Dec.  205.  notice  or  trial.     Adamantine  BricI^' Co. 

*  State  V.  Knpferle,  44  Mo.  154;  .s.c.  v.  Woodward,  4  McArthur  (D.C.), 318. 
100  Am.  Dec  205;    ante,  g  707.  '  Post,  §  829. 

605 


1  Thomp.  Corp.  §  770.]     couporate  elections. 

yet  it  has  been  denied  to  restore  an  officer  who  holds  his  office 
during  pleasure.^  The  power  to  set  aside  a  corporate  election  has 
been  denied  in  New  York  even  in  the  case  of  an  election  of 
directors  of  a  banking  corporation,  on  the  same  ground,  namely, 
that  such  officer  may  be  removed  at  the  pleasure  of  the  asso- 
ciates ;  2  but  this  view  does  not  seem  to  be  in  accordance  with  the 
current  of  authority. 

§  769.  Any  Person  Interested  may  be  Relator.  —  As  this 
is  regarded  as  a  private  remedy,  and  in  the  nature  of  a  civil  -pro- 
ceeding, it  naturally  follows  that  any  person  interested  in  the 
election  or  in  the  admission  of  the  rightfully  elected  person  into 
the  office,  may  rightfully  file  the  information.^  And  although  a 
private  individual  is  not  permitted,  under  the  law  of  a  particular 
jurisdiction  to  prosecute  an  information  in  the  nature  of  quo 
warranto,  to  dissolve  a  corporation,  yet  he  may  be  permitted  to 
prosecute  such  an  information  in  the  case  of  an  intrusion  into  a 
a  corporate  office.*  The  remedy  is  allowed  on  the  relation  of  a 
private  individual  against  one  illegally  holding  an  office  in  a 
municipal  corporation;^  and  in  many  States  it  is  the  ordinary 
remedy  of  one  claimant  of  a  public  office  against  the  occupant 
of  such  an  office.^  It  was  observed  by  Mr.  Justice  Strong  that 
"doubtless,  in  England,  when  the  information  is  against  a  bur- 
gess or  alderman  of  a  borough,  a  corporator  is  held  a  fit  relator. 
He  has  an  interest.^  "  By  analogy,  any  member  of  a  corpora- 
tion would  ordinarily  be  a  competent  relator  to  dispute  the 
right  of  any  person  to  hold  an  office  in  the  corporation. 

§  770.  Information  Filed  by  the  Attorney-General  or  Pro- 
secuting-Attorney. —  The  existence  of  the  remedy  at  the  rela- 
tion of  a  private  person,  who  is  interested  in  the  determination  of 
the  right  to  the  office,  does  not,  of  course,  in  the  case  of  a 
public  ofice,  divest  the  State  of  its  remedy  by  an  information 

1  Dighton  V.  Stratford-on-Avon,  2  ■•  State  v.  Patersou  &c.  Co.,  21  N. 
Keb.  641.  J.  L.  9. 

2  Matter  of  Bank  of  Dansville,  6  ^  Commonwealth  v.  Jones,  12  Pa. 
Hill  (N.Y.),  370.  St.  365. 

3  Commonwealth  v.  Union  Ins.  Co.  ^  State  v.  Orvis,  20  Wis.  235. 
Newburyport,  5  Mass.  230;  Common-  "<  Com.  v.  Cluley,  56  Pa.  St.  270;  s. 
wealth  V.  Fowler,  10  Id.  290.  c.  34  Am.  Dec.  75,  79. 

606 


CONTESTING    THE    ELECTION,  ETC.       [1  TllOmp.  Corp.   §   771. 

filed  by  its  attorney-general,  or  other  proper  law  officer,  to  oust 
an  intruder  into  an  office  held  under  the  State. ^  Under  a  statute, 
it  is  held  in  New  York  that  the  attorney-general  is  authorized  to 
bring  such  an  information  in  the  name  of  the  public.  Such  ac- 
tion must  be  commenced  and  prosecuted  like  other  civil  actions, 
and  is  governed,  in  respect  to  the  pleadings  and  proceedings,  by 
the  same  rules. ^  Such  an  action  is  one  of  legal,  not  of  equitable 
cognizance,  and  the  issues  therein  are  strictly  legal  ones.^ 

§  771.  What  the  Information  must  Allege. —  Where  the 
action  is  brought  by  the  State  against  one  for  usurping  a  public 
office,  the  same  certainly  is  required  in  the  information  as  in  an 
indictment.  In  such  a  case,  it  is  not  sufficient  to  charge  that  the 
defendant  was  "unlawfully  executing  the  duties  and  exercising 
the  powers  "  of  the  office  described,  without  alleging  the  usur- 
pation or  specifying  wherein  such  usurpation  was  unlawful.* 
When  the  court  is  not  judicially  informed  concerning  the  nature 
of  an  alleged  office  in  a  corporation,  it  must  be  so  described,  as  to 
its  nature  and  duties,  as  to  show  whether  it  is  an  office  within  the 
purview  of  the  law  relative  to  the  usurpation  of  franchises.^  Thus, 
where  such  an  information  charged  the  defendants  with  intruding 

1  Commonwealth  v.  Fowler,  10  (n.  s.)  265;  5  Lans  (N.  Y.)  25.  It 
Mass.  295;  Parker  v.  Smith,  3  Minn,  also  overruled  the  reasoning  of  the 
240.  same  court  to  the  effect  that  the  at- 

2  People  V.  Albany  &c.  R.  Co.,  1  torney-general  is  authorized  by  the 
Lans.  (N.  Y.)  308;  55  Barb.  (N.  Y.)  statute  to  bring,  in  the  name  of  the 
344;  38  How.  Pr.  (N.  Y.)  228;  7  Abb.  people,  and  upon  his  own  information, 
Pr.  (N.  Y.)  (n.  s.)  265.  an  action  against  several  persons,  con- 

3  People  V.  Albany  «&c.R.  Co.,  57  N.  sisting  of  two  distinct  classes,  each 
Y.  161.  This  decision  affirmed  the  chiiming,  by  virtue  of  separate  elec- 
judgment  of  the  general  term  of  the  tions,  to  be  the  board  of  directors  of 
Supreme  Court  but  overruled  the  rea-  a  corporation,  for  the  purpose  of  try- 
soning,  to  the  effect  that  in  such  an  ac-  ing  their  respective  rights  to  such 
tion,  the  relief  demanded  consists  in,  office,  and  ascertaining  whether  either 
andthenatureof  the  case  requires,  the  of  such  elections  was  regular  and 
exercise  of  the  equitable  powers  of  legal,  and  if  so,  which  of  them;  and 
the  court;  and  an  injunction  may  be  if  neither  of  such  boards  shall  be 
issued,  and  a  receiver  be  appointed,  as  declared  duly  elected,  then  that  both 
the  usual  and  appropriate  instrument-  classes  of  defendants  be  removed  from 
alities  of  a  court  of  equity.  People  office,  and  a  new  election  ordered. 
V.  Albany  &c.  R.  Co.,  1   Lans.  (N.  Y.)  Ibid. 

308;  55  Barb.   (N.  Y.)    344;  38  How.  *  Lavalle  v.  People,  68  HI.  252. 

Pr.  (N.   Y.)    228;    7  Abb.  Pr.   (N.  Y.)  ^  People  u.  DeMill,  15  Mich.  164. 

607 


1  Thorn  p.  Corp.  §  772.]     corporate  elections. 

into  the  offices  of  wardens  and  vestrymen  of  a  certain  chui-ch, 
which  was  alleged  to  be  a  corporation  created  by  the  authority 
of  the  State,  it  was  held  that,  inasmuch  as  the  court  had  no  judi- 
cial knowledge  of  the  existence  of  any  such  corporation,  the  in- 
formation was  defective  in  not  setting  forth  such  facts  as,  in 
connection  with  the  public  statutes,  of  which  judicial  notice  can 
be  taken,  would  show  such  corporate  existence.^ 

772.  The  Plea. — Where  the  remedy  is  used  as  at  common 
law,  the  plea  must  allege  specifically  the  facts  which  go  to  show 
the  right  of  the  respondent  to  hold  the  office.  For  instance,  if 
the  office  is  that  of  a  director  of  a  banking  corporation,  it  must 
allege  an  election  under  which  the  respondent  was  chosen  director, 
and  that  this  election  was  held  in  pursuance  of  the  governing 
statute  or  valid  by-laws  or  regulations.^  Where  this  conception 
of  the  remedy  prevails,  if  the  respondent  suffers  judgment  to  go 
against  him  by  default,  the  court  will  go  no  faither  than  to  give 
judgment  of  ouster  :  it  will  not  determine  the  relator's  right  to  the 
office.^  But  where  the  remedy  exists  in  its  enlarged  form,  as  it  does 
in  many  American  jurisdictions,  so  that  it  is  regarded  rather  as  a 
civil  remedy  to  determine  a  contest  for  the  right  to  hold  a  cor- 
porate office,  the  relator  must  not  only  show  that  the  respondent 
has  entered  into  the  office  without  lawful  warrant,  but  he  must 
also  show  title  to  the  office  in  himself.^  Where  the  averments 
of  an  information  in  the  nature  of  a  quo  warranto  set  out  a  con- 
tinued usurpation  of  an  office,  by  a  loss  of  the  qualifications 
necessary  to  the  holding  of  it,  the  plea  of  the  officer  must  set 
out  expressly  the  continuance  of  every  qualification  down  to  the 
filinof  of  the  information,  and  it  is  not  sufficient  to  state  that  the 
incumbent  was  qualified  at  the  time  of   his  appointment,  and  to 

1  People  V.  DeMill,  15  Mich.  164.  plea  must  show  that  an  election  was 
But  an  information  to  oust  an  officer  held  at  which  the  respondent  was 
of  a  private  corporation,  alleging  that  chosen  director,  that  it  was  held  in 
he  was  elected  at  an  illegal  meeting,  pursuance  of  an  ordinance  or  direction 
and  deceived  the  relators  as  to  the  time  of  the  board  of  directors,  fixing  the 
of  such  meeting,  need  not  allege  that  time  when  the  place  where  it  should 
the  relator  would  have  voted  against  be  held,  agreeably  to  the  requirements 
him  if  present.  Armingtonu.  State, 95  of  the  charter.  State??.  Ashley,  1  Ark. 
Ind.  421.  513,552. 

2  Speaking  with  reference  to  a  par-  ^  People  v.  Connor,  13  Mich.  238. 
ticular  case,  it  has  been  held  that  the  *  Miller  v.  English,  21  N.  J.  L.  317. 

{)0« 


CONTESTING  THE   ELECTION,  ETC.       [1  Thomp.  Corp.   §  773. 

rely  on  the  presumption  of  the  continuance  of  the  qualifications 
until  the  loss  of  them  is  shown. ^  In  quo  warranto  ^  for  usurp- 
ing the  office  of  president  of  an  incorporated  bank,  where  the 
ownership  of  real  estate  is,  by  law,  a  qualification  for  the  office, 
the  party  holding  the  office  must,  in  his  plea  of  justification,  de- 
scribe the  real  estate  of  which  he  is  the  owner  and  state  how  he 
has  derived  title  thereto,  and  exhibit  the  deeds  and  records  by 
which  his  ownership  is  evidenced.  And  where  the  ownership  of 
stock  is  a  qualification  for  the  office,  such  ownership  must  be 
pleaded  in  such  a  manner  as  to  show  that  the  stock  was  origi- 
nally awarded  to  the  respondent  after  a  compliance  with  the  re- 
quirements of  the  law;  or  if  acquired  by  transfer,  a  transfer  must 
be  set  out.  And  moreover,  in  pleading  his  election  by  the  stock- 
holders, he  must  show  that  the  election  was  held  agreeablj''  to 
law  and  in  conformity  with  and  in  pursuance  of  the  ordinances 
and  regulations  of  the  governing  board  of  the  corporation ;  and 
that,  at  such  an  election  he  received  a  majority  of  the  legal  votes 
cast.  Or  if  his  claim  is  by  virtue  of  an  election  by  the  board  of 
directors,  to  supply  a  vacancy  therein,  he  must  show  the  exist- 
ence of  a  board  competent  to  elect,  and  that  a  vacancy  existed 
therein,  and  how  such  vacancy  arose,  and  his  subsequent  elec- 
tion. The  defendant  need  not,  however,  in  his  defensive  plead- 
ing, state  that  the  electors,  by  whom  he  was  elected,  were  pos- 
sessed of  the  proper  qualification,  for  that  is  matter  which  must 
be  pleaded  in  avoidance  by  the  State.' 

§  773.  Misjoinder  of  Parties.  — No  mode  of  election  or  ap- 
pointment can  authorize  persons  claiming  different  offices  to 
unite  their  complaints  and  determine  their  title  to  both  offices  in 
one  proceeding,  without  a  statute  specially  permitting  such  a 
practice.  Therefore,  where  persons  claiming  to  be  wardens 
and  vestrymen  of  a  church,  united  as  relators  in  the  same  quo 
warranto  proceeding,  to  test  thereby  their  rights  to  the  respective 
offices  against  adverse  parties,  it  was  held,  that  the  information 

^  State  V.  Beecher,  15  Ohio,  723,  in  the  defendant  to  an   office  set  forth 

2  Not  an  information  in  the  nature  of  the  plea  as  possessed  by  him,  —  see 
of  a  quo  warranto.  Rex  r. Brown,  4  Durnf.  &  E.  276;   Rex 

3  State  V.  Harris,  3  Ark.  570;  s.  c.  v.  Hill,  4  B.  &  C.  443.  Instance  of  a 
36  Am.  Dec.  4G0.  Thut  tha  replication  plea  had  for  duplicity :  Commonwealth 
may  impeach  a  necessary  qualification  v.  Gill,  3  Whart.  (Pa.)  228. 

600 


1  Thomp.  Corp.  §  775.]     corporate  elections. 

was  bad  for  misjoinder.^  Nor  will  the  court  consolidate  several 
informations  in  the  nature  of  quo  warranto  agnmst  several  persons 
for  distinct  offices;  there  must  be  an  information  against  each  to 
disclaim.'^ 

§   774.  lieave  to  File   Discretionary  with  Court.  —  Where 

the  information  is  brought  to  oust  a  person  alleged  to  be  usurp- 
ing an  office  under  a  private  corporation,  it  is  in  the  discretion  of 
the  court  to  allow  or  not  to  allow  it  to  be  filed.^ 

§  775.  When  the  Relator  Bound  to  Show  Title.  —  As  here- 
after more  fully  pointed  out,*  the  primary  office  of  this  remedy 
at  common  law  was  to  compel  the  subject  to  exhibit  to  the  sov- 
ereign the  authority  by  which  he  assumed  to  exercise  an  office  or 
franchise  under  that  sovereign.  Where  this  conception  of  the 
remedy  prevails,  it  is  limited  merely  to  an  inquiry  into  the  right 
of  the  respondent  to  hold  the  office,  and  the  court  does  not  go  so 
far  as  to  inquire  whether  the  relator  is  entitled  to  hold  it  or  not. 
Where  the  remedy  is  used  as  it  existed  at  common  law,  the  State 
is  not  bound  to  show  anything;  for  if  the  office  was  lawfully 
granted,  the  defendant  can  show  his  warrant  for  exercising  its 
duties.  He  must  disclaim  or  justify.  If  he  disclaims,  the  State 
has  judgment.  If  he  justifies,  he  must  show  his  title  specially, 
and  all  the  particulars  ou  which  it  is  founded.  When,  therefore, 
a  writ  of  quo  warranto^''  was  directed  against  the  defendant  as 
director  of  a  banking  corporation,  it  was  held  that  his  plea  must 

*  People  V.  DeMill,  15  Mich.  164.  531.     In  Missouri,  an  information  in 

2  Rex  V.  Warloa,  2  Maule  &  S.  75.  the  nature  of  a  quo  warranto  in  the 
In  a  quo  warranto  against  three  to  name  of  the  circuit  attorney,  at  the 
show  why  they  held  the  ofBce  of  bank  relation  of  a  private  individual,  seek- 
directors,  one  disclaimed,  the  rest  ing  the  determination  of  a  matter  of 
pleaded  to  issue.  Held,  that  this  was  right  between  two  private  persons  can 
not  a  case  under  the  act  of  April  13,  be  filed  in  the  Supreme  Court  only  on 
1840,  §  13,  authorizing  a  decree  in  leave  especially  granted  for  that  pur- 
favor  of  the  relators,  in  case  judgment  pose;  and  leave  will  not  be  granted 
of  ouster  was  given.  Commonwealth  except  on  an  agreed  case  on  the  facts, 
V.  Sparks,  G  Whart.  (Pa.)  416.  or  in  an  extraordinary  case.     State  w. 

3  Gunton  v.  Ingle,  4  Cranch   C.  Ct.  Lawrence,  38  Mo.  535. 
(U.    S.)    438;    People   v.    Tibbets,   4  <  Pos«,  §  Ch.  167. 

Cow.  (N.  Y.)  358;   People  v.  Kipp,  Id.  ^  Not  an  information  in  the  nature 

382;     Commonwealth    v.    Arrison,  15      of  quo  warranto. 
Serg.  &  R.  (Pa.)  127;  s.  c.  16  Am.  Dec. 
610 


CO>TESTING    THK    ELECTION,  ETC.       [1  Thomp.  Corp.   §   776. 

allege  that  he  was  a  stockholder  ;  that  the  election,  under  which 
he  claimed  to  have  been  chosen,  was  held  under  and  in  pursuance 
of  an  ordinance  of  direction  of  the  board  of  directors,  fixing  the 
time  and  place  where  the  same  should  be  lield,  agreeably  to  the 
provisions  and  requirements  of  the  charter.^  And  even  in  En- 
gland, on  a  motion  for  an  information  in  the  nature  of  a  quo 
warranto  against  a  corporator,  to  vacate  his  office  on  the  ground 
of  his  acceptance  of  a  second  and  incompatible  office,  the 
relator  must   show  a  legal  appointment  to  the  second  office.^ 

§  776.  Distinctions  as  to  the  Burden  of  Proof.  —  This  calls 
up  an  important  distinction  also  exist  as  to  the  burden  of  proof, 
growing  out  of  the  theories  upon  which  the  remedy  is  used. 
Where  the  remedy  is  pursued  according  to  the  theory  of  the 
common  law,  the  burden  is  upon  the  defendant.  That  theory,  as 
already  suggested,  is  that  the  sovereign  has  a  right  to  know  by 
what  authority  the  subject  assumes  to  discharge  the  duties  of  a 
public  office  or  to  exercise  a  particular  franchise.  The  sov- 
ereign, therefore,  need  not  show  that  the  respondent  is  without 
authority,  but  he  is  obliged,  in  answer  to  the  demand  of  the 
sovereign  to  show  that  he  has  authority.^  But  where  the  con- 
ception of  the  remedy  is  that  it  is  a  mere  contest  between  pri- 
vate litigants  for  the  possession  of  a  corporate  office,*  the  bur- 
den of  i)roof  is  upon  the  moving  party,  that  is  to  say  upon  the 
relator.  The  reason  is  that,  in  such  a  case,  the  respondent,  in 
possession  of  the  office  and  exercising  its  functions  de  faclOy  is 
presumed  to  be  regularly  and  lawfully  there  until  the  contrary 
appears,  and  it  is  for  the  relator  to  overcome  this  presumption 
by  evidence.^  The  burden  of  proof  is  none  the  less  on  the  re- 
lator because  the  form  of  the  issue  requires  the  defendant  to 
show  cause.®  The  reason  of  the  rule  is  that  the  ordinary  pre- 
sumption of  right-acting  applies  to  the  acts  of  corporations,  as 
well  as  to  those  of  individuals.'     "  The  defendants,"  says  the 

1  State  V.  Ashley,  1  Ark.  513,  552.  «  State  v.  Kupferle,  44  Mo.  154;  s.c. 

And  sec  People  v.  Utica  Ins.  Co.,  15  100  Am.  Dec.  265. 
Johns.  (N.  Y.)  358.  "  State  v.  Hunton,  28  Vt.  594. 

2. Rex  V.  Day,  9  Barn.  &  C.  702;  s.  ^  State   v.   Kupferle,  44  Mo.    154; 

C.  4  Mann.  &  R.  541.  McDaniels  v.  Flovt'cr  &c.  Co.,  22  Vt. 

3  Post,  §  Ch.  157.  274. 


*  Ante,  §  767. 


611 


1  Thomp.  Corp.  §  777.]     corporate  elections. 

Supreme  Court  of  Vermont,  "  are  in  possession  of  the  office  in 
question,  and  should  be  presumed  rightly  elected,  and  entitled 
to  hold  until  the  contrary  be  shown.  The  plaintiffs,  then,  are 
bound  to  make  a  case  against  them,  and  they  shall  go  forward 
in  the  proof  and  in  the  argument."^  "This,"  says  the  Su- 
preme Court  of  Missouri,  "  puts  the  matter  on  clear  and  reason- 
able ground,  and  there  is  nothing  in  our  statute  to  require  a 
different  and  less  reasonable  practice."^  This  is  especially  so, 
where  the  incumbent  of  the  office,  against  whom  the  proceeding  is 
instituted,  holds  a  certificate  of  election  or  appointment,  for  this 
is  in  the  nature  of  a  muniment  of  title.  It  has  been  well  ob- 
served, with  reference  to  disputes  for  the  possession  of  corpo- 
rate offices,  that  where  there  has  been  an  authorized  election 
for  the  office  in  controversy,  the  certificate  of  election  which  is 
sanctioned  by  law  or  usage,  is  the  prima  facie  written  title  to 
the  office,  and  can  be  set  aside  only  by  a  contest  in  the  forms 
prescribed  by  law.'' 

§  777.  Tlie  Rule  in  New  York. — In  an  action  in  the  na- 
ture of  a  quo  warranto,  under  the  New  York  code  of  procedure,  to 
test  the  right  of  the  respondent  to  hold  an  office  into  which  he  has  been 
inducted,  and  to  establish  the  right  of  the  i-elator  to  such  office,  the 
burden  is  upon  the  respondent  to  show,  by  affirmative  evidence,  that 
his  possession  of  the  office  is  rightful  and  legal ;  but,  as  a  failure  on  his 
part  to  sustain  this  burden  would  not  establish  the  right  of  the  relator, 

1  State  exrel.  v.  Hunton,  28  Vt.  594.  Under  this  rule  the  secretary  was  re- 
To  the  same  effect,  see  People  v.  La  movable  when  the  directors  should 
Coste,  37  N.  Y.  192;  State  v.  Brown,  consider  there  was  sufficient  cause  for 
34  Miss.  688.  it,  and  they  were  the  judge  of  the  suf- 

2  State  V.  Kupferle,  supra.  Speak-  flcieucy  of  the  cause.  No  formal 
ing  with  reference  to  the  particular  notice  of  charges  or  trial  was  requi- 
case,  it  was  further  said  by  Currier,  J. :  site.  A  majority  of  1  he  de  facto  board 
"  The  proceedings  of  the  board  of  cZe  of  directors  considered  that  a  suffi- 
facto  directors  are  to  be  presumed  cient  cause  of  removal  had  arisen,  and 
regular  until  irregularity  is  shown,  accordingly  removed  the  secretary,  as 
They  are  not  to  be  presumed  irregular,  the  information  shows,  and  put  an- 
The  22d  by-law,  set  out  in  the  infor-  other  man  in  his  place.  Until  their 
mation,  provides  that  officers,  except  action  is  impeached  by  proof,  it  is  to 
the  president  and  vice-president,  shall  be  presumed  that  they  acted  oq  suffi- 
hold  their  offices  until  removed  by  the  cient  grounds."  Ibid.,  44  Mo.,  at  p. 
majority  of  the  board  of  directors  on  159;  100  Am.  Dec,  at  p.  267. 

a  charge   of    disability,   violation  of  ^  Kerr  v.  Trego,  47  Pa.  St.  292, 

duty,  or  any  other  sufficient  cause. 
612 


CONTESTING  THE   ELECTION,  ETC.       [1  Thomp.  Corp.   §  777. 

upon  the  issue  of  the  relator's  right,  the  burden  is  on  him.  The  subject 
was  thus  discussed  in  an  important  case  in  the  New  York  Court  of 
Appeals,  by  Andrews,  J.:  "The  ancient  wait  of  qiio  toarranto  was  a 
wi'it  of  right  for  the  king,  against  one  who  usurps  any  office,  franchise 
or  liberty,  to  inquire  by  what  authority  he  supports  his  claim,  in  order 
to  determine  the  right.  ^  In  theory  the  Mug  was  the  fountain  of 
honor,  of  office  and  of  pri\ilege.  And,  whenever  a  subject  undertook 
to  exercise  a  public  office  of  franchise,  he  was,  when  called  upon  by  the 
crown,  thi'ough  the  wi'it  of  quo  waiTanto,  compelled  to  show  his  title, 
and,  if  he  failed  to  so,  judgment  passed  against  him.  The  foundation 
of  the  rule  may  have  been  that,  as  all  offices  and  francliishes  are  the 
gift  of  the  king,  they  were  deemed  to  be  possessed  by  him,  and,  until 
his  grant  was  shown,  there  could  be  no  presumption  that  he  had  parted 
with  them,  or  invested  a  subject  with  the  right  to  exercise,  by  delega- 
tion, any  part  of  the  royal  prerogative.  But  whatever  may  have  been 
the  origin  of  the  rule,  it  was  well  estabhshed,  and  was  applied  also  in 
cases  where  proceedings  by  information,  in  the  nature  of  nqiio  warranto^ 
were  resorted  to  as  a  substitute  for  the  writ.^  In  this  State,  the  rule 
that,  in  proceedings  by  information  to  try  the  title  to  an  office,  the 
bui'den  is  upon  the  defendant  to  show  his  right,  and  that,  faihug  to  do 
it,  judgment  must  go  against  him,  has  been  frequently  recognized.* 
The  writ  of  quo  warranto,  and  proceedings  by  information  in  the  nature 
of  JUG  warranto  have  been  abolished, ^  and  a  remedy  by  action  is  given* 
The  action  may  be  brought  by  the  attornej^-general,  in  the  name  of  the 
people,  upon  his  own  information,  or  upon  the  complaint  of  any  private 
part}',  against  a  person  who  shall  usurp,  intrude  into  or  unlawfully 
hold  or  exercise  any  public  office ;  and  the  pro\ision  of  the  Eevised 
Statutes  ^  which  extendsthe  scope  of  the  original  proceeding  by  quo 
warranto  J  and  which  allowed  the  attorney-general  to  set  forth  in  his  in- 
formation the  name  of  the  person  rightfully  entitled  to  the  office  in 
controversy,  with  an  averment  of  his  right  thereto,  and  authorized  judg- 
ment to  be  rendered  upon  such  right,  as  well  as  upon  that  of  the 
defendant,  has  been  preserved.^  The  forms  of  procedm-e  have  been 
changed,  but  the  position  of  the  defendant,  and  the  rules  of  evidence, 
and  the  presumptions  of  law  and  fact  are  the  same  as  in  the  proceed- 
ing by  writ  or  information,  for  which  the  remedy  by  action  was  substi- 

1  Citing  3  Bla.  Com.  2G2.  27    N.   Y.   63;  Kyd   Corp.   399;    Cole 

2  Citiug    Ilex    V.    Leigli,    i    Burr.      Quo  War.  221. 

2148.  4  Citing    N.  Y.    Code   Civ.    Proc, 

3  Citing  People  v.  Utica  Insurance      §  428. 

Co.,  15  Johns.  (N.  Y.)  358;  People  v.  «  Citing  2  R.  S.  N.  Y.  582,  §  35. 

Thompson,  21    Wend.    (N.  Y.)  252;  s.  «  Citing    N.   Y.    Code    Civ.    Pro., 

c.   23   Id.,  5G7,  589;  People  v.  Pease,      §§  435,  436. 

613 


1  Thomp.  Corp.  §  779.]     corporate  elections. 

tuted.  The  people  are  here  the  ultimate  source  of  the  right  to  hold  a 
public  ofTice ;  aud  now,  as  heretofore,  when  the  right  of  a  person  exer- 
cisiufj  an  ollice  is  challenged  in  a  direct  proceeding  by  the  attorney- 
general,  the  defendant  must  establish  his  title,  or  judgment  will  be  ren- 
dered ao-ainst  him.  It  results  from  tliese  considerations  that  the 
defendant,  in  order  to  have  judgment  in  his  favor,  was  required  to 
prove  that  he  was  elected  to  the  office  of  mayor  at  the  election  held  in 
April,  1872.  The  possession  of  the  office  was  not,  in  this  action,  evi- 
dence of  his  right.  The  burden  was  upon  him  to  show,  by  affirmative 
evidence  that  his  possession  was  a  legal  and  rightful  one.  But  a  failure 
on  his  part  to  prove  his  title  to  the  office  would  not  estabUsh  that  of  the 
relator.  Upon  the  issue  of  the  relator's  title  the  plaintiffs  held  the  af- 
firmative, and  the  oiivs  prohandi  was  upon  them  to  maintain  it.  Judg- 
ment in  the  action  might  have  been  rendered  against  the  defendant, 
without  adjudging  that  the  title  to  the  office  was  in  the  relator.^ 

§  778.  Remedy  Exists  only  against  a  Party  in  Possession.  — 

The  remedy  is  analog'ous  to  aa  action  iu  ejectment  for  the  recov- 
ery of  land,  in  this  respect,  that  it  is  exercised  only  against  a  party 
in  actual  possession;  and,  as  already  seen,^  he  may  disclaim 
title,  just  as  a  defendant  may  do  in  ejectment.  It  is,  therefore, 
a  part  of  the  case  of  the  State  or  of  the  relator  that  the  defend- 
ant, against  whom  the  writ  is  directed,  is  or  has  been  in  the  actual 
possession  of  the  office.  It  is  not  sufficient  that  he  has  been 
merely  elected  to  it  and  has  tendered  himself  to  be  sworn  in.^ 

§  779.  Matters  of  Evidence.  —  Recurring  to  the  proposition 
that  the  plaintiff  must  prove,  as  a  part  of  his  case,  that  the  de- 
fendant was  in  actual  possession  at  the  time  of  the  commence- 
ment ot  the  action,  it  may  be  stated  that  proof  of  user  of  the 
office  may  be  made  by  any  witness  who  has  knowledge  of  the 
fact.*  Where  it  is  material  to  prove  who  were  elected  directors 
at  an  election,  this,  it  seems,. may  be  proved  by  parol  evidence, 
unless  there  is  a  statute  requiring  a  higher  grade  of  evidence,  — 
as  where  there  is  a  statute  requiring  a  record  to  be  kept,  and  a 
record  is  in  fact  kept.  Accordingly,  it  has  been  held  competent 
to  prove  who  were  elected  directors  of  a  company,  by  the  testi- 

1  People  ex  rel.  v.  Thatcher,  5r>  N.  »  i^ex  v.  Whitwell,  5  Durnf .  &  E.  85. 
Y.  525;  s.  c.  U  Am.  Rep.  312.  "•  Facey  v.  Fuller,  13  Mich.  527. 

2  Ante,  §  775. 

614 


CONTESTING   THE    ELECTION,  ETC.       [1  Thomp.  Corp.   §   780. 

mony  of  witnesses  who  were  present  at  the  election.^  So,  it  has 
been  held  that,  even  where  a  corporation  is  required  by  law  to 
keep  a  record  of  its  acts,  it  may  lawfully  act  without  doing  so, 
and  parol  evidence  of  its  acts  will  be  admissible.^  But  where 
such  a  record  is  kept,  parol  evidence  cannot  be  admitted  to  vary, 
control  or  explain  a  vote  of  the  corporation  as  there  recorded, 
when  the  language  of  the  vote  as  recorded  contains  no  imperfec- 
tion or  ambiguity.^  So,  the  "  warnmgs  "  and  proceedings  of 
meetings  of  a  corporation  having  a  clerk,  and  whose  by-laws 
require  the  warnings  to  be  in  writing,  cannot  be  proved  by 
parol.*  It  has  been  held  that,  on  a  trial  of  a  quo  warranto  in- 
formation against  the  wardens  and  vestrymen  of  a  religious  soci- 
ety, in  which  the  legality  of  the  election  is  in  issue,  evidence  may 
be  received  of  conversations  and  transactions  previous  to  the 
election,  if  they  were  connected  with  and  might  have  an  in- 
fluence on,  the  election,  although  no  previous  notice  thereof  has 
been  given. ^ 

§  780.  Remedy  does  not  Extend  to  Mere  Irregularities, 
Mistakes,  etc. —  The  court  will  not  allow  an  information  in  the 
nature  of  a  quo  loarranto  to  try  the  title  to  an  office  to  be  filed, 
merely  because  there  has  been  an  irregularity  in  the  election,  in 
the  absence  of  had  fallh,  and  where  the  result  of  the  election 
has  not  been  affected.^  In  a  case  of  merely  holding  an  election 
for  city  officers  on  a  wrong  day,  by  a  general  mistake,  and 
without  any  corrnpt  motive,  the  court,  in  the  exercise  of  its  dis- 
cretion, may  well  refuse  a  quo  warranto  to  oust  an  elected 
officer.^  This  is  tantamount  to  sayinir  that  a  court  will  not  set 
aside  a  corporate  election  without  substantial  grounds  founded 
upon  proper   and  sufficient  evidence.®     Mere  irregularity  in  the 

1  Partridge  v.  Badger,  25  Barb.  (N.  *  Stevens  v.  Eden  &c.  Society,  12 
Y.)  146.  Vt.  (i88. 

2  Old  Town  V.  Dooley,  81  111.  255.  ^  Comraonwealtli  v.  Woelpcr,  3 
The  official  character  of  persons  who  Serg.  &  R.  (Pa.)  29;  s.  c.  8  Am.  Dec 
acted  as   defendant's  ofTicers  may  be  G28. 

proved  by  parol,  without   producing  •'  Queen  v.  Ward,  L.  R.  8  Q.  B.  210. 

the  records  of  the    corporation,    see  '  State  v.  Tolan,  3:5  N.  J.  L.  l'J5. 

Pusey  V.  New  .Jciscy  &c.   R.  Co.,    14  ^  Couant  v.    Millaudon,  5  La.  An. 

Abb.  Pr.  (N.  s.)  (N.  Y.)  4.^4.  542. 

3  Peterborough  R.  Co.  v.  Wood,  61 
N.  ri.  418. 

615 


1  Thomp.  Corp.  §  781.]     corporate  elections. 

election,  or  the  fact  that  the  expenses  of  the  commissioners  were 
not  paid,  will  not,  it  has  been  held,  authorize  the  court  to  set 
t>uch  an  election  aside;  nor  will  an  injunction  to  prevent  the  in- 
stallment of  the  officers  be  granted,  unless  it  appear  that  the 
election  was  entirely  without  authority  of  law  and  void.^ 

§  7S1.  Rule  of  Decision  in  Cases  where  licgal  Votes  have 
been  Rejected  or  Illegal  Votes  Received. —  Persons  receiving 
no  more  than  a  minority  of  the  votes  cast  for  directors  cannot, 
in  this  proceeding,  even  where  it  is  enlarged  to  the  scope  of  a 
civil  action  to  contest  an  election,  be  declared  elected,  although 
it  is  made  to  appear  that  the  judges  improperly  rejected  enough 
legal  votes  offered  to  give  them  a  majority.^  It  is  no  objection 
that  illegal  votes  were  received,  unless  such  votes  were  sufficient 
in  number  to  change  the  result;  the  mere  fact  that  illegal  votes 
were  cast  will  not  avoid  such  an  election.^  But  where  the  per- 
sons for  whom  the  votes  wrongfully  rejected  were  tendered, 
would,  with  such  votes,  have  had  the  votes  of  a  majority  of  all 
the  shares,  the  court  will  set  aside  the  election,  and  order  the 
admission  of  those  persons  who  would  have  been  elected  if  such 
votes  had  been  received.*  It  has  been  reasoned  that  the  mere 
assertion,  in  such  case,  that  the  votes  may  be  illegal,  is  not 
sufficient  to  put  the  officers  elected  on  proof  of  their  legality. 
The  hypothesis  presented  assumes  a  fraud  upon  the  charter; 
and  fraud  is  not  to  be  presumed.^  The  court  also  reasoned  that 
one  who  contests  an  election  on  the  ground  that  votes  given 
by  an  elector  acting  as  trustee  were  for  the  benefit  of  other 
stockholders  who  had  already  voted  up  to  the  limit  allowed 
by  the  charter,  must  show  it  affirmatively.  The  bare  pos- 
sibility that  the  votes  were  held  for  such  persons,  is  not  to  be 
regarded.     The  contingency  is  too  remote  to  deserve  notice  as  a 

1  Hardenburgh  v.  Farmers  &c.  Cow.  (N.  Y.)  153.  Downing  v.  Potts, 
Bank,  3N.  J.  Eq.  68.  23  N.  J.  L.  66. 

2  State  V.  McDaniel,  22  Ohio  St.  *  Re  Cape  May  &c.  Co.,  51  N.  J.  L. 
354.  Downing  v.  Potts,  23  N.  J.  L.  78;  s.  c.  16  Atl.  Rep.  191;  Re  St.  Law- 
66;  Re  St.  Lawrence  &c.  Co.,  44  N.  J.  rence  &c.  Co.,  44  N.  J.  L.  529,  636. 
L.  529.  Re  Long  Island  R.  Co.,  19  But  see  Re  Long  Isiand  R.  Co.,  19 
Wend.  (N.  Y.)  37.  Wend.  (N.  Y.)  37,  45. 

3  Sudbury  v.  Stearns,  21  Pick.  ^  Conant  v.  Millaudon,  5  La.  An. 
(Mass.)    148;  Ex    parte     Murphy,    7  542, 

616 


CONTESTING    THE    ELECTION,  ETC.       [1  Thoiup.  Coip.    §   783. 

legal  presumption.^  "Where  it  is  sought  to  overthrow  such  an 
election  on  the  ground  that  the  stock  has  been  unlawfully  in- 
creased and  that  additional  shares  have  been  unlawfully  voted, 
the  effort  will  fail  if  it  appear  that  the  directors  received,  not 
only  a  majority  of  the  stock  as  increased,  but  also  a  majority  of 
the  stock  as  it  stood  prior  to  the  increase.^  The  governing  prin- 
ciple is  that  the  election  will  not  be  held  invalid,  if  those  entitled 
to  vote  have  had  a  full  and  fair  opportunity  of  expressing  their 
choice,  and  if  the  officers  chosen  are  the  choice  of  a  majority  of 
the  persons  voting.^ 

§   782.  Where  Two  Factions  Organize  Two  Meetings. — If  at 

the  meetino;  for  an  election,  there  are  two  factions  and  each  assumes 
to  organize  the  meeting,  and  rival  chairmen  are  elected,  the  first 
regular  and  formal  proceeding  for  organization  will  be  recognized 
by  the  law  as  valid.  The  redress  of  any  persons  aggrieved  by 
such  organization  is  to  be  sought  through  the  courts,  not  by  dis- 
order in  attempting  to  carry  on  two  elections  at  once;  and  those 
who  participate  in  such  a  course,  refusing  to  vote  in  the  regular 
election,  cannot  have  the  election  set  aside  on  the  ground  that  it 
was  made  by  a  minority.* 

§  783.  Party  Receiving  the  next  Highest  Number  of  Votes, 
where  Successful  Candidate  Disqualified. — Ai)plying  a  principle 
already  stated,^  it  has  been  held  that  the  relator  in  a  quo  warranto 
proceeding  has  no  interest^  which  will  enable  him  to  make  a  con- 
test, where  he  is  merely  the  next  in  vote  at  an  election  for  public 
office,  although  the  person  receiving  the  highest  number  of  votes 
and  returned  elected,  is  disqualified.  The  relator,  in  such  a  case, 
has  no  more  interest  than  any  other  inhabitant  of  the  common- 
wealth. The  question  of  his  right  to  the  office  is  a  public  one  ex-y 
clusively,  and  can  only  be  raised  by  the  attorney-general.     The 

1  Ibid.  appointmeut  by  resolution  was  a  good 

2  Byers  w.  Rollins  (Colo.),  21  Pac.  exercise  of  the  power.  Low  u.  Com- 
Rep.  894.  The  word  elect  in  a  statute  raissiouers,  R.  M.  Charlt.  (Ga.)  302. 
is  sometimes  equivalent  to  the  word  ^  Philips  v.  Wickham,  1  Paige 
«;)pom<,  and  where  the  statute  author-  (N.  ¥.)>   590. 

ized  a  city  corporation  to  elect  certain  ^  Matter  of    Pioneer  Paper  Co.,   36 

officers,  without  prescribing  the  mode      How.   Pr.  (N.  Y.)   Ill;  a«<e,  §  720. 
of  election,    it    was    held     that     an  ^  Ante,  ^752.     Compare  post,  ^o7 50. 

617 


1  Thomp.  Corp.  §  7 85. J     corporate  elections. 

reason  is  that  the  fact  that  the  majority  candidate  is  disqualified 
does  not  elect  the  minority  candidate.^  But  a  minority  candi- 
date may  acquire  a  sufficient  title  or  interest,  at  a  subsequent 
electioUf  to  enable  him  to  dispute  the  title  of  the  opposing  candi- 
date in  this  way. 2 

§  784.  Validity  of  Election  where  "Whole  Number  not 
Elected. — It  seems  that  an  election  of  directors  of  a  corporation 
is  not  invalid,  from  the  mere  fact  the  whole  number  prescribed 
by  the  governing  statute  are  not  elected,  if  enough  are  elected  to 
constitute  such  a  quorum  as  the  governing  statute  requires.  Thus, 
where  the  number  prescribed  by  the  governing  statute  was 
twenty-three^  a  majority  of  whom  were  competent  to  act,  an 
election  of  twenty-two  only  was  held  valid. ^  "Where  an  act,  au- 
thorizino;  the  election  of  trustees,  is  silent  in  regard  to  the  num- 
ber  to  be  chosen,  and  ten  were  elected,  six  of  whom,  being  a 
majority,  are  recognized  by  the  legislature  as  a  competent  board, 
the  org-anization  is  sufficient.*  So,  where  a  reduction  of  the  num- 
ber  has  been  authorized  by  an  amendatory  statute,  it  is  no  ob- 
jection that  the  reduced  number  have  been  elected  before  any 
formal  action  of  the  corporation  has  been  taken  reducing  the 
number  ;  since,  at  most,  the  failure  to  elect  the  others  leaves  a 
vacancy,  which  may  be  filled  in  accordance  with  the  provision  of 
the  charter.^ 

§  785.  Judgment  where   Term    of    OflSce    has    Expired.  — 

Where,  in  a  proceeding  in  the  nature  of  a  quo  ivarranto,  the 
cause  is  not  finally  determined  until  the  term  of  the  office  con- 
tested is  expired,  the  court  cannot,  of  course,  render  a  judgment 
of  ouster;  but  if  it  is  found  that  the  relator  was  entitled  to  the 
office,  a  general  judgment  will  be  entered  in  his  favor  and  for 

1  Com.  V.  Cluley,   56  Pa.    St.   270;  «  Com.  v.  Small,  2G  Pa,  St.  31. 
s.  c.  94  Am.  Dec.  75.     See  also  Cole  on  ^  Matter    of    Union    Ins.    Co.,    22 
Quo  Warranto,  141,142;  Reg.  r.  Hiorns,  Wend.    (N.    Y.)  591.     See   Wright  v. 
7  All.  &  El.  960 ;  s.c.B  Nev,  &  P.  148 ;  Rex  Commonwealth,  109  Pa.  St.  560. 
V.  Bridge,  1  Maule  &  S.  76.     Compare  ■*  Dart  v.  Houston,  22  Ga.  506. 
Hcxv.  Hawkins,  10  East,  211;  Rex  v.  *  Re  Excelsior  Ins.  Co.,  38  Barb.(N. 
Parry,  14  East,  549.     And  see  Com.  v.  297.  Y).     Power    of   directors  to   fill 
Cluley,  56  Pa.  St.   270;   s.  c.  94  Am.  vacancies  under  early  Virgioia  bank- 
Dec.   75,  where   the   forego  ug   cases  ing  law:  Bank  of  Virginia  v.  Robinson, 
are  compared  and  di.stinguished.  5  Gratt.  (Va.)  174. 

618 


CONTESTING    THE   ELECTION,  ETC.       [1  Thomp.  Corp.    §  786. 

costs.^  Oq  the  same  principle,  the  court  may,  in  its  discretion, 
refuse  to  allow  the  attorney-general  to  file  an  information  in  the 
nature  of  a  quo  warranto  against  an  officer,  when  it  appears  that 
the  time  for  which  he  was  elected  will  expire  before  ihe  inquiry 
can  have  any  effect,  but  will  leave  the  party  to  any  other  remedy 
which  he  may  have.^  In  a  subsequent  case  in  the  same  court, 
this  view  was  somewhat  modified,  the  court  holding  that  it  would 
not  deny  leave  to  file  an  information  in  the  nature  of  a  quo  war- 
ranto against  persons  who  had  unlawfully  intruded  into  corporate 
offices,  on  the  ground  that  the  offices  were  merely  annual,  and 
that  it  was  therefore  doubtful  whether,  according  to  the  course  of 
the  court,  a  trial  could  be  had  before  the  term  of  office  would 
expire:  provided  the  application  for  leave  to  file  the  information 
had  been  made  at  the  earliest  opportunity  after  the  offense  com- 
plained of  was  committed.  In  so  holding,  Savage,  C.  J.,  said: 
"  Here  the  motion  was  brought  before  us  at  the  term  next  after 
the  election.  We  cannot  refuse  it  upon  the  mere  chance  that  a 
trial  may  fail.  To  do  this  would  be  equivalent  to  a  refusal  in  all 
cases  where  the  office  is  annual  —  a  length  to  which  I  presume 
the  court  did  not  intend  to  go,  and  to  which  it  was  not  necessary 
to  go  in  People  v.  Sweeting.^  On  the  whole  we  are  clear,  upon 
the  nature  of  the  case,  as  to  our  right  of  allowing  the  informa- 
tion to  be  filed ;  and  that  the  lapse  of  time  is  not  such  as  to  re- 
quire us,  in  the  exercise  of  a  sound  discretion,  to  deny  it."  ^  If 
an  election  for  managers  of  a  corporation  be  not  disputed  during 
their  term  of  office  by  quo  warranto,  and  they  are  permitted  to 
act  throughout  their  term  as  managers  tZe/acto,  the /e(/a/^7?/  of 
ihe  next  election  cannot  be  questioned  for  any  vice  or  irregularity 
in  the  first.^ 

§  786.  Proceeding  against  an  Incumbent  who  is  Disquali- 
fied.—  It  seems  that  the  remedy  extends  to  ousting  an  incum- 
bent who  does  not  possess  the  legal  qualifications  for  the  office, 

1  People  V.  Loomis,  8  Wend.  (N.  wood,  19  Ga.  559;  State  v.  Jacobs,  17 
Y.)  31)0;  .s,  c.  24   Am.  Dec.  33;   People      Ohio,  143. 

V.    Seaman,   6    Denio  (N.    Y.),    409,  ^  2  Johns.  184. 

414.  *  People  v.  Tibbcts,  4  Cow.  (N.  Y.) 

2  People  V.  Sweetins,  2  Johns.  (N.      358,  381. 

Y.)  184.     See   also   Morris   v.  Under-  ^  Cora.  v.  Smith,  45  Pa.  St.  59. 

619 


1  Thomp.  Corp.  §  788.]     corporate  elections. 

and  is  not  restricted  to  inquiring  into  the  regularity  of  the  election 
or  other  proceedings  by  wliieh  he  has  obtained  the  office.^ 

§  787.  Estoppel  to  Raise  Objection.  —  A  corporator  who, 
with  a  full  knowledge  of  the  objections  to  the  legality  of  a  cer- 
tain class  of  votes,  attends  a  meeting  of  the  corporation,  partici- 
pates in  its  deliberations,  and  acquiesces  in  its  decisions,  by  can- 
vassing and  voting  in  the  election  of  officers,  cannot  question  the 
title  of  the  officers  elected,  on  the  ground  that  such  class  of  votes 
was  illegal.^  In  short,  where  the  wrong  complained  of  is  the 
result  of  his  own  misconduct  or  neglect,  or  he  has  acquiesced  or 
concurred  in  it,  he  will  not  be  listened  to.  Accordingly,  where 
a  member  of  a  corporation,  having  knowledge  of  defects  in  the 
preliminaries  of  organization  of  the  corporation,  took  part  in  an 
election  for  directors,  and  the  officers  so  elected  acted  and  con- 
tracted as  such,  it  was  held,  that  having  held  the  corporation  out 
to  the  world  as  being  properly  organized,  he  could  not  file  au  in- 
formation in  the  nature  of  quo  warranto  against  such  directors.^ 
But  where  he  concurs  in  an  election  in  ignorance  of  some  fact 
making  it  invalid,  and  afterwards  shows  the  objection,  and  that 
it  has  come  to  his  knowledge  since  the  election,  he  should  be 
heard;  for  consent,  induced  by  error,  is  not  binding  in  the  eye 
of  the  law.*  In  like  manner  it  has  been  held  no  objection  to  an 
application  for  a  quo  warranto  to  oust  the  defendant  from  the 
office  of  alderman,  by  a  corporator  who  objected  to  his  qualifica- 
tion at  the  time  of  his  election,  that  he  afterwards  made  no  ob- 
jection to  his  election  to  the  principal  office  of  magistracy  (which 
required  the  defendant  to  be  an  alderman  as  a  qualification),  and 
attended  at  and  concurred  in  corporate  meetings  where  the 
defendant  presided  or  attended  in  his  official  capacity.^ 

§  788.  Title  to  Corporate  OflBce  not  Impeached  Collater- 
ally.—  The  principle,  elsewhere  discussed,^  which  upholds  the  ex- 
istence of  corporations  against  collateral  attack,  applies  equally 
to  the  officers  of  a  corporation,  when  their   right  to  act  as  such 

1  state  V.  Gastinell,20  La.  An.  114;  3  Cole  v.  Dyer,  29  Ga.  434. 

s.  c.  18  Id.  517;  post,  §  790.  *  Wiltz  v.  Peters,  4  La.  An.  339. 

2  State  V.  Lehre,  7  Rich.  Law   (S.  «  Rex  v.  Clark,  1  East,  38. 
C),  234.  6  ^nte,  §501 ;  post,  Ch.  184. 

620 


CONTESTING    THE    ELECTION,  ETC.        [1  Thomp.  Corp.    §  788. 

is  questioned  in  collateral  proceedings.  The  principle  is  strictly 
analogous  to  that  which  validates  the  acts  of  de  facto  public 
officers  in  respect  of  third  persons.  It  is,  that  persons  acting 
publicly  as  the  officers  of  a  corporation  are  presumed  to  be  rio-ht- 
fully  in  the  possession  of  their  offices,  and  that  their  acts  are 
binding  on  the  corporation,  so  far  as  is  necessary  to  uphold  the 
rights  of  third  persons.^  The  particular  officer  maybe  ineligible;  ^ 
he  may  have  been  elected  by  a  lefis  number  of  votes  than  the 
charter  requires  ;  ^  he  may  be  in  office  under  a  judicial  decision 
subsequently  reversed;  ^  or  he  may  have  been  otherwise  elected 
irregularly  or  illegally,^  and  yet  the  irregularity  or  illegality  of 
his  election  cannot  be  set  up  even  as  against  the  corporation,  to 
defeat  the  validity  of  his  acts,  provided  he  is  in  under  color  of 
right.     Conflicting  claims  to  a  corporate  office  cannot  be  deter- 


1  Hall  V.  Carey,  5  Ga.  239 ;  Susque- 
hanna Bridge  &c.  Co.  v.  General  Ins. 
Co.,  3  Md.  305;  State  v.  Williams,  27 
Vt.  755.  And  see  Lemmgtou  v.  Blod- 
gett,  37  Vt.  210;  Durkin  v.  Exchange 
Bank  of  Virginia,  2  Patt.  &  H.  277;  St. 
Luke's  Church  V.  Matthews,  4Desauss. 
(S.  C.)  578;  Riddle  u.  County  of  Bed- 
ford, 7  Serg.  &  R.  (Pa.)  392;  York 
County  V.  Small,  9  Watts  &  S.  (Pa.) 
320;  Kingsbury  v.  Ledyard,  2  Id. 
41;  McGargell  v,  Hazleton  Coal  Co., 
4  Id.  425;  Despatch  Lino  of  Pack- 
ets V.  Bellamy  Manuf.  Co.,  12  N. 
H.  205;  Smith  v.  Erb,  4  Gill  (Md.), 
437;  Burr  v.  McDonald,  3  Gratt. 
(Va.)  215;  Matter  of  Mohawk  &c.  R. 
Co.,  19  Wend.  (N.  Y.)  135;  Lovett  v. 
German  Reformed  Church,  12  Barb. 
(N.  Y.)  07.  And  see  Merrill  v.  Farris, 
22  111.  303;  Schofield  v.  Watkins,  22 
111.  66;  Facey  v.  Fuller,  13  Mich.  527. 
By  statute  in  Indiana,  no  act  of  any 
board  of  directors  done,  shall  be  In- 
valid by  reason  of  any  informality  or 
irregularity  in  time,  place,  and  manner 
of  their  election.  2  Rev.  Stat.  Ind. 
1888,  §  3021.  Definition  of  officer  de 
facto:  Rex  v.  Corporation  of  Bedford 
Level,  6  East,  356. 

2  Knight  V.  Wells,  Lutw.  508. 


3  Baird  v.  Bank  of  Washington,  1 1 
Serg.  &R.  (Pa.)  411. 

^  Ebaugh  V.  German  Reformed 
Church,  3  E.  D.  Smith  (N.  Y.),  60.  A 
person  who  makes  a  contract  with 
church  trustees  who  are  in  possession 
of  all  the  church  property,  witliout 
his  having  knowledge  of  any  Illegality 
in  their  election,  may  enforce  his  claim 
on  the  contract,  though  the  election 
should  afterward  be  adjudged  illegal. 
And  the  fact  that  he  was  hiin-elf  one 
of  the  trustees  de  facto  does  not  alter 
the  case,  in  the  absence  of  bad  faith. 
So  held,  where  the  courts  had  decided 
that  the  trustees  were  legally  in  office, 
and  the  adverse  claimants  had  sub- 
mitted to  this  decision,  and  had  given 
no  notice  of  any  intent  at  that  time  to 
continue  the  litigation.  Ebaugh  v. 
German  Reformed  Church,  3  E.  D. 
Smith  (N.  Y.),  60. 

*  Balrd  u.  Bank  of  Washington,  11 
Serg.  &R.  (Pa.)  411.  See  also  Bland- 
ford  V.  School  District,  2  Cush. 
(Mass.)  39;  Delaware  &c.  Canal  Co.  v. 
Penn.sylvania  Coal  Co.,  21  Pa.  St.  131 ; 
Sampson  v.  Bowdoinham  Steam  Mill 
Corp.,  36  Me.  78;  Penobscot &c.  R.  Co. 
V.  Dunn,  39  Me.  587;  Smith  v.  Bank, 
18  Ind.  327. 

G21 


1  Tliomp.  Corp.  §  788.]     corporate  elections. 

mined  in  an  action  of  ejectment^  brought  in  the  name  of  the 
corporation  by  persons  claiming  to  be  its  legal  trustees;  ^  nor  in 
Enaction  of  replevin  for  personalty  of  the  corporation;  ^  nor 
by  liaheas  corpus  granted  to  a  party  who  has  been  arrested  on  a 
warrant  issued  by  such  officer;^  nor  upon  a  motion  to  vacate 
judicial  proceedings  as  irregular,  where  summons  was  served 
on  persons  claiming  to  be  corpoi'ate  officers,  who  were  not  in 
possession  of  the  offices,  —  though  the  court  would  vacate 
the  proceedings,  because  they  were  not  officers  de  facto.* 
But,  of  course,  the  rule  does  not  extend  so  far  as  to  validate, 
even  in  respect  of  third  persons,  the  acts  of  naked  trespass- 
ers or  intruders.^  Thus,  it  has  been  held  that,  where  an  action 
has  been  commenced  in  the  name  of  a  corporation,  by  direction 
of  its  officers  de  facto,  no  other  persons  claiming  a  right  to  act  as 
the  officers  of  the  corporation,  the  defendant  cannot  be  permitted 
to  show,  for  the  purpose  of  defeating  the  action,  that  the  officers 
were  illegally  elected.^  It  is  a  necessary  consequence  of  this 
doctrine,  that  the  appointment  and  powers  of  corporate  officers 
may  be  inferred  from  the  continued  acquiescence  of  the  corpora- 
tion in  their  official  acts,  — for  instance,  in  the  case  of  an  insur- 
ance company,  the  recognition  by  the  company  of  the  fact  that 
.a  certain  person  has  openly  and  notoriously  transacted  its  busi- 
ness as  its  secretary,  has  had  the  custody  of  its  books,  and  has 
borrowed  money  and  entered  accounts  of  it  therein.^  On  the 
other  hand,  the  neglect  to  be  sworn  into  an  office  for  a  great 
length    of  time,    e.g.,  above   twenty  years    after   the  parly    is 

1  Parish  of  Bellport  v.  Tooker,  29  Ala.  253.     The   act  of  the  proper  of- 
Barb.  (N.  Y.)  256.  ficer,  in  making  an  appointment  to  aa 

2  Desmond  v.  McCarthy,  17   Iowa,  office  ha^4  been  said  to  be  in  tlie  nature 
525.  of     a    judicial     act,    which    is    not 

3  Exp.  Strahl,  16  Iowa,  369.  to    be  questioned   in    any  collateral 
*  Berrian  v.    Methodist  Society   in      action   between   individuals.       Wood 

New  York,  4  Abb.  Pr.  (N.  Y.)  424.  v.     Peake,    8    Johns.    69;     Widely   v. 

'=  A  bare sivearing -in  iindacling  does  Washburn,    16   Johns.    49;   People   v. 

not    make    an  officer   de  facto;   there  Seaman,  5  Denio  (N.  Y.),  409,  412.     It 

must  be,  at  least,  the  form  of   an  elec-  is    also    held    that    this    doctrine    is 

tion,    though    the    election    may    be  equally  applicable  to  the  decision  of  a 

subsequently  set  aside.     Hex  t;.  Lisle,  board  of   canvassers  declaring  the  re- 

2  Strange,  1090.  suit  of  an  election  for  office.     Their 
6  Charitable  Association u.  Baldwin,  decision  cannot  be  called  in  question 

.1  Mete.  (Mass.)  359.  collaterally,  but  only  in  a  proceeding 

'  Talladega  Ins.  Co.  v.  Peacock,  67      instituted  directly   to  try  the  right  to 
622 


CONTESTING    THE    ELECTION,  ETC.        [1  Thomp.  Coip.    §  790. 

elected,  may  be  deemed  a  waiver  or  refusal  to  accept  the  elec- 
tion by  the  party  elected.^ 

§  789.  Presumptions  in  Favor  of  Regularity. —  Every  rea- 
sonable intendment  is  to  be  made  in  favor  of  the  regularity  of 
the  proceedings  of  a  private  corporation  in  their  corporate  acts.^ 
This  rule  applies  to  corporate  meetings  and  corporate  elections  ; 
and  also  to  the  meetings  of  directors.^  A  corporate  meeting,  or 
a  meeting  of  corporate  directors,  will  be  presumed  to  be  regular 
unless  the  contrary  appears.* 

§  790.  Eligibility  for  the  Office  of  Director. —  Under  most 
of  the  American  statutes,  no  person  is  eligible  for  the  office  of 
director  who  is  not  Si  bona  fide  holder  of  shares  in  the  corpora- 
tion, and  this  is  so  under  the  English  joint-stock  companies  act 
of  1862,  and  its  amendments.  The  question  in  that  country 
has  frequently  arisen,  whether  the  mere  transfer  of  the  requisite 
number  of  shares  to  a  person,  in  order  to  qualify  him  to  act  as  a 
director,  makes  him  liable  as  a  contributory  in  the  winding  up  of 
the  company  in  respect  of  such  shares;  in  other  words,  whether 
he  can  be  a  shareholder  for  the  purpose  of  holding  the  office  of 
director,  and  not  a  shareholder  for  the  purpose  of  answering  to 
creditors;  and  the  courts  of  that  country  hold  that  he  cannot  be 
a  shareholder  and  not  a  shareholder,  according  to  the  end  in 
view.^  A  few  decisions  are  met  with  in  this  country  on  the 
question  of  the  qualifications  necessary  for  the  office  of  director. 
Whether  a  person  is  a  bona  fide  holder  of  shares  so  as  to  qualify 
him,  or    whether    his   tenure  of  them    is  a   sham,  is    of   course 


the  oflScc.     People  v.    Seaman,  supra.  ^  State   v.    Kupferle,    44  Mo.    154; 

For  further  illustrations  of  the  text,  s.  c.  100  Am.  Dec.  205;  Lane??.  Braiu- 

8ee  Ellis  v.   North   Carolina   Institu-  erd,  30  Conn.  5(J5,  577;  McDaniels  u. 

tion  &c.,  68  N.  C.  420 ;  Waite  v.  Wind-  Flower  Brook  Man.  Co.,  22  Vt.  271. 
ham  County   Mining  Co.,  3G  Vt.    18;  *  Sargent    v.    Webster,     13    Mete. 

Hastings  v.  Bluchill  Turni)ike   Corp.,  (Mass  )  497;  Lockwood  v.  Mechanics 

9  Pick.  (Mass.)  80;   Ilud.son  River  &c.  Nat.    Bank,  9    R.    L  308;  s.  c.  11  Am. 

R.   Co.    V.  Kay,  14   Abb.  Pr.    (n.    s.)  Rep.  253,  20(5;  Peoples.  Batchclor,  22 

(N.  Y.)  191.  N.  Y.  128.     Compare  Atlantic  &c.  Ins. 

1  Rex     V.      Jordan,     Cas.     temp.  Co.  v.  Fitzpatrick,  2    Gray  (Mass.), 
Hardw.  225.  279. 

2  McDauitls  v.  Flower  Brook  Man.  ^  Post,  §  1260. 
Co.,  22  Vt.  274. 

623 


1  Thomp.  Corp.  §  791.]     corporate  elections. 

a  question  of  fact.  Where  shares  were  purchased  by  a  married 
woman  and  the  certificate  was  accidentally  made  out  to  her  hus- 
band, who  afterwards  concluded  to  take  the  shares  himself,  and 
transferred  the  account  from  his  wife's  name  to  his  own, —  it 
was  held  that  he  was  a  bona  fide  holder  of  shares  and  eligible  as 
director.^  Under  the  statutes  of  Nevada,  there  is  a  doubtful 
holding  that  a  person  who  "  holds  "  shares  of  stock  issued  in  his 
name  is  recoojnized  as  a  stockholder,  as  well  as  one  who  "  owns*' 
them.^  The  inspectors  of  election  cannot  decide  the  question 
of  eligibility  for  the  office  of  director;  it  can  only  be  decided 
by  the  courts.^ 

§  791.  Classification  of  Directors. —  In  several  States  there  are 
statutes  proAdding  that  the  directors  may  be  divided  iuto  three  classes, — 
one  class  holding  office  for  one  year,  one  for  two  years,  and  one  for 
three  years, —  the  successors  of  each  class  being  elected  for  three 
years.*  In  Illinois,  the  provision  is  that,  by  resolution  of  the  stock- 
holders, the  board  of  directors  may  be  divided  into  three  classes,  the 
first  class  re-elected  at  the  nest  annual  election,  the  next  class  at  the 
second  annual  election,  and  the  third  class  at  the  annual  meeting  held 


1  Re  St.  Lawrence  Steamboat  Co., 
44  N.J.  L.  529. 

2  State  V.  Leete,  16  Nev.  242.  In 
this  case,  A.  owning  certain  shares  of 
stock  in  a  corporation  organized  for 
the  purpose  of  maintaining  a  ditch, 
etc.,  gave  them  to  his  son,  with  the  re- 
quest that  new  certificates  should  be 
issued  in  the  son's  name,  and  trans- 
ferred upon  the  books  of  the  com- 
pany. This  request  was  complied 
with.  The  son  paid  nothing  for  the 
shares,  the  transfer  being  made  in 
order  that  he  might  be  eligible  to  the 
office  of  trustee.  It  was  held,  on  a 
review  of  the  statutes  of  Nevada,  that 
such  transaction  constituted  the  son 
a  stockholder,  and  made  him  eligible 
to  such  office.  (Belknap,  J.,  dissent- 
ing) .    Ibid. 

2  Ke  St.   Lawrence  Steamboat  Co., 
44  N.  J.  L.  529.     The  statute  of  Con- 
necticut (Laws  1876,  ch.  65),  provid- 
ing that  a  director   of  a  corporation 
024 


owning  stock  in  another  corporation 
may  be  elected  a  director  of  the  latter 
corporation,  is  not  repealed  by  the 
joint-stock  act  of  1880.  Chase  v. 
Tuttle,  55  Conn.  455.  That  a  by-law 
which  would  render  a  class  of  per- 
sons eligible  to  office  Avho  by  the  char- 
ter, are  ineligible,  is  bad,  —  see  Kex 
V.  Bumstead,  2  Barn.  &  Ad.  699;  Rex 
V.  Spencer,  3  Burr.  1827.  Where  a 
person  has  a  right  to  vote  on  stock  as 
a  stockholder,  he  is  also  eligible  to 
any  office  to  which  a  stockholder  is 
eligible.  State  v.  Ferris,  42  Conn. 
560.  That  courts  will  not  add  by  con- 
struction to  the  causes  specified  in  a 
statute  as  rendering  a  person  in- 
eligible to  office  in  a  municipal  cor- 
poration, —  see  Rex  v.  Chitty,  5  Ad.  & 
E.  609;  s.  c.  2  Har.  &  W.  399;  1  Nev. 
&  P.  78. 

<  Gen.  Stat.    Colo.  1883,   chap.    19, 
§  126. 


CONTESTING  THE   ELECTION,  ETC.       [1  Thomp.  Coip.   §  792. 

three  years  after  the  first  annual  election  ;  each  class  therefore  filled  with 
directors  elected  for  three  years.  All  other  vacancies  are  to  be  filled 
according  to  the  by-laws. ^  So  in  Michigan,  the  directors  may  be 
divided  into  three  equal  classes,  one  of  which  shall  hold  office  for  one 
year,  one  for  two  years,  and  one  for  three  years,  and  at  subsequent 
elections  directors  may  be  elected  for  three  years  to  succeed  them.  2 

§  792.  Holding  Over.  —  By  the  principles  of  the  common 
law,  the  failure  to  elect  officers  of  a  corporation,  public  or 
private,  does  not  dissolve  the  corporation,  but  the  old  officers 
hold  over  until  their  successors  are  chosen  and  qualified.^  The 
same  principle  has  been  declared  by  statute  in  several  States,  oiit 
of  abundant  caution,  as  seen  by  the  next  section.*  Accordino-ly, 
where  the  cashier  of  a  bank  has  been  appointed  for  a  definite 
term,  enters  upon  the  duties  of  his  office  and  gives  bond,  he  con- 
tinues in  office  until  a  new  cashier  is  qualified  by  givino-  a  bond, 
provided  the  State  makes  this  qualification  essential.^  Where, 
however,  the  charter  or  governino;  statute  fixes  the  term  of  office 
for   a  year,  the  directors  cannot,  against  the  will  of  the  stock- 


1  Starr  &  Curt.  111.  Stat.,  p.  610, 
chap.  32,  §  3. 

2  How.  Mich.  Stat.  1882,  §  3317. 

3  Foot  V.  Prowse,  1  Strange,  625; 
Sparks  v.  Farmers'  Bank,  3  Del.  Ch. 
274;  Smith  v.  Natchez  St  amboat  Co., 
IHow.  (Miss.)  179;  McCall  t?.  Bryam 
Manuf.  Co.,  6  Conn.  428;  Congrega- 
tional Soc.  of  Beh.-iny  v.  Sperry,  10 
Conn.  200;  South  Bay  Meadow  Dam 
Co.  V.  Gray,  30  Me.  547;  Nashville 
Bank  v.  Petway,  3  Humph.  (Tenn.) 
522. 

*  People  V.  Jone.s,  17  "Wend.  81; 
People  V.  Vail.  20  Wend.  12. 

*  Spa!  ks  V.  Farmers'  Bank,  3  Del.  Ch. 
274.  The  title  of  the  person  receiving 
the  necessary  votes  to  ekct  to  a  cer- 
tiin  office  is  comjilete  the  moment  the 
vote  is  di  clared,  and  the  right  of  the 
former  incumbent  to  hold  over  ceases. 
Booker  v.  Young,  12  Gratt.  (Va  )  303. 
If  the  by-laws  of  a  corporation  pro- 
vide that  the  clerk  shall  be  chosen 
yearly,  and  also  that  he  shall  continue 


in  office  till  another  shall  be  chosen 
and  qualified,  and  the  first  person 
chosen  and  qualified  is  re-elected  the 
next  year,  he  continues  to  be  clerk 
under  the  first  election,  till  he  is  quali- 
fied under  the  second.  Hastings  v. 
Blue  Hill  Turnpike  Corporation,  9 
Pick.  (Mass.)  80.  Under  a  statute 
directing  that  the  clerk  chosen  by  a 
school  district  should  hold  his  office 
until  another  should  be  chosen  and 
sworn  in  his  stead,  where  the  clerk  of 
a  school  district  removed  into  an  ad- 
joining district,  but  within  the  same 
town,  and  another  was  chosen  in  his 
place,  but  not  sioorn, — it  was  held  that 
the  first  continued  competent  to  act  as 
clerk.  Williams  v.  School  District  in 
Lunenburg,  21  Pick.  (Mass.)  75. 
Where  a  charter  speaks  of  "years  " 
with  reference  to  an  ofiice,  years  of 
office,  and  not  calendar  years,  are  in- 
tended. Rex  V.  Swyer,  10  Barn.  &  C. 
48C. 

G25 


1  Thomp.  Corp.  §  791. J     corporate  elections. 

holders,  enlarge  this  term  by  changing  the  time  of  holding  the 
annual  election,  by  a  by-law  or  otherwise.^  The  above  rule  has 
no  application  to  a  deputy,  whose  term  of  office  expires  on  the 
death  of  his  principal. ^ 

§  793.  Statutory  Provisions  tbat  Directors  shall  Hold  over.  — 

Statutes  in  several  of  the  States  provide  that,  in  default  of  an  election, 
the  directors  shall  hold  over  until  their  successors  are  elected  and 
quahtied.2  Some  statutes  pro\ide  that  a  failure  to  elect  otRcers  shall 
not  dissolve  the  corporation,  but  that  the  incumbents  shall  hold  over.^ 
The  statute  of  Arkansas  is  still  more  explicit.  Failure  to  hold  an  elec- 
tion at  the  time  appointed  does  not  dissolve  the  corporation,  but  the 
election  may  be  held  at  any  time  during  the  year  upon  due  notice  given 
by  the  directors.^  Another  statute  of  Arkansas  provides  that  corpora- 
tions shall  not  be  dissolved,  if  the  election  of  directors,  which  has  not 
taken  place  at  the  appointed  time,  shall  be  held  within  ninety  days  after 
such  time,  in  the  manner  provided  by  the  by-laws.^  In  Texas,  the  pro- 
vision is  that  if  the  election  of  directors  fails  to  come  off  on  an  ap- 
pointed day,  this  does  not  dissolve  the  corporation,  but  it  may  be  held 
on  any  other  day  in  accordance  with  the  mode  prescribed  by  the  by- 
laws.' 

§  794.  Resignation  of  a  Corporate  Office. — According  to  an 
ancient  strictnes>,  where  an  office  is  granted  by  deed,  the  lesig- 
nation  or  surrender  ought  also  to  be  by  deed;  but,  where  an 
officer  is  appointed  by  election,  the  corporation  may  accept  a 
resignation  or  surrender  by  parol. ^  Under  provisions  of  a  char- 
ter, which  direct  that  an  alderman  or  other  officer  may  resign  by 
giving  written  notice  to  the  city  clerk,  and  publishing  a  copy  of 
such  notice  in  the  corporation  papers,  —  a  simple  communication 
to  the  mayor  and  common  council,  tendering  a  resignation  has 
been  held  ineffectual.^  An  intent  to  resign  may  be  inferred  from 
the  acceptance  of  an  incompatible  office.^"    But  the  acceptance  of 

1  Curtis  V.  McCullough,  3  Nev.  202;  *  Code  Tenn.  1884,  §  1705. 
Elkins  V.  Camden  &c.  R.  Co.,  36  N.  J.  ^  Arkansas  Dig.  Stat.  1884,  §  965. 
Eq    4<;7.                                                                     ^  Ark.  Dig.  Stat.  1884,  §  5432. 

2  Rex  V.   Corporation  of    Bedford  ^  Sayle  Tex.  Stat.  1888,  art.  583. 
Level,  6  East,  350.  ^  Rex  v.    Mayor   &c.  of  Rippon,    1 

3  Deer.    Code    Cal.,  part  4,  §  306;  Ld.  Raym.  563;  2  Salk.  433. 

Comp.  Stat.  Neb.  1887,  chap.  16,  §  38;  »  Lewis  v.    Oliver,  4   Abb.    Pr.  (N. 

Rev.   Stat.   Minn.  1881,  §  404;  2  Sayle  Y.)  121, 

Tex.  Stat.  1888,  art.  4125.  i"  Verier  v.  Sandwich,  1    Sid.    305; 
&2iS 


CONTESTING   THE    ELECTION,  ETC.       [1  Thomp.  Corp.   §  794. 

office  by  the  members  of  one  of  the  faculties  of  an  old  educa- 
tional corporation,  under  a  new  corporation,  does  not  in  law 
amount  to  a  resignation  of  their  offices  under  the  former,  nor  to 
a  dissolution  or  suspension  of  its  franchises.^  There  is  much 
judicial  authority  to  the  effect  that  a  public  officer  cannot  at 
pleasure  lay  aside  his  office,  —  otherwise  the  wheels  of  govern- 
ment might  be  thereby  stopped,  which  would  be  against  public 
policy ;  ^  but  it  is  assumed  that  this  principle  cannot  apply  in 
the  case  of  an  officer  of  a  private  corporation.  It  has  been 
held  that  a  person  who  has  been  elected  to  an  office  cannot 
resign  the  same  before  the  time  has  arrived  when  he  is  en- 
titled by  law  to  possess  it,  and  has  become  invested  with  its 
privileges  by  subscribing  to  the  oaths,  and  giving  the  obligations 
required  by  law.  Hence,  an  attempt  on  the  part  of  one  elected 
to  an  office  to  resign  before  he  is  made  an  incumbent,  is  abortive 
and  ineffectual.^ 

Rex  V.  Goodwin,  Dougl.  397,  note  22;  notification  of  the  fact  that  he  resigns 

Milward  v.  Thatcher,  2   Durnf .  &  E.  is  not  sufficient  to  discharge  him  from 

87;  Rex  V.  Patemeu,  7d.  779.  his  office;  but  his   resignation,  to  be 

1  Regents  of  University    of  Mary-  effectual,  must  be  accepted  by  corn- 
land  V.  Williams,  9  Gill  &  J.  365.  petent  authority.     State  v.  Ferguson, 

2  It  has    even  been   held    that    an  31  N.  J.  L.  107, 

overseer  of  the  highways  cannot,  at  his  ^  Miller   v.  Supervisors   of   Sacra- 

pleasure,  lay  aside  his  office.    A  mere      mento  County,  25  Gal.  93. 

627 


1  Thomp.  Corp.]       a31otion  of  oiticers. 


CHAPTEK    XYI. 


AMOTION  OF  OFFICERS. 


Section 

799.  Distinction  between  amotion  and 

disfrancliisement. 

800.  Observations  of  Mr.  Willcock  on 

this  question. 

801.  These  observations  applicable  to 

corporations    other  than    mu- 
nicipal. 

802.  Power  of    amotion    inherent    in 

corporations. 

803.  Power    resides    in    corporation 

alone. 

804.  Power  resides    in    the    body  at 

large,  not  in  the  trustees. 

805.  Removal  of  officers  who  hold  at 

will. 

806.  Lord  Mansfield's  classification  of 

grounds  of  amotion. 

807.  In  what    case  there  must    be  a 

previous  trial  and  conviction. 

808.  Misappropriating    money:    false 

charges  of  money. 

809.  Bribery. 

810.  Misconduct  in  respect  of  duties 

toward  the  corporation. 

811.  Offenses  touching  the  corporate 

record. 

812.  Neglect  of  duty. 

813.  Non-attendance     at      corporate 

meetings. 

814.  Ineligibility:  subsequent  election 

to  another  office. 

815.  Other  grounds  of  removal. 

816.  Statutory  or  charter  power  of  re- 

moval. 

817.  What  corporate  action  necessary. 

818.  Power  must  be  exercised  at  a  cor- 

porate meeting. 
628 


Section 

819.  And  by  a  majority  vote. 

820.  Necessity  of  notice  and  a  judicial 

inquiry. 

821.  Exception  in  the    case    of   con- 

tinued desertion  and  non-resi- 
dence. 

822.  Conduct  of  the    trial:  the    evi- 

dence. 

Assembling  the  meeting  for  the 
trial:  notifying  the  mem- 
bers. 

Instances  under  the  foregoing 
rule. 

Review  of  proceedings  by  cer- 
tiorari. 

Extent  of  relief  in  equity. 

Illustration :  dismissal  of  school- 
master under  English  public 
school  act  of  1868. 

Where  the  power  to  remove  is 
discretionary  in  the  due  exer- 
cise of  the  powers  of  the  trust- 
ees. 

Mandamus  to  reinstate. 

830.  Several  writs    where    there  are 

several  officers. 

831.  Alleiialions  of  the  writ. 

832.  What  if    directed    to   the    indi- 

viduals by  name,  and  not  to  the 
corporation. 

833.  The  return  to  the  mnndam-us. 

834.  Return  may  show  any  number  of 

causes. 

835.  When    not     necessary    to   aver 

power  of  removal. 
Instances  of  good  returns  in  such 
cases. 


823. 


824. 

825. 

826. 
827. 


828. 


829. 


836. 


GROUNDS  OF  REMOVING.     [1  Thomp.  Corp.  §  800. 

Section  Sectiox 

837.  Sufficient  if  made  by  proper  offl-      840.  Otlier  points  of  practice  in  pro- 

of r  until  falsified.  ceediugs  by  mandamus. 

838.  Whether    the  return  should    be      841.  Principlesupoa  which  the  judicial 

under  corporate  seal.  courts     review     sentence     of 

839.  Variance  between  writ  and  re-  amotion. 

turn. 

§  799.  Distinction  between  Amotion  and  Disfranchise- 
ment.—  *'  In  a  corporation,"  says  Daly,  F.  J.,  "  there  is  a  dis- 
tinction between  what  is  called  amotion,  or  the  right  to  remove 
an  officer,  which  is  a  power  inherent  in  every  corporation,  and 
disfranchisement.  The  former  may  be  exercised  without  inter- 
fering with  the  franchise, —  as  the  officer,  when  removed,  still 
continues  a  raeml)er  ;  but  disfranchisement  is  an  actual  expul- 
sion of  the  member  from  the  body  and  the  taking  away  of  his 
franchise,  which  cannot  be  done  unless  the  power  is  given  by 
the  charter  creating  the  corporation ;  or  the  member  has  been 
guilty  of  crime,  a  conviction  of  which  would  work  a  forfeiture  of 
all  civil  rights,  including  the  corporate  franchise,  or  has  com- 
mitted acts  which  tend  to  the  destruction  of  the  corporation, 
such  as  the  defacing  of  its  charter,  the  obliteration  or  alteration 
of  its  records,  or  other  acts  tending  to  impair  or  destroy  its  title 
to  its  rights  or  privileges;  in  which  case,  the  expulsion  of  the 
member  is  but  the  exercise  of  a  power  incident  to  the  right  of  selt- 
preservation."  ^ 

§  800.  Observations  of  Mr.  Willcock  on  this  Question. — Al- 
though in  the  leading  case  of  Bagg,'^  much  was  said  about  amotion, 
and  the  grievance  of  Bagg  was  that  he  had  been  disfranchised  as 
one  of  the  twelve  burgesses  of  Plymouth,  Mr.  Willcock,  in  his 
treatise  on  corporations,  which  is  regarded  as  a  good  work,  de- 
fines amotion  as  applicable  only  to  officers,  and  says  that  it  causes 
a  cessation  of  the  particular  offices  from  which  they  are  amoved, 
but  in  no  manner  affects  their  right  to  the  freedom  of  the  munic- 


1  White   V.  Brownell,  4    Abb.  Pr.  s.  c.  4  Am,  Dec.  453;  Fuller  v.  Trust- 

(n.  S.)  (N.  Y.)  1C2,   192;  citing  Evans  ess,   G  Conn.   532;   People  v.  Medical 

t).  Philadelphia  Club,  50  Pa.  St.   107;  Society,  24  Barb.  (N.  Y.)  570. 
Baggs'  Case,  11  Co.  Rep.  93;  Earle's  2  il  Co.  Rep.  93;  stated  at  length, 


Case,  Carth.  173;  Com.u.  St.  Patrick's      post,  §§  854,  855. 
Benevolent  Society,  2  Binn.  (Pa.)  441 ; 


629 


1  Thomp.  Corp.  §  800.]     amotion  of  officers. 

ipality ;  whilst  disfranchisement  is  applicahle  only  to  the  freedom, 
and  cuts  off  the  corporator  from  all  rights  and  privileges  of  the 
corporation.  It  appears,  accordino:  to  that  authority,  that  there 
is  not  an  incidental  right  in  corporations  to  disfranchise  their 
members,  but  that  it  must  be  claimed  by  prescription  or  express 
grant  of  the  charter. ^  Mr.  Willcock  then  makes  the  following 
among  other  observations  upon  that  celebrated  case ;  "  At  the 
time  when  James  Bagg's  case  was  before  the  court,  their  attention 
had  been  rarely  attracted  to  the  consideration  of  corporate  causes, 
and  the  distinction  between  the  right  to  the  offices  and  the  right 
to  the  freedom  of  a  municipality  htid  been  little  considered.  The 
particular  case  was  of  amotion  from  office;  the  arguments  were 
in  general  more  applicable  to  disfranchisement,  but  there  is  a 
material  difference  in  principle.  The  enjoyment  of  office  is  not 
for  the  private  benefit  of  the  corporator,  but  an  honorable  dis- 
tinction which  he  holds  for  the  welfare  of  the  corporation;  and 
therefore,  though  it  be  an  office  oi  a  freehold  nature,  it  is  entirely 
conditional.  .  .  .  But  the  franchise  of  a  freeman  is  wholly 
for  his  own  benefit,  and  a  private  right;  a  right  in  the  munici- 
pality similar  to  that  of  a  natural  subject  in  the  State,  of  which 
he  ought  not  to  be  deprived  for  any  minor  offense  against  his 
corporate  fealty,  any  more  than  that  for  which,  as  a  subject,  he 
ought  to  be  deprived  of  his  franchise  as  a  liegeman.  For  this 
reason,  all  minor  corporate  offenses,  such  as  improper  behavior 
to  his  fellow  corporators,  where  not  punishable  by  the  general 
law  of  the  land,  as  well  as  violations  of  his  corporate  duties, 
ought  to  be  pnnished  by  penalties  imposed  by  the  ordinances  of 
the  municipality,  and  not  by  disfranchisement.  But  such  of- 
fenses against  the  general  law  as  occasion  a  forfeiture  of  all  civil 
rights,  import  in  themselves  a  forfeiture  of  the  corporate  fran- 
chise; and  offenses  against  the  corporation  which  tend  to  its  de- 
struction, such  as  defacing  the  charters,  altering  the  corporate 
records  so  as  to  destroy  the  evidence  of  their  title  to  privileges, 
or  that  of  the  title  of  his  fellow  corporators  to  their  franchises, 
are  of  course  causes  of  disfranchisement."  ^ 

1  Willcock  Corp.  270.  113;  and  it  was    said  by  tlie  learned 

2  Willcock  Corp.  270;  quoted  with  judge  tiiat  these  observations  are 
approvalby  Woodward,  C.  J.,  in  Evans  equally  applicable  to  private  corpo- 
V.  Philadelphia   Club,   50  Pa.  St.  107,  rations.     This  observation  is  perhaps 

630 


GROUNDS  OF  REMOVING.      [1  Thomp.  Corp.  §  803. 

§  801.  These  Observations  Applicable  to  Corporations  other 
than  Municipal. — "These  observations,"  said  AVoodward,  C.  J., 
quoting  the  language  of  Mr.  "Willcockin  the  preceding  section,  "  relate 
to  municipal  corporations  ;  but  why  are  they  not  equally  applicable  to 
private  corporations  ?  The  interest  or  '  freedom  '  which  a  member  has 
in  a  private  corporation  is  as  a  rule  a  '  franchise  '  as  that  which  any  of 
the  burgesses  mentioned  in  Bagg's  Case  had  in  the  borough  of  Ply- 
mouth, and  may  often  be  a  much  more  valuable  franchise.  Where  it 
has  been  obtained  by  the  payment  of  a  pecuniary  consideration,  and 
property  is  held  in  connection  with  it,  it  is  a  vested  estate,  and  certainly 
ought  not  to  be  sacrificed  on  account  of  minor  offenses,  which  would 
not  be  permitted  to  forfeit  indiddual  interests  in  a  municipal  corpora- 
tion. And  if  a  power  to  disfranchise  in  a  municipal  corporation  does 
not  exist  unless  expressly  granted,  it  is  very  safe  to  conclude  that  it  is 
not  inherent  in  a  private  coi'poration,  and  must  have  an  express  grant  to 
support  it.^ 

§  802.  Power  of  Amotion  Inherent  in  Corporations.  —  By 

the  principles  of  the  common  law,  every  corjionition  has  an  im- 
plied power,  incident  to  its  existence  as  a  corporation,  and  inde- 
pendent of  charter  provisions,  to  remove  an  officer  for  cause. 2 


true,  with  the  exception  of    private 
corporations  haviuj?  a  joint  stock. 

1  Evans  v.  Philadelphia  Club,  50 
Pa.  St.  107,  113. 

2  Fawcett  V.  Charles,  13  Wend.  (N. 
Y.)  473;  State  v.  Trustees  of  Vin- 
ceunes  University,  5  Ind.  77;  Lord 
Hruce's  Case,  2  Strange,  820;  Rex  v. 
Doncaster,  Barnard.  2G4;  Rex  v.  Rich- 
ardson, I  Burr.  517,  530;  People  v. 
Ilii^iins,  15111.  110;  Adamantine  Brick 
Co.  V.  Woodruff,  4  MacArtliur  (D.  C), 
318;  Burr  v.  McDonald,  3  Gratt.  (Va .) 
LM5;  Auburn  Academy  v.  Strong, 
Ilopk.  (N.  Y.)  278;  ca-es  cited,  post, 
§  847.  It  was  said  in  one  ca-e,  in  the 
King's  Beiicli,  that  there  are  author- 
ities (citinu;  11  Coke,  9i);  1  Roll.  Rep. 
224;  Palm,  4.^1;  Stiles,  477),  that 
the  power  of  amotion  is  not  inherent 
in  a  corporation.  Such  a  power  must 
exist  by  charter  or  prescription  in  or- 
der to  its  exercise.  Rex  v.  Mayor  of 
Doncaster,   2  Ld.   Raym.    1564,  1566. 


But  the  contrary  is  now  established 
as  stated  in  the  text.  Where  a  corpo- 
ration time  out  of  mind  had  power  to 
remove  an  alderman  for  a  reasonable 
cause,  it  was  held  that,  though  the 
corporation  had  taken  a  neto  charter 
wherein  no  such  power  was  expressly 
given,  yet  the  power  still  remained; 
since  the  new  charter  did  not  merge 
or  extinguish  any  of  the  ancient  priv- 
ileges, but  the  corporation  might  use 
thorn  as  before.  Haddock's  Case,  Sir 
T.  Raym.  435,  439.  "The  power  of 
amotion  for  adequate  cause,  is  to  he 
an  inherent  incident  of  all  corpora- 
tions, whether  municipal  or  private, 
except,  perhaps,  such  as  are  literary 
or  eleemosynary;  but  tlie  exercise  of 
this  power  does  not  affect  tlie  private 
rights  of  the  corjjorator  in  the  fran- 
chise." Statement  of  Doctrine  by 
Woodward,  C.  J.,  at  nisi  pruts,  in 
Evans  v.  Philadelphia  Club,  50  Pa.  St. 
107,  117,  affirmed  by  an  equal  division 

631 


1  Thomp.  Corp.  §  803.]     amotion  of  officers. 

Speaking  with  reference  to  Enf^lish  boroughs,  which  are  a  species 
of  municipal  C()r[)oration,  it  has  been  hold  that,  although  the 
charter  does  not  in  terms  authorize  the  removal  of  an  officer,  yet 
the  power  of  removal  is  implied;  it  is  incidental  for  self-preserv- 
ation,^  It  follows  that  a  by-law  authorizing  the  removal  of 
officers  for  cause  may  be  good,  although  no  power  of  amotion  is 
expressly  given  by  the  charter,  or  is  possessed  by  prescription.^ 
On  the  other  hand,  a  by-law  restricting  the  discretionary  power 
of  removing  a  master  or  usher  of  a  grammar  school  vested  in  the 
governors,  as  given  by  the  charter  has  been  held  void.^  The 
directors  of  a  national  bank  have  power  to  remove  the  president, 
both  under  the  act  of  Congress  relative  to  national  banks,  and 
under  the  articles  of  association,  where  such  articles  give  express 
authority  to  remove;  and  it  makes  no  difference  that  the  bank 
has  never  adopted  any  by-laws.* 

§  803.  Power  Resides  in  Corporation  alone,  not  in  Judicial 
Courts.  —  This  power  belongs  to  the  corporation  alone  ;  the 
courts  have  no  jurisdiction  to  order  such  removal.^  As  the 
courts  have  no  jurisdiction  to  remove  an  officer  of  a  corporati(>n 
or  to  enjoin  him  from  acting  as  an  officer,  a  portion  of  a  decree 
depriving  such  an  officer  of  his  salary  on  the  ground  of  having 
violated  the  by-laws,  no  fraud  being  shown,  was  reversed  as 
erroneous.^     In  New  York  a  statute  ^  formerly  existed,  author- 


of  the    Supreme    Court.      Ibid.,   127.  Y.)    195;    s.   c.    18  Abb.  Pr.    (N.  Y.) 

There  is  a  short  article  on  the    sub-  16. 

ject  of  amotion,  pointing  out  the  dis-  *  Neall  v.  Hill,  16  Cal.  145. 

tinction    between    amotion  and    dis-  ^  Ibid. 

franchisement;    statmg  what  offenses  '  2  Rev.  Stat.  N.   Y.  (1st  ed.),  462. 

will  justify  an  amotion;  how  the  right  This  statute  provided:    «'The   chan- 

to  amove  is  affected  by  provisions  of  cellor  shall  have  jurisdiction  over  di- 

the  charter;  and  the  rights  and  liabili-  rectors,  managers  and  other  trustees 

ties  of  the  officer  amoved,  —  by  W.  E.  and  officers  of  corporations,     .     .     . 

Talcott,  Esq.,  in  24  Cent.  L.  J.  94.  3.     To   suspend   any  such   trustee  or 

1  Lord  Bruce's  Case,  2  Str.  819;  officer  from  exercising  his  office, 
Rex  V.  Richardson,  1  Burr.  517,  538;  whenever  it  shall  appear,  that  he  has 
Rex  V.  Lyme  Regis,  Doug.  149.  abused  his  trust:     4.  To  remove  any 

2  Rex  V.  Richardson,  1  Burr.  517,  such  trustee  or  officer  from  his  office, 
539;  s.  c.  2  Ld.  Ken.  85.  upon    proof  or    conviction    of  gross 

2  Reg.  V.  Governors  of   Darlington  misconduct:  5.  To    direct  new  elec- 

School,  6  Q.  B.  682.  tions  to  be  held  by  the  body  or  board 

*  Taylor  v.  Hutton,  43  Barb.    (N.  duly  authorized  for  that  purpose,  to 

632 


GROUNDS  OF  REMOVING.     [1  Thomp.  Corp.  §  804. 

izing  the  judicial  courts  to  suspend  a  director  or  officer  of  a 
corporation  for  certain  causes.  This,  it  was  held,  did  not  au- 
thorize an  action  by  a  stockholder  to  obtain  such  a  removal  or 
suspension.  It  was  also  held  that  if,  in  any  case  a  creditor  could 
maintain  such  an  action  under  the  statute,  he  must  allese  in  his 
complaint  the  nature  of  his  claims,  whea  and  how  they  arose, 
and  the  amount  due,  and  he  should  demand  payment  before 
bringing  his  suit.^  The  courts  would  not,  under  this  statute,  in- 
terfere to  suspend  directors  of  a  corporation  on  the  ground  of 
their  having  made  improper  expenditures  touching  the  business 
of  the  corporation,  nor  on  charges  of  personal  immorality. ^ 

§  804.  Power  Resides  in  the  Body  at  Large,  not  in  the 
Trustees.  —  By  the  principles  of  the  common  law,  the  power  of 
amotion  of  an  officer  of  a  corporation  is  regarded  as  a  constituent 
act,  —  something  which  affects  the  organization  of  the  corpora- 
tion, —  and  therefore  something  which  can  only  be  done  by  the 
corporation  at  large,  and  not  by  the  trustees  or  other  governing 
body.^  In  this  respect  it  stands  on  the  same  footing  as  the 
power  to  elect  officers^  and  the  power  to  establish  by-laws:^  it 
must  be  exercised  by  the  corporation  at  large,  or  by  its  most 
numerous  body  or  constituency,  unless  its  charter  or  governing 
statute  vests  it  in  a  smaller  body.  But  it  may  be  very  much 
doubted  to  what  extent  this  principle  inheres  in  the  modern  law. 
In  the  case  of  municipal  corporations,  many  corporate  officers 
are  elected  by  the  votes  of  the  qualified  voters.  But  the  trial  of 
an  officer  before  this  numerous  constituency,  with  the  view  of  re- 
moving him  from  his  office,  is  unheard  of.  It  would  be  a  re- 
vival of  the  trial  before  the  Athenian  Areopagus.  Below  the 
grade  of  director  and  such  other  officers  as  are  elected  by  the 
corporation  at  large,  the  general  rule  is  that  the  officers  of  [)rivate 

supply  vacancies  created  by  such  re-  eleemosynary  corporation  for  rftsZo.va^/?/ 

moval."     This  statute  vmsrepealed  by  for  refusal  to  take  a  newly  proscribed 

N.  Y.  Laws  of  1880,  ch.  245,  Kev.  St.  N.  oath  of  allegiance:  State  v.  Adams,  44 

Y.  (Banks  &  Bros.  8th  ed.),  p.  2G72.  Mo.  570. 

*  Ramsey  v.  Erie  R.  Co.,  7  Abb.  Pr.  ^  xiex  v.  Mayor  &c.  of  Lyme  Regis, 

(N.  8.)  (N.  Y.)  15G,  184;  s.  c.  38  How.  1  Dougl.  149. 
Pr.  (N.  Y.)  193.  4  Ante,  §  729. 

2  Ibid.y  190.     The  power  of  a  State  «  Post,  §  956. 

legislature   to  remove  trustees   of  an 

633 


1  Thomp.  Corp.  §  804. J     amotion  of  officers. 

corporations  hold  their  offices  durante  bene placito ,  and  are  hence 
removable  by  the  directors  without  assigning  any  cause  for  the 
removal,  except  so  far  as  their  power  may  be  restrained  by  con- 
tract with  tlie  particular  officer,  —  just  as  any  other  employer 
may  discharge  his  employe.  Speaking  generally,  it  may  be  said 
that  the  power  to  appoint  carries  with  it  the  power  to  remove. 
Thus,  a  power  vested  in  the  trustees  of  a  corporation  '*  to  ap- 
point a  superintendent,  who  shall  be  subject  to  removal  only  for  " 
certain  causes,  implies  a  power  in  the  trustees  to  remove  him 
for  the  specified  causes.^  On  the  other  hand,  the  power  to  re- 
move resides  only  in  the  body  which  has  the  power  to  ap[)oint, 
unless  it  is  vested,  by  the  charter  or  by  statute,  in  another  body. 
Accordingly,  it  has  been  held  that  the  trustees  of  an  eleemosyn- 
ary corporation  cannot  remove  one  of  their  number,  in  the  ab- 
sence of  an  express  grant  of  power  so  to  do,  because  of  the  in- 
congruity of  their  possessing  the  power  to  remove  each  other. '^ 
In  this  respect,  the  distinction  already  pointed  out  ^  between  the 
power  of  amotion  and  the  power  of  expulsion  becomes  very 
important,for  the  directors  who  appoint  a  ministerial  officer  may 
undoubtedly  remove  him  at  pleasure,  and  he  has  no  remedy 
other  than  an  action  for  damages  against  the  corporation  for  a 
breath  of  contract.  But,  on  the  otherhand,  where  the  power  of 
expelling  a  member  is  vested  in  the  corporation  by  general  lan- 
guage, as,  for  instance,  by  the  words  "  such  corporation  shall 
have  the  right  to  admit  as  members  such  persons  as  they  may  see 
fit,  and  expel  any  members  as  they  may  see  fit,"  —  this  power 
cannot  be  delegated  by  the  corporation  to  its  directors.*  More- 
over, if  the  power  of  removal  is  vested  in  the  trustees  by 
the  governing  statute,  this  power  is  in  the  nature  of  a  trust 
reposed  by  the  law  in  them,  to  be  exercised  for  the  good 
of  the  corporation,  and  they  cannot  surrender  it,  or  disable 
themselves  from  exercising  it  6y  a  contract -with  the  officer  or 
employe.^ 

1  Ttople  V.  Hig^ins,  15  111.  110.  '  Thus,  itwasheld  that  the  trustees 

2  Fuller  u.  Trustees,  fi  Conn.  532,  of  the  Auburn  Acaileray  have  no  power 
545.  But  see  State  v.  Viucennes  Uni-  to  make  a  contract  with  a  teacher, 
versity,  5  Ind.  77.  limiting   their   right  •'  to  remove  him 

3  Ante,  §  799,  et  seq.  at    pleasure."     Auburn    Academy    v. 
*  State  V.  Chamber  of  Commerce,      Strong,  Hopk.  (N.  Y.)  278. 

20  Wis.  G3. 
634 


GROUNDS    OF    REMOVING.       [1  Thomp.  Coi'p.    §   805. 

§  805.  Removal  of  Officers  who  Hold  at  Will.  —  Before  pass- 
ing to  the  consideration  of  tlie  causes  for  which  corporate  officers 
may  be  removed,  we  must  renew  our  attention  to  the  fact  that,  in 
private  corporations,  the  ministerial  officers  who  are  not  elected 
by  the  corporators  at  large  for  stated  terms,  but  who  are  ap- 
pointed by  the  board  of  directors,  and  who  therefore  sustain 
toward  the  corporation  the  relation  of  an  employe  toward  an 
employer,  serving  for  a  compensation,  which  in  general  the 
directors  do  not  receive,  have  no  franchise  in  their  office,  and 
hence  are  removable  at  the  mere  pleasure  of  the  directors,  with- 
out the  assignment  of  any  cause,  without  the  giving  of  any 
notice,  and  without  any  trial  or  investigation  into  the  grounds  of 
the  removal.  They  are  dischargeable,  like  any  other  employe, 
subject  only  to  their  right  of  action  against  the  corporation  for 
damages  for  a  breach  of  the  contract  of  employment. ^  A 
mandamus  will  not  be  granted  to  restore  such  an  officer,^ 


^  Adamantine  Brick  Co.  v.  Wood- 
ruff, 4  MacArthur  (D.  C),  218;  Burr 
V.  McDonald,  3  Gratt.  (Va.)215.  The 
board  of  directors  of  Girard  College 
have  power  to  remove  an  officer  there- 
of, created  by  an  ordinance  of  the  city 
of  Philadelphia,  without  assigning 
cause;  and  may,  therefore,  di-place 
the  steward  of  the  college  at  their 
pleasure.  See  Field  v.  Directors  of 
Girard  College,  54  Pa.  St.  233. 

2  Diiiliton  V.  Stratford-on-Avon,  2 
Keb.  641;  s.  c.  Sir  T.  Raym.  188.  Fre- 
quent judicial  expressions  are  met 
with  on  this  subject  in  the  old  cases. 
Thus:  "Where  a  man  is  elected  to 
hold  at  will,  in  which  ca-<e  he  may  be 
removed  at  pleasure,  without  cause 
shown;  yet  if  it  doth  not  appear  that 
the  corj)oration  hath  declai'cd  their 
will  to  remove  him,  this  court  (the 
King's  Bench)  m:iy  grant  him  restitu- 
tion. Quaere:  If  the  removal  of  the 
corporation  be  not  a  declaration  of 
their  will."  Rex  v.  Slatford,  Comb. 
419.  In  an  old  case  (Anno,  22  Car.  2) 
in  the  King's  Bench  the  question  was 
whether,  where  a  corporation  has  an 
officer  who   holds    his   office  durante 


bene  plarito  of  the  mayor  and  alder- 
men, and  they  turn  him  out,  and  he 
prays  for  a  mandamus  to  be  reinstated, 
they  are  bound  to  show  reasonable 
cause  for  turninghimout.  This  ques- 
tion was  resolved  in  the  negative,  and 
a  writ  of  restitution  was  denied,  al- 
though the  officer  had  been  turned  out 
without  notice.  Digliton's  Case,  2 
Keb.  641 ;  s.  c.  Sir  T.  Raym,  188.  In 
another  .case,  the  plaintiff,  being  one  of 
the  common  council  of  Coventry,  was 
removed,  and  sued  for  a  writ  to  re- 
store him.  The  corporation  returned 
that  they  had  a  custom  to  elect  any 
one  to  be  of  the  common  council  and 
to  remove  him  adlibUnm,  and  that  the 
plaintiff  was  removed,  etc.  The  court 
held  that  tlie  return  was  good;  and 
this  difference  was  taken:  That  where 
a  man  is  a  freeman  or  alderman,  etc., 
they  cannot  remove  him  from  his  free- 
dom or  place  without  cause;  and  in 
such  case  such  a  custom  is  void,  be- 
cause the  party  hath  a  freehold  there- 
in; but  to  be  of  council  is  a  thing 
collateral  to  the  corporation.  Warren's 
Case,  Cro.  Jac.  640.  It  was  held  in 
another  old  case  that  wlicrc  an  officer 
G35 


1  Thomp.  Corp.  §  807.]     amotion  of  officers. 

§  80G.  Liord  Mansfield's  Classification  of  Grounds  of 
Amotion.  — The  grounds  of  amotion,  as  stated  by  Lord  Mans- 
field, were  the  I'oHowing:  "  1.  Such  as  have  no  immediate  rela- 
tion to  his  office,  but  are  in  themselves  of  so  infamous  a  nature 
as  to  render  the  offender  unfit  to  exercise  any  public  franchise. 
2.  Such  as  are  oidy  against  his  oath  and  the  duty  of  his  office  as 
a  corporator,  and  amount  to  a  breach  of  tiie  tacit  condition  an- 
nexed to  his  franchise  or  office.  3.  Such  as  are  of  a  mixed  na- 
ture, as  being  an  offense,  not  only  against  the  duty  of  his  office, 
but  also  a  matter  indictable  at  common  law."  ^ 

§  807.  In  what  Case  there  must  be  a  Previous  Trial  and 
Conviction. — In  the  first  of  the  three  cases  above  catalogued  by 
Lord  Mansfield,  offenses  which  have  no  immediate  relation  to  the 
office,  but  are  in  themselves  infamous,  the  officer  cannot  be  re- 
moved unless  there  has  been  a  previous  indictment  and  convic- 
tion of  the  offense;  "  for,"  as  was  said  by  that  eminent  judge, 
*'  though  the  corporation  has  the  power  of  amotion  by  charter 


of  a  corporation  was  a  tenant  of  the 
office  at  will,  that  is,  was  removable  at 
the  will  of  the  corporation,  and  the 
corporation  having  removed  him,  and 
he  having  proceeded  by  mandmmts  to 
be  restored,  and  they  did  not  rely  upon 
their  mere  power  to  remove  him,  but 
in  their  return  to  the  mandamus,  al- 
leged a  misdemeanor,  and  that  was 
found  to  be  insufficient,  —  a  peremp- 
tory mandamiis  would  issue,  and  this 
fine  distinction  was  taken:  "  We  do 
not  determine  whether  there  ought  to 
be  a  good  cause  or  not  for  such  re- 
moval. But  suppose  it  may  be  without 
cause,  yet  s^till  they  must  determine 
their  will.  Now,  they  do  not  return  a 
determination  of  his  office  by  their 
will,  as  the  reason  why  they  do  not 
admit  him,  but  the  special  matter  of 
his  not  taking  the  oaths;  therefore, 
since  his  office  continues,  and  this  ex- 
cuse is  insufficient,  he  ought  to  be  re- 
stored." Rex  V.  Mayor  of  Oxon,  2 
Salk.  428. 

^  Rex  V.   Richardson,  1   Burr.  517, 
636 


where  Lord  Mansfield  discussed  the 
whole  subject  at  great  length  and  with 
great  learning.  The  same  grounds  of 
amotion  were  restated  by  Loi-d  Mans- 
field in  Rex  v.  Town  of  Liverpool,  2 
Burr.  723,  732.  Lord  Mansfield's 
statement  has  been  approved  in  nu- 
merous American  cases:  Evans  v. 
Philadelphia  Club,  50  Pa.  St.  107,  114, 
per  Woodward,  C.  J.;  Commonwealth 
V.  St.  Patrick's  Benevolent  Society,  2 
Binn.  (Pa.)  441;  s.  c.  i  Am,  Dec.  453; 
Commonwealth  v.  Guardians  of  the 
Poor,  6  Serg.  &  R.  (Pa.)  4C9;  State  v. 
Chamber  of  Commerce,  20  Wis.  63. 
In  these  and  other  American  cases  it 
has  been  applied  to  the  subject  of  the 
expulsion  of  members.  Post,  §  856, 
et  seq.  In  Rex  v.  Tidderley,  Siderfin, 
14,  it  was  decided  that,  as  a  corpora- 
tion has  power  to  accept  the  resigna- 
tion of  an  officer,  it  for  that  reason  has 
power  to  remove  liim  from  his  office; 
"  et  per  consequence  pur  bone  cause 
potent  amover.^^ 


CORPORATE   PROCEEDINGS   TO   REMOVE.       [1  Thomp.  Coip.   §  807. 

or  prescription,  yet,  as  to  the  first  kind  of  misbehaviours,  which 
have  no  immediate  rehition  to  the  duty  of  an  office,  but  only 
make  the  party  infamous  and  unfit  to  execute  any  public  fran- 
chise,—  these  ought  to  be  established  by  a  previous  conviction 
by  a  jury,  according  to  the  law  of  the  land;  as  in  cases  of  gen- 
eral perjury,  forgery  or  libelling,  etc."^  In  the  second  and 
third  cases  mentioned  by  Lord  Mansfield,  where  the  matter  con- 
cerns the  relation  of  the  officer  or  member  to  the  corporation 
itself,  it  is  not  necessary,  in  order  to  the  power  of  amotion,  that 
there  should  first  have  been  an  indictment  and  conviction  in  the 
ordinary  course  of  law;  because,  in  respect  of  these  offenses, 
the  cor[)oration  possesses  the  power  of  linal  as  well  as  the  power 
of  amotion.^ 


1  Kex  V.  Richardson,  1  Burr.  517, 
538,  539. 

2  Ibid.;  overruling  on  tliis  point  the 
dicta  in  Bagg's  Case,  11  Coke,  99.  In 
the  second  resolutiou  in  Bagg's  Case, 
11  Coke,  93,  it  was  resolved :  "  That  no 
freeman  of  any  corporation  can  be 
disfranchised  by  the  corporation,  un- 
less they  have  authority  to  do  it,  either 
by  the  express  words  of  the  charter, 
or  by  prescription,  but  if  they  have 
not  autliority,  neither  by  charter  nor  by 
prescription,  then  he  ought  to  be  con- 
victed by  course  of  law  before  he  can 
be  removed,  and  it  appears  by  Magna 
Charta,  cap.  29,  NuVus  liber  homo 
capiatur,  vel  imprisonetur  aut  disseisitur 
de  libero  teneincnto  sun,  vel  libertatibus, 
vel  liberis  consnetudinVms  siiis,  etc., 
nisi  per  legale  judicium  pariiim  suorum, 
vel  per  Icgim  terrcje;  and  if  the  corpo- 
ration have  power  by  charter  or  pre- 
scription to  remove  him  for  a  reason- 
able cause,  that  will  ha  per  legem  terrce. 
But  if  they  have  no  such  power,  lie 
ought  to  be  orivicted  per  judicium 
parium  suorum,  etc. ;  as  if  a  citizen,  or 
freeman,  be  attainted  of  forgery  or  per- 
jury, orconsjiiracy,  at  the  King's  suit, 
etc.,  or  of  any  other  crime  whereby  he 
is  become  infamous,  upon  which  at- 
tainder they  miy  remove  him.  So  if 
ho  become  convicted  of  auy  such  of- 


fense which  is  against  the  duty  and 
trust  of  his  freedom  and  to  the  public 
prejudice  of  the  city  or  borougli  wliere- 
of  he  is  free,  and  against  his  oath,  as 
if  he  burned  or  defaced  the  charters 
or  evidences  of  the  city  or  borough,  or 
razed  or  corrupted  them,  and  is  there- 
of convicted  and  attainted;  these  and 
the  like  are  good  causes  to  remove 
him."  The  above  language,  like  mauy 
of  the  other  so-called  resolutions  in 
the  reports  of  Lord  Coke,  appears  to 
consist  of  the  valuable  dicta  of  the 
reporter  in  his  private  capacity,  rather 
than  of  the  deliberate  resc^lutions  of 
the  court  upon  the  question  before 
them  in  judL^ment.  So  it  was  subse- 
quently viewed  by  Lord  Manstield, 
when  the  question  came  before  the 
King's  Bench  whether  a  previous  con- 
viction of  a  criminal  offense  was  nec- 
essary to  enable  a  corporation  to  re- 
move the  person  guilty  of  such  an 
offense  from  a  corporate  office  or 
franchise.  Lord  Mansfield  said: 
"  Previous  conviction  was  not  a  cir- 
cumstance at  all  necessary  to  the 
juilginent  in  that  case;  for  there  was 
no  sufficient  cause  of  amoval  at  all. 
There,  too,  the  actual  removal  was 
by  the  select  body  (the  m:iyor  and 
nine  of  the  masters)  whiL:h  cannot  be, 
except  by  charter,  by-law,  or  prescrip- 
ts? 


1  Thorap.  Ci)rp.  §  808.]     amotion  of  officers. 


§  808.  Misappi'opriating  Money:  False  Charges  of  Money. — 

The  mere  misemployment  of  the  inoiiey  of  a  corporation  is  no 


tion.  There  are  three  sorts  of  of- 
fenses for  which  an  officer  or  corpora- 
tor may  be  discharged:  1.  Such  as 
liave  uo  immediate  relation  to  his 
office,  but  are  in  themselves  of  so  in- 
famous a  nature,  as  to  render  the 
offender  unlit  to  execute  any  public 
franchise.  2.  Such  as  are  only  a'.'ainst 
his  oath  and  the  duty  of  his  office  as 
a  corporator;  and  amount  to  breaches 
of  the  tacit  condition  annexed  to  his 
franchise  or  office.  3.  The  third  sort 
of  offense  for  which  an  officer  or  cor- 
porator may  be  displaced  is  of  a  mixed 
nature;  as  being  an  offense  not  only 
against  the  duty  of  his  office,  but  also 
a  matter  indictable  at  common  law. 
The  distinction  hei-e  taken  by  My 
Lord  Coke's  report  of  this  second 
resolution  seems  to  go  to  the  power 
of  trial,  and  not  to  the  power  of 
amotion;  and  he  seems  to  lay 
down  '  that  where  the  corporation 
has  power,  by  charter  or  prescription, 
they  may  try  as  well  as  remove;  but 
where  tliey  have  no  such  power,  there 
must  be  a  previous  conviction  upon 
indictment.'  So  that,  after  an  indict- 
ment and  conviction  at  common  law 
this  authority  admits  'that  the  power 
of  amotion  is  incident  to  every  corpo- 
ration.' But  it  is  now  established 
*  that,  though  a  corporation  has  ex- 
press power  of  amotion,  yet,  for  the 
first  sort  of  offenses,  there  must  be  a 
previous  indictment  and  conviction.' 
And  there  is  no  author! ly  since  Bagg's 
Case  which  says  tliat  the  power  of 
trial  as  well  as  amotion  for  the  second 
sort  of  offenses  is  not  incident  to 
every  corporation.  In  Lord  Bruce's 
Case  (2  Strange,  819),  the  court  says 
'the  modern  opinion  has  been,  that  a 
power  of  amotion  is  incident  to  the 
corporation.'  We  all  think  this  mod- 
ern opinion  is  right.  It  is  necessary 
to  the  good  order  and  government  of 

638 


corporate  bodies  that  there  should  be 
such  a  power,  as  mucli  as  the  power 
to  make  by-laws.  Lord  Coke  says 
'  there  is  a  tacit  condition  annexed  to 
the  franchise,  which,  if  he  breaks,  he 
may  be  disfranchised.'  Bagg's  Case, 
11  Coke,  98a.  But  where  the  offense 
is  merely  against  his  duty  as  a  corpo- 
rator, he  can  only  be  tried  for  it  by 
the  corporation.  Unless  the  power  is 
incident,  franchises  of  offices  might 
be  forfeited  for  offenses;  and  yet 
there  would  be  no  means  to  carry  the 
law  into  execution.  Suppose  a  by- 
law made  '  to  give  power  of  amotion 
for  just  cause,'  such  by-law  would  be 
good.  If  so  a  corporation,  by  virtue 
of  an  incident  power,  may  raise  to 
themselves  authority  to  remove  for 
just  cause,  though  not  express'y 
given  by  charter  or  prescription.  The 
law  of  corporations  was  not  so  well 
understood  and  settled  at  the  time  of 
Bagg's  Ca-e  as  it  has  been  since. 
And  'whether  a  power  of  amotion 
was  incident  to  the  corporation  '  could 
be  no  part  of  the  question  in  judgment 
in  that  case,  or  necessary  to  the  de- 
termination of  it.  The  power  ol 
amotion  was  there  exercised  by  the 
select  body,  and  the  cause  was  insuf- 
ficient; the  offense  not  being  any  of 
the  three  kinds  for  which  a  corpora- 
tor could  be  disfranciiised.  And  the 
distinction  there  taken  as  to  the  mode 
of  trial,  is  certa  nly  not  law.  For 
though  tlie  corporation  has  a  power 
of  amotion  hy  charter  or  prescription, 
yet,  as  to  the  first  kind  of  misbe- 
haviors, which  have  no  immediate  re- 
lation to  the  duty  of  an  office,  but 
only  make  the  party  infamous  and  un- 
fit to  execute  any  public  franchise; 
these  ought  to  be  established  by  a 
previous  conviction  by  a  jury  accord- 
ing to  the  law  of  the  land ;  as  in  cases 
of  general  perjury,  forgery  or  libeling, 


CORPORATE   PROCEEDINGS    TO    REMOVE.        [1  Thomp.  Corp.    §   810. 

cause  of  amotion,  when  it  does  not  amount  to  a  breach  of  trust} 
But  charging  the  corporati(m  with  money  which  the  member 
never  had  paid,  is  a  good  cause  of  disfranchisement. ^ 

§  809.  Bribery-  —  Bribing  a  corporator  to  vote  for  a  par- 
ticular candidate  at  the  corporate  election;  ^  and  receiving  a  bribe, 
in  the  case  of  a  common  councilman  under  a  charter  conferrinir 
power  to  remove  for  disorderly  conduct,*  have  been  held  suffi- 
cient to  warrant  an  amotion. 

§  810.  Misconduct  in  Respect  of  Duties  toward  the  Cor- 
poration.—  Misconduct,  in  order  to  be  a  ground  of  removal, 
must  be  specially  connected  with  the  execution  of  the  office,  and 
the  result  of  improper  motives.^     Under  this  head,  the  act  of 


etc.  We  therefore  think  that  the 
court  was  well  warranted  in  Lord 
Bruce's  Case,  to  controvert  the 
authority  of  the  proposition,  collected 
from  what  is  said  in  Bagg's  Case 
'  that  thera  can  be  no  power  of 
amotion,  unless  given  by  charter  or 
prescription;'  and  we  think  that,  from 
the  reason  of  the  thing,  from  the 
nature  of  the  corporations,  and  for  the 
sake  of  order  and  government,  this 
power  is  incident,  as  much  as  the 
power  of  making  by-laws."  Rex  v. 
Rithardson,  1  Burr.  517,  538,  539.  In 
an  old  case,  n^on  a.  mandamus  tore- 
store  to  the  place  of  a  burgess  of 
Winton,  it  was  returned,  that  they 
were  a  corporation  by  prescription, 
and  that  power  was  in  the  mayor  and 
burgesses  to  remove  any  burgess  that 
shou  d  do  au\  tiling  contrary  to  his 
oath,  or  to  the  detriment  of  the  cor- 
poration upon  proof  of  the  offense, 
that  ht;  had  put  out  several  officers 
contrary  to  tlie  custom,  and  had  razed 
the  corporation  book,  putting  out  one 
name  and  putting  in  another.  This 
return  was  excei)ted  to  on  the  ground 
that  a  corporation  could  not,  without 
special  custom,  disfranchise  a  mem- 
ber without  proof  of  the  offense  by  a 
trial  at  law,  and   this    was    insisted 


upon,  upon  the  authority  of  Bagg's 
Case,  11  Coke,  93.  But  Lord  Holt,  C. 
J.,  seemed  not  to  be  of  this  opinion. 
He  said:  "  If  a  man  be  guilty  of  per- 
jury, forgery,  etc.,  he  is  not  to  be  re- 
moved before  conviction;  but  here 
the  razing  the  corporation  book,  etc., 
is  not  only  an  offense  at  common  law, 
but  against  the  duty  of  his  place." 
But  the  case  was  adjourned  without 
a  dt^^cision  of  the  point.  Hex  v. 
Chalk,  Comb.  396. 

1  Rex  V.  Chalke,  1  Ld.  Raym.  226; 
Com.  V.  Guardians  of  the  Poor,  6  Serg. 
&R.  (Pa.)  469,  473. 

2  Com.  V.  Guardians  of  the  Poor, 
supra.  See  also  Rex  v.  Mayor  &c  of 
London,  2  Durnf.  &  E.  177;  post, 
2  863. 

3  Rex  V.  Mayor  &c.  of  Tiverton,  8 
Mod.  186; 

*  State  V.  Jersey  City,  25  N.  J.  L. 
536. 

*  Rcgina  v.  Mayor  of  Newbury,  1 
Q.  B.  751,  762;  Bagg's  Case,  11  Coke, 
93.  In  an  old  case  mandamus  was 
awarded  to  restore  the  relator  to  his 
franchise  as  a  capital  burgess,  from 
which  he  had  been  removed  for  al- 
leged failure  to  pay  over  moneys  re- 
ceived for  the  corporation,  in  his 
capacity  of    chamberlain,    etc.      The 

639 


1  Thorap.  Corp.  §  810.]     amotion  of  omcERS. 

making  a  riotous  disturbance  at  a  corporate  election  has  been 
held  a  good  ground  of  amotion.^  A  mere  threat  or  attempt  to 
do  an  improper  act,  no  injury  actually  resulting,  has  been  held 
not  sufficient.^  In  numerous  cases  at  common  law,  the  using  of 
opprobrious  or  insulting  language  to  a  fellow-member  or  officer 
of  the  corporation,  has  been  held  not  ground  of  expulsion  or 
amotion.^  But  an  analysis  of  the  cases  shows  a  strong  disincli- 
nation on  the  part  of  the  courts  to  hold  the  speaking  of 
slandef'ous  ivords  a  ground  of  amotion.  A  custom  of  the  cor- 
poration of  London  to  disfranchise  merely  for  speaking  disre- 
spectful words  to  an  alderman,  at  a  meeting  called  a  wardmote, 
has  been  held  void.  It  was  so  held  with  reference  to  the  follow- 
ing words,  which  were  spoken  to  Sir  Robert  Jefferyes,  one  of 
the  aldermen  of  London,  at  a  wardmote  which  was  held  in  a 
church  :  "  If  I  am  church  warden  next  year,  you  shall  ask  my 
leave  to  keep  your  wardmote  here;"  upon  which  Sir  Robert 
Jefferyes  called  the  person  uttering  the  words  a  rogue  and  a 
rascal,  to  which  the  latter  replied,  "  I  have  as  much  to  do  here 
as  you ;  you  think  sure  you  are  here  among  your  Bridewell 
birds  ;  you  are  mistaken."  The  point  of  the  last  remark  lay  in 
the  fact  that  Sir  Robert  Jefferyes  was  also  governor  of  the 
Bridewell  prison.  Lord  Holt,  C.  J.,  said  that,*  "  since  no  in- 
formation or  indictment  will  lie  for  these  words  at  common  law, 
it  was  a  great  question,  whether  this  custom,  to  proceed  in  an- 

reason  given  was  that  the  allegation  Rex    v.  Mayor  &c.    of  Derby,  Cas.  t. 

of  the  offenses  in  the  return  was  not  Hardw.  153. 

specific  and  that  it  did  not  appear  that  ^  Bagg's  Case,  11  Coke,  93. 

the  power  of  amotion  lay  in  the  cor-  ^  Bagg's  Case,  11    Coke,    93,    98; 

poration.     Rex  r.  Mayor  of  Doncaster  Clerk's  Case,  Cro.   Jac.   506;  Clark's 

2  Ld.  Raym.  1504;  s.  c.  1  Barn.  2G4,  Case,  1  Ventr.  327;  Rex  v.  Guilford,  1 
It  was  held  no  ground  for  amoving  the  Lev.  162;  Rex  v.  London,  2  Lev.  201; 
recorder  of  an  incorporated  town  that,  Regina  v.  Rogers,  2  Ld.  Raym.  777; 
acting  in  his  capacity  of  a  voter  and  Inness  v.  Wylie,  1  Carr.  &  K.  257.  In 
not  in  his  capacity  as  justice  of  the  Inness  v.  Wylie,  1  Carr.  &  K.  257,  it 
peace,  he  had  given  an  erroneous  opin-  was  held  that  a  member  of  a  society 
ion  that  it  was  not  competent  for  the  might  be  expelled  for  using  improper 
mayor  to  adjourn  the  poll  without  the  language  to  a  fellow-mcraber,  though 
consent  of  the  candidate^,  it  clearly  no  such  action  is  provided  for  in  its 
appearing  that  the  opinion  was  sin-  rules,  if  property  rights  are  not  in- 
cerely  given.     Rex  v.  Corporation  of  volved. 

Wells,  4  Burr,  1999.  *  Reg.  v.  Rogers,  2  Ld.  Raym.  777. 

^  Haddock's  Case,   T.    Raym.  435; 
640 


CORPORATE   PROCEEDINGS   TO   REMOVE.       [1  Thomp.  Corp.   §  811. 

other  manner  than  the  common  law  would  allow  for  words, 
would  be  good.  For  the  common  law  has  provided  a  particular 
method  for  punishment  of  scandalous  words,  viz.,  binding  to  the 
good  behavior;  such  words  being  a  breach  of  the  peace."  ^ 
There  is  other  judicial  authority  for  the  proposition  that,  even 
where  the  power  of  removal  exists,  a  trustee  cannot  be  removed 
for  disrespectful  and  contemptuous  language  toward  his  asso- 
ciates, althouo;h  the  language  is  of  such  a  character  as  to  be 
characterized  as  "  highly  indecorous  and  deserving  of  the  cen- 
sure of  all  honorable  men;"  and  although  the  language  is  not 
confined  to  a  single  occasion,  but  consists  of  numerous  expressions 
on  various  occasions,  misrepresenting  the  doings  of  the  board, 
charging  its  members  with  being  governed  in  their  official  acts 
by  a  s[)irit  of  sycophancy,  falsely  charging  them  with  holding 
secret  meetings,  and  calling  them  rascals,  scoundrels  and  Turks? 

§  811.  Offenses  Touching  tlie  Corporate  Record. — Alteration 
of  tlie  corporate  records,  with  Si  fraudulent  intent,  is  ground  for 
amotion;  but  the  fraudulent  intent  is  essential,  and  must  be 
averred;  ^  but  the  refusal  to  deliver  over  the  corporation  books 


1  A  mandamus  has  been  used  to 
restore  a  member  of  t  le  common 
coimcil  of  ii  borough,  who  was  amoved 
from  his  membersliip  iu  the  common 
council,  though  not  disfranchised  of 
his  freedom  in  rhe  corporation,  for 
spealciug  slanderou-^  words  of  one  of 
the  aldermen,  namely,  for  saying  tliat 
he  was  a  knave  and  deserved  to  be 
posted  for  a  knave  all  over  England. 
In  this  case  Twisden  (who  appears  to 
have  been  a  judge)  paid:  "That  his 
place  there  could  no  more  be  forfeited 
than  his  freedom;  for  he  was  chosen 
thereunto  by  the  custom  of  the  place. 
And  magna  charta  is,  that  a  man  shall 
not  be  disseized  dp,  libnris  consnetudini- 
bus.  But  he  held  that  words  might  be 
a  cause  to  turn  out  a  freeman,  —  as  if 
they  were  that  the  mayor  or  the  like 
did  burn  the  charters  of  the  town,  or 
other  words  that  related  to  the  duty 
of  his   })lacc.     But   in  the  case  at  bar 


the  words  do  not  appear  to  have  been 
in  reference  to  the  corporation;  where- 
fore it  was  ordered  that  he  should  be 
restored."  Jay's  Case,  1  Veulris, 
302.  It  has  been  held  not  a  sufficient 
cause  of  dit<franchuing  a  member  of  a 
corporalion  that  he  was  charged  with 
"  having  assisted,  as  president  of  the 
.society,  in  defrauding  the  society  of 
the  sum  of  fifty  cents,"  or  with  "  de- 
faming and  injuring  the  same  in  pub- 
lic taverns."  Com.  ex  rel.  v.  German 
Soc,  15  Pa.  St.  251. 

2  Fuller  V.  Trustees,  6  Conn.  532, 
546.  The  court  said:  "What  these 
trustees  might  have  done  to  one  of 
their  number  who  had  committed  a 
crime  which  would  banish  him  from 
society,  it  is  not  necessary  to  decide." 

3  Re.K  V.  Chalke,  5  Mod.  257;  1  Ld. 
Ravm.  225;  Mayor  &c.  of  Wigon  v. 
Pilkington,  1  Keb.  597. 

41  041 


1  Tliomp.  Corp.  §  813.]     amotion  of  officers. 

intrusted  to  his  custody,  as  the  proper  officer,  to  a  person  applying 
for  them  with  an  order  from  the  corporation  is  not  sufficient.^ 

§  812.  Neglect  of  Duty.  —  A  ministerial  officer  of  a  corpora- 
tion, Avho  is  under  the  immediate  inspection  of  the  trustees,  is 
removable  by  them  from  his  office  for  gross  neglect  of  duty.^ 
But  where  the  neglect  of  duty  on  which  it  was  sought  to  justify 
the  removal  of  a  trustee  of  an  eleemosynary  corporation  consisted 
merely  in  not  performing  his  duty  as  one  of  a  committee  of  the 
board,  in  relation  to  an  award  of  prizes  to  school  children  for 
declamations,  it  was  said  that  it  could  not  be  seriously  insisted 
that  such  an  omission  should  subject  him  to  an  amotion.^ 

§  813.  Non-attendance     at  Corporate    Meetings.  —  It  may 

be  regarded  as  settled  at  common  law  that  a  prolonged  and 
obstinate  non-attendance  by  the  officer  of  a  corporation  at  the 
corporate  meetings  will  be  good  cause  of  amotion,  though  a 
single  or  casual  non-attendance  will  not  be.*  It  has  been  held, 
in  the  case  of  recorders  of  incorponited  towns,  that  non-attend- 
ance and  failure  to  assist  at  the  sessions  to  direct  the  corporation 
in  the  proceedings  of  justice,  was  a  good  cause  of  forfeiture  of 
the  office  of  recorder.  But  this  decision  rests  on  the  ground  that 
the  duties  of  recorder  are  of  such  a  nature  as  to  require  his  con- 
stant presence.^  It  was  laid  down  by  Lord  Mansfield  that,  in 
order  to  justify  the  amotion  of  a  corporate  officer  for  non-attend- 
ance at  corporate  meetings  which  were  appointed  to  be  held  upon 
otJier  than  upon  stated  days,  it  was  necessary  to  show  that  noticS 
of  the  particular  business  for  which  the  meeting  had  been  called 
had  been  given  to  them.  An  allegation  that  "  due  notice  was 
given  of  the  holding  thereof  respectively,"  was  not  sufficient.^ 
The  non-attendance  of  a  single  member  of  a  corporate  board  is 
not  necessarily  a  cause    of  removal,  although  the   office  is  of  a 

•  Anon.,  1  Barnard.  402;  Regina  w.  •*  Rex  v.  Wells,  4  Burr.  1999. 

Bailiffs  &c.   of  Ipswich,  2  Ld.  Raym.  «  Rex  v.  Bailiffs  of  Ipswich,  2  Salk. 

1232;  Rex  v.  Ingram,  1  W.  Bl.  60.  434,  435.     See    also  Rex  v.    Harris,  1 

2  Murdock  v.  Phillips'  Academy,  12  Barn.  &  Ad.  936. 

Pick.  (Mass.)  244  (^ro/esso?- in  a  theo-  ^  Rex  v.  Richardson,    1  Burr.  517, 

logical  seminary).  527.      See  also    Rex     v.    Carlisle,    1 

3  Fuller  V.  Trustees,  G  Conn.  532,  Strange,  385. 
540. 

G42 


CORPORATE    PROCEEDINGS    TO    REMOVE.         [1  Thomp.  Corp.    §  815. 

public  nature.  This  has  been  held  in  respect  of  the  non-attend- 
ance of  an  alderman  at  the  court  of  sessions,  since  the  non-at- 
tendance of  one  member  does  not  prevent  the  holding  of  the 
court.  ^ 

§     814.    Ineligibility:     Subsequent    Election    to    Another 

Office It  has  been  held  that  the  cause  for  which  an  officer  is 

removed  must  be  something  which  has  arisen  subsequently  to  the 
admission  to  the  exercise  of  his  office,  and  that  the  power  of 
amotion  cannot  be  exercised  for  a  defect  of  original  qualification.^ 
On  the  other  hand,  the  election  or  appointment  to  a  second  office 
and  the  acceptance  thereof,  the  holding  of  which  is  inconsistent 
with  the  holding  of  the  former,  operates  as  a  removal  from  the 
former. 3  A  by-law  providing  that,  "  when  any  director  shall 
die,  resign,  neglect  to  serve,  or  remove  out  of  the  country,  the 
board  may  proceed  to  supply  the  vacancy,"  does  not  empower 
the  board  to  create  a  vacancy.  They  cannot  oust  a  director  be- 
cause they  differ  from  the  stockholder  as  to  his  eligibility,  nor 
because  he  fails  to  attend  a  called  meeting,  nor  because  he  is  not 
a  citizen  of  the  commonwealth.  Legal  questions  must  be  set- 
tled in  the  courts.  Questions  of  fact,  such  as  the  existence  of 
an  actual  vacancy  by  removal  after  election  or  neglect.of  duty 
by  a  member  of  the  board,  may  be  settled  by  the  directors,  and 
the  resulting  vacancies,  if  any,  may  be  filled  by  them;  but  this 
is  the  extent  of  their  power  in  the  premises.* 

§  815.  Other  Grounds  of  Removal.  —  Among  the  causes  for 
which  the  right  of  amotion  has  been  upheld  at  common  law,  may 
be  mentioned  the  non-residence  of  aldermen  of  an  incorporated 
town,-'"'  though  a  temporary  non-attendance  was  held  insufficient ;  ^ 

1  Queen  w.  Mayor  &c.,  of  Pomfret,  v.  Mayor  of  Exeter,  Comb.  197; 
10  Mod.  107.  Vauiihan  v.  Lewis,  Garth.  227;  Rex  v. 

2  Rex  V.  Mayor  &c.  of  Lyme  Regis,  Mayor  &c.  of  Lyme,  Regis,  1  1)  .ugl. 
1  Dongl.  79.  U4.    That  a  change  in  the  boundaries 

3  Rex  V.  Pateman,  2  Durnf.  &  E.  of  wards,  does  not  vacate  the  office  of 
777;  Staniland  v.  Hopkins,  9  Mees.  &  a  couucilmaii,  see  Scoville  v.  City  of 
W.  178.  Clevohmd,  1  Ohio  St.  l_'(i. 

*  Detwiller  v.  Commonwealth,  131  ^  i^^x  v.  Leicester,  4  Burr.  2087, 
Pa.  St   C14;  s.  c.  18  Atl.  Rep.  990.  2089.      Compare  Ex    parte   Butler,    1 

*  Rex  V.  Truebody.  2  Ld.  Raym.  Atk.  215;  Rex  v.  Harris,  1  Barn.  &  Ad. 
1275;  s.  c.  11  Mod.  75;  Holt,  449;  Rex  936;    Vaughan  v.  Lewis,  Carth.   227; 

043 


1  Thomp.  Corp.  §  815.]     amotion  of  officers. 


the  omission  to  take  the  oath  of  office;  ^  in  the  case  of  an  alder- 
man, being  too  poor  to  pay  his  luunicipal  taxes.^  But  on  the 
other  hand,  the  mere  fact  that  the  member  of  a  common  council 
of  an  incorporated  town  became  bankrupt^  was  not  ground  of 
removal,  in  the  opinion  of  Lord  Mausfiehl,  since  it  did  not  dis- 
able him  from  discharging  his  corporate  duties.^     So,  it  has  been 


Rex  V.  Exeter,  Comb.  197;  i  Mod.  33; 
Rex  V.  Doucaster,  Say.  37. 

^  Where  the  return  to  a  mandamus 
showed  that  the  ground  of  removal 
was  that  the  persoa  entitled  to  hold 
the  oflice  had  failed  to  take  the  oath  of 
allegiance,  the  question  was  stirred 
whether,  under  such  circumstances, 
the  party  must  take  the  oaths  at  his 
peril  or  whether  the  magistrate  must 
tender  them  to  him.  It  was  held  that 
he  must  take  them  at  his  peril,  that  the 
magistrate  nei-d  not  tender  them  to 
him,  biit  he  must  tender  hira-^elf  to  the 
magistrate  and  demand  them,  and  if 
it  be  refused,  must  sue  out  a  manda- 
mus, and  the  magistrate  is  punishable. 
Rex  V.  Miyor  of  Oxon,  2  Salk.  428. 
Compare  Rex  v.  Master  &c.  of  St. 
John's  College,  Skiuu.  546;  Rex  v. 
Ellis,  2  Strange,  994.  As  to  a  retlued 
distinction  between  swearing  by  and 
before  the  mayor,  see  Rex  v  Ellis,  su- 
pra. 

2  Rex  V.  Mayor  &c.  of  Andover,  3 
Salk.  229. 

3  Rex  V.  Mayor  &c.  of  Liverpool, 
2  Burr.  723.  "  His  mere  being  a  bank- 
rupt," said  Lord  Mansfield,  "  is  no 
objection  to  his  continuing  a  corpora- 
tor; it  is  no  offense  against  the  duty 
of  his  office.  He  may  become  a  bank- 
rupt without  his  own  fault.  And 
there  is  no  census  requisite  as  a  quali- 
fication to  bi  a  corporator.  Indeed 
some  one  or  more  of  the  consequences 
of  bankruptcy  m.iy  eventually  become 
a  cause  of  amotion:  but  the  bank- 
ruptcy itself  is  not  so.  A  man  may  be 
able  to  pay  above  twenty  .shillings  in 
the  pound,  notwithstanding  his  being 
in  strictness  a  bankrupt;  or   he  may 

644 


very  soon  obtain  a  certificate,  after 
the  commission  is  issued.  It  is  no 
offense  against  the  law  of  the  land. 
Bankrupts  are  not  now  considered 
as  criminals,  whatever  the  old  act 
may  intimate  of  this  kind.  A  man 
may  certainly  be  a  bankrupt,  without 
being  guilty  of  any  crime  wha' soever, 
and  may  really  be  worth  a  large  sur- 
plus on  a  balance.  Sir  Stephen  Evans 
and  the  Woodwards  and  many  others 
have  been  instances  of  this.  And  this 
disfranchismg  for  becoming  bankrupt 
m-ght  be  made  a  very  bad  use  of,  by 
juntoes  in  corporations,  or  under  par- 
ticular circumstances,  and  with  par- 
ticular views.  A  run  upon  a  man  of 
great  fortune  and  credit  may  be  art- 
fully managed  so  as  to  reduce  him  to 
bankruptcy.  And  there  is  no  differ- 
ence between  a  common  councilman's 
becoming  a  bankrupt,  and  an  ordinary 
freeman's  becoming  so.  As  to  the 
trust  and  power  over  the  revenues  of 
the  corporation  —  this  man  is  only  one 
member  of  the  number  of  one  and 
forty,  who  have  amongst  them  the 
the  power  of  voting  corporate  acts : 
but  he  has  nothing  to  do  with  the  re- 
ceipt, or  trust,  or  management,  or 
fingering  of  the  money;  nor  can  have 
anything  to  do  with  it,  unless  the  rest 
should,  by  a  corporate  act  of  their 
own,  trust  him  with  it.  Therefore 
the  having  become  a  bankrupt,  and  not 
having  obtained  his  certificate  under 
the  commiision  awarded  against  him, 
is  not,  of  itself  alone,  sufficient  to  dis- 
qualify him  from  being  a  member  of 
the  common  council  of  this  town; 
whatever  might  have  been  the  case,  if 
certain    eventual     consequences    had 


CORPORATE  PROCEEDINGS  TO  REMOVE.      [1  Thomp.  Corp.  §  817. 

held  that  old  age  is  not  a  suflScient  ground  of  removing  an  alder- 
man ;  1  nor  is  intoxication^"^  unless  it  reaches  the  grade  of  habitual 
drunkenness.^  The  fact  that  a  member  of  a  city  common  coun- 
cil has  been  expelled  from  office  does  not  render  him  ineligible 
for  re-election,  and  if  re-elected  he  cannot  be  again  removed  for 
the  same  cause.*  And  in  general,  where  there  is  ii  franchise  in  the 
office,  so  that  it  is  in  the  nature  of  property,  and  hence  under  the 
protection  of  the  law,  the  officer  cannot  be  removed  on  grounds 
of  mere  expediency  or  convenience,  or  unless  he  has  forfeited 
his  office  for  one  of  the  causes  mentioned  in  the  statutes  of  the 
institution.^ 

§  816.  Statutory  or  Charter  Power  of  Removal.  —  As  al- 
ready'' stated,  where  the  organic  law  is  silent,  the  corporation 
possesses  the  inherent  power  of  removing  its  officers.®  But  where 
the  charter  prescribes  the  terins  under  which  the  power  is  to  be 
exercised,  they  must  be  pursued.^  If  the  governing  statute  de- 
fines the  causes  for  which  an  officer  may  be  removed,  he  cannot, 
it  has  been  held,  be  removed  for  any  other  cause,  —  the  statute 
being  interpreted  in  conformity  with  the  principle  expressio  unius 
exclusio  alterius?  So,  the  power,  conferred  by  the  charter,  of 
expelling,  has  been  held  not  to  authorize  a  suspension.^  A  pro- 
vision in  a  governing  statute,  or  in  the  foundation  of  a  private 
charity,  that  visitors  "  shall  and  may  "  remove  officers,  for  speci- 
fied causes,  is  imperative;  in  such  a  case  "  shall  and  may  "  are 
equivalent  to  must.^° 

§  817.  What  Corporate  Action  Necessary.  —  Some  corporate 
action   is  of  course  necessary  to  remove  a  corporate  officer  — 


happened  to  follow  therefrom."     Rex  «  Ante,  §  802. 

V.  Tovvu  of  Liverpool,  2    Burr.    723,  '  State  v.   Treasurer  of  Vincennes 

7.32;  s.  c.  2  Esp.  3-'4.  University,  5  lud.  77. 

1  Hazard's  Case,  2  Rolle,  11.  ^  Shaw  v.  Mayor  &c.  of  Macon,  19 

2  Rex  V.  Taylor,  3  Salk.  231.  Ga.  4(;8. 

3  Taylor  u.  Gloucester,  1  Rolle,  409;  ^  State  v.  Jersey  City,  25  N.  J.  L. 
s.  c.  3  Bulst.  109.  536. 

*  State  V.  Jersey  City,  25  N.  J.   L.  i"  Attorney- General  v.  Lock,  3  Atk. 
536.  164. 

*  Murdock  v.  Phillips  Academy,  12 
Pick.  (Mass.)  244. 

645 


1  Thomp.  Corp.  §  817.]     amotion  of  officers. 

something  that  distinctly  signifies  the  corporate  will  that  he  sliall 
no  lon«"er  be  an  officer.^     In  those  cases  where  ll)e  office  is  in  the 
nature  of  a  franchise,  the  officer  cannot  ho  removed  without  the 
agency  of  a  tribu)ial,  competent  to  investigate  the  cause,  and  pro- 
nounce the  sentence  of  the  loss  of  right.     The  office  is  not  ipso 
facto  vacant  by  neglect  or  abuse;   wrongs  do  not  thus   execute 
their  own  punishment ;  but  an  act  done,  or  the  exercise  of  power, 
is  requisite  to  work  the  forfeiture,  and  determine  the  title  to  the 
office.^     Provisions  in  the  articles  of  an  English  banking  com- 
pany, that  if  any  person   chosen  to  act  as  the  public  registered 
officer  of  the  company  should   become  bankrupt,  he  should  be 
disqualified  and  his  office  become  vacant,  have  been  construed  to 
mean  that  his  office  was  to  become  vacant  at  the  election  of  the 
compaivj  ;  but  if,  after  the  bankruptcy,  they  treated  and  held  him 
out  to  the  world  as  their  public  registered  officer,  they  might  sue 
and  be  sued  in  his  name.^     Under  the  conceptions  of  the  old  law, 
an  officer  appointed  under  the  common  seal  could  only  be  dis- 
charged by   an   instrument   authenticated  in   the  like  manner.^ 
But,  as  we  shall  see  hereafter,  the  necessity  of  a  corporate  seal 
as  an  evidence  of  a  corporate  act,  is  no  longer  required  by  the 
modern  law,  except  in  those  cases  where  an  individual,  acting  in 
the  same  way,  would  be  required  to  act  under  seal.^   Even  under 
old  conceptions,  it  was  not  necessary  that  the  removal  of  a  mere 
ministerial  officer  should  be  made  by  the  corporation  under  its  com- 
mon seal.®     An  officer  appointed  by  resolution  only,  and  holding 
during  pleasure,  might  be  removedbyamere  resolution  rescinding 
the  former  one.^     Resolutions  of  a  corporation  suspending  or  re- 
moving an  officer,  in  a  place  at  a  distance,  are  not  to  be  regarded 
as  taking  effect^  so  as  to  terminate  the  liability  of  h\'S,  sureties ,  until 

1  Murdock  v.  Pliillips'  Academy,  12      655;  1  Dowl.  &  L.642;  13  Law  J.  (n.  8.) 
Pick.  244;  Doremusw.Dutcli  Reformed      Exch.  324;  8  Jur.  218. 

Church,    3  N.    J.    Eq.    332;    State    •;;.  ^  Rex  u.  Chalke,  1   Ld.  Raym.  225; 

Trustees   of  Vinceunes  University,   5  Rex  v.  Mayor  &c.  Rippon,  1  Ld.  Ra.\m. 

Ind.  77;  Rex  v.  Ponsonby,  2  Brown  P.  5G3. 

C.  311;  Rex  v.  Heaven,  2  Durnf.  &  E.  '-^  Post,  §  Ch.  106,  Art.  I. 

772;  Cora.  u.  Pennsylvania  &c.  Insti-  ^  Dighton  v.    Stratford-on-Avon,   2 

tute,  2  Serg.  &  R.  (Pa.)  141.  Keb.  641. 

2  State    V.  Trustees   of  Vincennes  '  Regina  v.  Thomas,   8   Ad.   &  E. 
University,  5  Ind.  77.  183;  3  Nev.  &  P.  2S8;  2  Jur.  347;    Rex 

8  Steward  v.  Dunn,  12  Mees  &  W.      v.  Chalke,  1  Ld.  Raym.  225. 
646 


COEPORATE   PROCEEDINGS    TO    REMOVE.       [1  Thomp.  Coi'p.   §  819. 

the  necessary  time  for  communicating  them  has  elapsed. ^  If  an 
officer  be  liable  to  removal  at  the  pleasure  of  the  corporation,  the 
choosing  another  person  to  fill  the  office  is  a  declaration  of  the 
pleasure  of  the  corporation.^ 

§  818.  Power  must  be  Exercised  at  a  Corporate  Meeting.  — 

The  power  to  amove  an  officer,  whether  possessed  as  incident  to 
the  corporation  at  large,  or  vested  in  a  particular  body,  must  ap- 
pear to  be  exercised  at  a  meeting  duly  assembled  and  holden  in 
the  corporate  character,  or  at  least  holden  in  the  character  by 
virtue  of  which  they  are  empowered  to  amove.  Thus,  where  it 
appeared,  by  tlie  return  to  a  mandamus  that  the  common  council 
had  the  power  of  amotion,  and  it  was  alleged  as  a  fact  that  the 
party  complaining  v/as  removed  by  thirty  of  the  common  council- 
men,  in  the  council  chamber  assembled,  the  court  held  this  to  he 
insufficient,  because  it  did  not  appear  "  that  the  thirty  council- 
men,  in  the  council  vv^ere  then  and  there  assembled  as  a  common 
council  — as  they  might  be  there  to  feast,  or  for  other  purposes 
not  connected  with  their  corporate  character."  ^ 

§  819.  And  by  a  Majority  Vote. — As  already  seen  in  re- 
spect of  corporate  elections,*  the  general  rule,  in  the  absence  of 
different  provisions  in  the  charter,  governing  statute  or  valid 
b^^-laws,  is  that,  where  a  quorum  is  duly  assembled,  a  majority 
of  the  quorum  may  decide  any  question  which  comes  before  the 
meeting.  Accordingly,  it  has  been  held,  under  a  charter  which 
requires  corporate  acts  in  general  to  be  done  by  a  majority  of 
the  corporation,  that  an  officer,  if  a  member,  can  only  be  removed 
by  a  majority  of  all  members,  counting  Jtimsdf.  Amotion  being 
an  act  of  an  odious  nature,  all  clauses  of  the  charter  concern- 
ing it  must  receive  a  strict  interpretation.  The  officer  is  not  ex- 
cluded from  voting,  as  a  member,  upon  the  question,  by  his 
personal  interest.^ 

i  McGill   V.  Bank  of  UuiLed  States,  *  Ante,  §  725,  et  seq. 

12  Wheat.  (U.  Sj  511.  *  Reg.  v.  Sutton,  10  Mod,  74.     The 

2  Rex  V.  Mayor   of   Canterbury,  1 1  return  to   a  mandamus  to  restore  an 

Mod.  403;    1  Strange,  674;    Attorney-  alderman  who  had  been  amoved  upon 

General    v.    Corporation    of   Poole,  8  divers  char<ies,  alleged  tiiat  the  power 

Beav.  75.  had    been   executed    per    majorem    et 

*  Rex  V.  Taylor,  3  Salk.  231.  bergenses    (by    the   mayor    and    bur- 

G47 


1  Thomp.  Corp.  §  820.]     amotion  or  officers. 

§  820.  Necessity  of  Notice  and  a  Judicial  Inquiry.  —  If  the 

officer  lias  no  francJilse  in  the  office,  —  if,  in  other  words,  the 
nature  of  the  office  is  a  mere  employment,  so  that  he  is  removable 
ai 2)! ensure,  — then,  in  conformity  with  principles  already  stated,^ 
he  is  not  entitled  to  notice  of  any  investigation  into  his  conduct 
with  the  view  to  his  removal,  or  of  any  proceeding  to  remove 
him.^  But  the  corporation  may  discharge  him,  as  any  other  em- 
ployer may  discharge  his  employe,  without  assigning  any  cause, 
but  subject  to  the  liability  of  an  action  for  damages  for  breach 
of  contract,  if  by  discharging  him  its  contract  with  him  is  broken. 
But  where  there  is  2i  franchise  in  the  office  —  where  the  right  to 
hold  it  IS  analoo;ous  to  the  rijjht  of  a  member  to  hold  his  mem- 
bership,  —  then,  by  analogy  to  principles  hereafter  stated  in  re- 
gard to  the  expulsion  of  members  of  corporations,^  the  officer  is 
entitled  to  notice  of  any  proceeding  to  investigate  his  conduct, 
with  a  view  to  his  removal,  and  of  the  grounds  of  complaint,  and 
to  a  fair  opportunity  to  be  heard  in  the  defense  ;  otherwise  hia 
removal  will  be  void.^  It  is,  in  general,  absolutely  necessary, 
not  only  that  he  should  be  summoned  generally  to  attend,  but 
that  he  should  have  a  particular  summons  to  attend  and  answer 
the  particular  charge  alleged  against  him  ;  for  it  would  be  highly 
unjust,  upon  a  general  summons,  to  remove  a  man  for  particular 
offenses,  which  he  may  have  had  no  opportunity  of  preparing  to 
answer.^  He  is  entitled  to  have  the  offense  with  which  he  is 
charged  "  fully  and  plainly,  substantially  and  formally,  de- 
scribed to  him."  ^  In  a  case  carrying  with  it  the  great  authority 
of  the  name  of  Lord  Coke,  it  is  said  ;  "  And  although  they  have 


gesses)    generally,   and  It    was  held  723;    Rex  v.  Mayor  &c.  of  Doncaster, 

that  this  was  sufQcient;  but  the  case  Id.  738.     Jarvis  v.  Mayor  &c.  of  N.  Y., 

is  obscure    and  not  of  much  value.  2  N.  Y.  Leo;.  Qbs.  396. 
Rex  V.  Brayfield,  2  Keb.  488.  ^  Delacy  v.  Neuse  Navigation  Com- 

i  Ante,  §  805.  pany,    1   Hawks  (N.  C),  274:;  s.  c.  9 

2  Rt:x  V.  Mayor  &c.  of  Coventry,  1  Am.  Dec.  CSG ;  Commonwealth  i;.  Penn- 

Ld.   Raym.  391;  2  Salk.   430;    Rex   v.  sylvauia  Beneficial  Institution,  2  Serg. 

Mayor  &c.  of  Oson,  2  Salk.  428;  Rex  &  R.    141;  Black  &c.  Society  u.  Van- 

V.  Mayor  &c.  of  Canterbury,  Stra.  674;  dyke,  2  Whart.  (Pa.)  309  ;  City  of  Exe- 

Dighton  V.  Stratford-on-Avon,  2  Keb.  ter  ?7.  Glide,  4  Mod.  33;    Bagg's  Case, 

641;  Rex  v.  Deighton,  2  Keb.  650.  11  Coke,  93. 

»  Post,  §  881,  et  seq.  ^  Murdock    v.    Phillips'    Academy, 

^  Rex  V.  Richardson,  1  Burr.  517;  12  Pick.   (Mass.)  244;   Murdock' s  Ap- 

Rex  V.  Mayor  &c.  of  Liverpool,  2  Burr.  peal,  7  Pick.  (Mass.)  303. 
648 


CORPORATE   PROCEEDINGS    TO    REMOVE.       [1  ThoDip.  Corp.  §  820. 

lawful  authority,  either  by  charter  or  prescription,  to  remove  any 
one  from  the  freedom,  and  that  they  have  just  cause  to  remove 
him ;  yet  if  it  appears  by  the  return,  that  they  liave  proceeded 
against  him  without  hearing  him  answer  to  what  was  objected, 
or  that  he  was  not  reasonably  warned,  such  removal  is  void  and 
shall  not  bind  the  yynviy  ;  quia  quicwique  aliquid  staiuerit  parfe 
inaudita  altera^  oequam  licet  statuerit,  haud  cequus  fuerif,  and 
such  removal  is  against  justice  and  right,"  ^  In  considering  the 
legality  of  the  removal  of  a  professor  in  an  incorporated  institu- 
tion of  learning,  the  Supreme  Judicial  Court  of  Massachusetts 
held  that  the  proceeding  to  remove  such  corporate  officer  is  ixjudi- 
cial  proceeding ,  and  that  to  render  it  legal,  there  should  be:  (1) 
a  monition  or  citation  to  him  to  appear;  (2)  a  charge  given  to 
him,  which  he  is  to  answer;  (3)  a  competent  time  assigned  for 
proofs  and  answers;  (4)  liberty  of  counsel  to  defend  him,  and 
to  except  to  proofs  and  witnesses;  and  (5)  a  solemn  sentence 
after  a  hearing  of  proofs  and  answers.^  The  notice  seems  to  be 
in  the  nature  of  nn  indictment,  in  so  far  that,  if  an  officer,  after 
being  notified  that  he  will  be  tried  upon  a  certain  charge,  is 
tried  upon  a  different  charge  and  removed  upon  such  charge,  the 
variance  will  be  fatal,  and  he  will  be  restored  by  mandamus.'^ 
Though  the  summons  to  the  officer,  against  whom  the  proceeding 
to  remove  him  from  the  office  is  taken,  be  defective,  as  where 
it  fails  to  set  a  time  when  he  should  appear,  yet  if  he  did  appear 

^  Bagg's  Case,  11  Coke  Rep.  99.  moned  at  a  meeting,  and  that  he  was 
'  Murdock  v.  Phillips'  Academy,  12  removed  on  the   same  day  on  which 
Pick.  244.     In  an  old  case  of  mandamus  this  meeting  took  place,  to  wit,  on  the 
to  restore  an  alderman  who  had  been  18th  of  December,  16G8.     Eexu.  Bray- 
removed    from  his  office    on  divers  fie  d,  2  Keb.  488. 

charges,    it    was    returned    that  the  3  jt  was  so  held,  where  the  notice 

meeting  to   which  the  alderman  had  to    the    recorder   of  aa  incorporated 

beeu  summoned  and  the  amotion  were  town  "  was  to  answer  as  to  his  non- 

on  the  same  day,  and  it  was  argued  attendance  at  a  session  of  oyer  and 

that  this  was  not  reasonable  notice.  terminer,     and     therewith     he     was 

For  the  corporation,   the  contention  charged;    whereas  he  was  turned  out 

was  that  the  notice  was  sufFicient,  the  for   non-attendance   at  a  sessions  of 

defendant  being  in  town  and  notrequir-  thepeace,  audanswered  tothat,  though 

inglongertime.  Thecourtheldthatthe  not    charged    therewith;    which    the 

summons  was  sufficiently  alleged,  but  court  held  incurable    and   fatal,  and 

the  case  is  somewhat  obscure  upon  ordered    a    peremptory    mandamus.''^ 

this  point.     It   would  seem  froui  the  Reg.  i?.  Bailiffs  of  Ipswich,  2  Salk.  434, 

report  that  the  alderman  was  sum-  435;  s.  c.  2  Ld.  Raym.  1232. 

649 


1  Thomp.  Corp.  §  821.]     amotion  of  officers. 

and  answer  this  will  cure  the  informality  of  the  notice;  "for 
though  a  man  ought  to  be  prepared  and  have  convenient  time  for 
that,  yet  he  may  waive  its  benefit  if  he  will."  ^  Courts  of  equity 
proceed  on  the  same  principles,  where  they  acquire  jurisdiction 
on  the  ground  of  trust.  Where  the  power  to  remove  is  not  ab- 
solute, at  the  mere  will  and  pleasure  of  the  trustees,  such  as  the 
power  which  the  master  exercises  over  his  servant,  but  is  a  dis- 
cretionary power,  to  be  exercised  in  the  due  execution  of  the 
powers  and  trusts  reposed  in  them,  so  th;it  it  is  under  the  con- 
trol of  the  court  of  chancery,  a  removal  upon  an  ex  parte  hear- 
ing, without  giving  the  officer  an  oi)portunity  of  being  heard  or 
of  making:  a  defense,  will  be  set  aside. ^ 

§  821.  Exception  in  tlie  Case  of  Continued  Desertion  and 
K"on-Residence. —  The  old  cases,  or  at  least  some  of  them,  went 
upon  the  doctrine  that,  where  the  officer  of  a  corporation  was 
removed  by  reason  of  continued  non-residence,  no  notice  to  show 
cause  why  he  should  not  be  removed  was  necessary.^  In  one 
case  it  was  strongly  pressed  upon  the  court,  that  the  officer  had 
not  received  any  such  notice  or  summons  to  attend  and  show 
cause,  that  it  was  contrary  lo  natural  justice  that  a  man  should 
be  disfranchised  without  being  heard  what  he  had  to  say  for  him- 
self; but  the  court  disallowed  this  objection,  saying:  *'  If  a  cap- 
ital bui'gcss  quite  leaves  the  borough,  and  goes  and  resides  alio- 
gether  in  another  place,  there  is  no  need  of  summoning  him 
before  he  is  removed;  and  it  is  sufficient  ground  for  turning  him 
out ;  otherwise,  if  he  only  left  the  borough  for  a  while  for  his 
health's  sake."* 


1  Reg.  V.  Bailiffs  of  Ipswich,  2  Salk.  11  Modera  Mr.  Justice  Powell  is  made 
434,  435;  Rex  v.  M;iyor  &c.  of  Wilton,  to  doubt  wlieiher  it  was  necessary  to 
2  Salk.  428;  Rex  v.  Chalke,  1  Ld.  summon  him.  In  another  old  case, 
Raym.  225.  three  of  the  judizes  held  that,  where  an 

2  Willis  V.  Child,  13  Beav.  11  7;  posf,  alderman  liad  been  removed  fr-im  his 
§         .  office  because  he  had  left  the  city  and 

3  Rex  V.  Leicester,  4  Burr.  2087,  coutinued  to  reside  elsewhere,  it  was 
2089.  not  necessary  for  the  maudanms  sued 

•*  Rex  V.  Truebody,  2  Ld.  Raym.  out  to  rest(n-e  him,  to  show,  in  order 
1275;  s.  c.  II  Mod.  75;  Holt,  449.  Ac-  to  be  good,  that  he  had  been  sura- 
cording  to  the  report  in  11  Modern,  moned  to  an?  wer  those  matters  which 
and  in  Holt,  Trueboily  had  been  sum-  were  alleged  against  him  in  the  return ; 
moned  to  attend  and  did  not;  but  in  it  was  sufficient  that  it  showed  that 
650 


CORPORATE   PROCEEDINGS    TO    REMOVE.       [1  Thoilip.  Coip.   §   823. 

§  822.  Conduct  of  the  Trial :  The  Evidence.  —  It  does  not 
follow  from  the  preceding,  thiit  the  corporate  judicatory  is 
obliged  to  conduct  the  trial  with  all  the  formality  and  under  the 
rules  prescribed  for  a  trial  in  a  court  of  law.^  For  instance, 
where  the  trial  took  place  before  the  visitors  of  a  charitable  cor- 
poration, it  was  held  that  they  were  not  required  to  conduct  it 
with  open  doors,  nor  to  admit  more  than  one  witness  at  a  time.'^ 
Nor  were  they  obliged  to  admit  the  declarationa  of  the  a"cused 
in  explanation  of  his  conduct,  though  they  might  do  so  if  they 
should  think  proper.^ 

§  823.  Assembling  a  Meeting  for  the  Trial :  Notifying  the 
Members. — As  hereafter  pointed  out,  when  speaking  of  a 
meeting  assembled  to  try  a  member  with  the  view  to  his  expul- 
sion, it  must  be  kept  in  mind  that,  by  the  principles  of  the 
common  law,  all  who  are  entitled  to  participate  in  the  trial  must 
be  summoned.  As  already  seen  with  reference  to  corporate 
elections,  if  the  body  is  not  composed  of  any  definite  number,  a 
majority  of  those  who  actually  attend  may  usually  act;  *  where- 
as if  it  is  composed  of  a  definite  number,  such  as  a  lioard  of 
directors  or  trustees,  or  a  defined  corporate  judicatory,  it  is  not 
only  necessary  that  all  should  be  summoned,  but  a  vote  of  a 
majority  of  all  is  necessary  to  pass  the  sentence.^  In  respect  of 
the  manner  of  notifying  the  members  who  are  entitled  to  partici- 
p.ite  in  the  trial,  in  the  absence  of  a  rule  prescribed  by  a  govern- 
ing statute  or  by-law,  the  customary  method  employed  by  the 
corporation  will  be  sufficient.  Thus,  where  it  had  been  for  many 
years  the  custom  of  an  incorporated  medical  college  to  notify 
the  members  of  its  board  of  trustees  of  meetings  of  the  board,  by 
mailing  to  each  rhember   a  postal  card,  it  was  held  that  such  a 

he  was   summoned  generally.     Lord  other  judges  held  that  the  general  al- 

Holt  expressed  the  opiuiou  that  if  his  legation  of  a  sumraous   in    the  return 

desertion  be  a  cause  of  removal,   yet  was  sufficient,  and  a  mandamus   was 

if  he  returned  before  his  removal  and  refused.     Rex    v.   Mayor  of  Exeter, 

resiiled  in  the  city,  then  he  ou^jht  to  Coinb.  197,  108. 

be  summoned;  but  he  admitted  that  ^  Post,  §  893,  et  seq. 

the  summons  was  not  necessary  where  ^  Murdock's  Appeal,  7  Pick.  (Mass.) 

the  parly  is   always   out  of  the   city.  303. 

"  And  here,"   said   he,    "  certainty  is  ^  Ilnd. 

required   to  every  intent,  because  the  *  Ante,    §  725. 

party   hath   not  answered."     But  the  <>  Ante,  ^  T26. 

651 


1  Thomp.  Corp.  §  824.]     amotion  of  opficers. 

notice  was  suflScieiit,  for  the  purpose  of  assembling  the  board  to 
remove  a  person  who  held  the  office  of  professor  in  the  college, 
and  that  it  would  he  pi-e.mmed  that  notices  so  mailed  had  been 
received.^ 

§  824.  Instances  under  tlie  Foregoing  Rules.  — A  committee 
of  the  trustees  of  au  incorporated  institution  of  learning,  appointed  to 
inquire  into  its  affairs,  examined  the  professor,"!  and  others,  and  made  a 
report  respecting  one  of  the  professors,  founded  on  statements  made  by 
himself,  and  by  others  who  were  not  examined  in  his  presence.  The 
trustees,  without  notice  to  him,  voted  that,  in  view  of  the  report,  etc., 
his  connection  with  the  institution  ought  to  be  dissolved.  After  failing 
to  induce  him  to  resign,  a  committee  of  the  trustees  made  a  report 
recommending  his  removal,  and  sent  a  copy  of  it  to  him,  informing  him 
that  he  might  make  any  communication  in  regard  to  it,  and  might  have 
the  aid  of  counsel  in  preparing  testimony  or  arguments,  but  that  he 
could  not  be  heard  by  counsel ;  and  did  not  offer  to  file  specific  charges 
and  maintain  them  by  proof  in  his  presence,  and  refused  him  access  to 
the  documents  on  which  their  report  was  (in  part,  at  least)  founded, 
and  which  related  to  the  charges  intended  to  be  relied  on ;  and,  upon 
his  refusing  to  appear  before  them,  they  voted  on  the  reasons  and  facts 
stated  in  the  report,  and  without  other  evidence  or  hearing,  that  the 
report  be  accepted,  and  that  he  be  removed  from  oflfice.  It  was  held 
(independently  of  the  first  vote  of  the  trustees,  by  which  they  disquali- 
fied themselves  to  act  judicially  on  the  question  of  removal)  that  the 
professor  had  not  had  the  benefit  of  a  ti'ial,  and  that  the  vote  of  the 
trustees  was  ineffectual  to  remove  him  from  his  office. 2  _  _  _  _  An 
act  of  the  legislature  of  lUinois,  estabhshing  the  "  Illinois  State  Hos- 
pital for  the  Insane,"  incorporated  certain  individuals  and  their  suc- 
cessors in  office,  as  trustees,  constituting  them  a  body  politic,  and  it 
also  created  the  office  of  medical  superintendent  of  that  institution,  and 
provided  that  the  trustees  should  have  charge  of  the  general  interests 
thereof ;  that  they  should  appoint  the  superintendent,  assistant  physi- 
cian and  steward,  and  fix  the  amount  of  their  salaries  ;  that  the  super- 
intendent should  be  a  skillful  physician,  and  be  appointed  for  the  term 
of  ten  years,  and  that  he  should  be  subject  to  removal  only  for  infidel- 
ity, or  on  account  of  incompetency.  It  was  held  that  the  trustees  had 
the  right  to  remove  the  superintendent  for  the  causes  specified,  when- 

1  People  V.  Albany  Medical  College,  ^  Murdock  v.  Phillips  Academy,  12 

26  Hun  (N.   Y.),  348;    (reversing  s.  c.      Pick.  (Mass.)  244. 
10  Abb.  N.  C.  (N.  Y.)  122;   62  How. 
Pr.  (N.  Y.)  220.) 
652 


JUDICIAL   PROCEEDINGS    TO    REINSTATE.      [1  Thomp.   Corp.   §  825. 

ever  either  of  them  existed ;  that,  had  the  law  been  silent  as  to  the  ten- 
ure of  the  office,  and  on  the  subject  of  removal,  the  court  would  not 
hesitate  to  hold  that  the  power  of  amotion  was  incidental  to  that  of  ap- 
pointment, and  that  the  trustees  might  remove  the  superintendent  with- 
out assigning  a  specific  cause,  whenever,  in  their  judgment,  the  best 
interests  of  the  institution  should  require  it.  The  court  took  the  view 
that,  in  cases  of  this  sort,  where  the  law  is  silent  as  to  the  mode  of  pro- 
ceeding, reference  must  be  had  to  the  nature  of  the  case,  to  determine 
what  course  justice  requires  the  removing  power  to  pursue  in  exercising 
its  jurisdiction.  It  is  not  necessary  that  the  cause  assigned  for  removal 
should  be  stated  in  the  precise  language  of  the  statute ;  if  it  embraces 
it,  that  is  sufficient.!  -  -  -  -  The  distinction  between  these  two 
cases  grows  out  of  the  different  conceptions  which  the  two  courts  en- 
tertained of  the  rights  of  the  corporate  officer,  under  the  principles  of 
the  common  law  and  the  provisions  of  the  charter.  The  Massachusetts 
court  proceeded  upon  the  ancient  common-law  conception  that  such  an 
office  is  in  the  nature  of  property,  and  that  the  incumbent  of  it  cannot 
be  deprived  of  the  property  right  which  he  possesses  in  it  without  due 
process  of  law.  But  the  Illinois  court  regarded  it  as  a  mere  employ  ment, 
under  which  the  officer  held  under  the  trustees  of  the  institution  durante 
be7ie  placito,  and  was  hence  removable  without  notice  or  a  trial.^ 

§  825.  Review  of  Proceedings  by  Certiorari.  —  In  the  case 
of  public  municipal  boards,  the  writ  of  certiorari,  as  itexi.sted  at 
common  law,  is  used  to  review  their  proceedings.  In  strict- 
ness, it  is  supposed  that  the  office  of  this  writ,  when  so  used,  is 
limited  to  keeping  the  inferior  board  within  its  jurisdiction, 
which  it  effects  by  quashing  its  proceedings,  when  they  are  had 
in  excess  of  its  jurisdiction.  But  the  reviewing  courts  proceed 
on  grounds  so  loose,  that  some  of  their  decisions  amount  to  an 
affirmation  of  the  view  that  whenever  the  board  acts  illegalhj,  in 
a  sense  violative  of  the  rights  of  the  petitioner,  they  act  beyond 

1  People  V.  Iliggins,  15  111.  110.  the  common  law  of  England,  as  to  the 

2  The  law  of  Massachusetts  iu  re-  visitation  of  eleemosynary  corpora- 
gard  to  the  particular  institution  tion<,  was  the  law  of  Massachusetts, 
seems  to  have  been  peculiar  in  this,  except  so  far  as  it  had  been  repealed, 
that  the  visitors  were  empowered  to  as  to  the  visitors  of  tlie  particular  in- 
hcar  appeals  from  the  decisions  of  tlie  stitution,  by  the  statute  of  1823,  ch. 
trustees,  and  to  review  and  reverse  50,  §  3,  which  gave  an  appeal  to  the 
any  censure  pas'^ed  by  the  trustees  Supreme  Court  from  tlieir  decrees  or 
upon  any  professor,  and  to  admoni-h  sentences.  Murdock's  Appeal,  7  Pick, 
or  remove  a  professor  f  >r  neglect  of  (Mass.)  303. 

duty,  etc.     The   court   also  held  that 

653 


1  Thomp.  Corp.  §  826.]     amotion  of  officers. 

their  juiisdiction.  In  New  York  it  is  said  tliat  only  errors  of 
law  affecting  materially  the  rights  of  parties  may  be  corrected  in 
this  proceeding,  and  that  the  evidence  may  be  examined,  in  order 
to  determine  whether  there  is  any  competent  proof  io  justify  the 
adjudication  which  has  been  made.^  On  the  other  hand,  it  has 
been  decided  that  "  if  the  inferior  tribunal  had  jurisdiction,  and  if 
there  was  evidence  legitimately  tending  to  support  its  decision,  and 
if  no  rule  of  law  was  violated,  its  adjudication  was  final."  ^  It  has 
been  added,  in  respect  of  a  proceeding  by  certiorari  to  review  the 
act  of  aboard  of  police  commissioners  in  dismissing  the  petitioner 
from  the  police  force:  "As  the  board  of  commissioners  do  not  con- 
stitute a  court,  its  proceedings  are  not  to  be  controlled  or  decided 
by  the  same  degree  of  formality  that  would  be  required  upon  a 
charge  of  a  criminal  offense  before  ordinary  tribunals  of  justice. 
A  general  charge  made,  such  as  is  here  presented  [a  charge  of 
neglect  of  duty,  specifying  it]  would  seem  to  be  sufficient  to 
answer  the  purpose  intended,  and  within  the  requirement  of  the 
law  under  which  the  proceeding  was  conducted  "  ^  From  the 
foregoing  ol>servations  and  quotations,  it  would  seem  that  this 
writ  is  used  in  New  York  as  largely  as  a  writ  of  error,  on  a 
record  containing  a  bill  of  exceptions,  would  be  employe' I.*  It 
should  be  added  that  no  precedent  has  come  to  the  attention  of 
the  writer  for  the  use  of  the  writ  of  ceriior  iri  for  the  pur- 
pose of  reviewing  the  proceedings  of  the  judicatories  of  strictly 
private  corporations  or  societies,  in  removing  their  officers  or 
expelling  their  members. 

§  826.  Extent  of  Relief  in  Equity.  —  The  jurisdiction  of 
equity  over  corporations  is  generally  confined  to  the  two  heads  of 
trust  and  fraud.     It  has  no  power  to  declare  a  forfeiture  of  a 

1  People  u.  Board  of  Police,  69  N.  Y.  pie  v.  Police  Commissioners,  20  Hun 
408.  (N.  Y.),  402. 

2  People  V.  Board  of  Fire  Commis-  *  See  generally  as  to  the  office  of 
sioneis,  82  N.  Y.  358,  These  priuci-  this  writ,  Jordan  v.  Ilayne,  36  Iowa, 
pies  were  reaffirmed  in  People  v.  9,15;  Hannibal  &c.  R.  Co.  tj.  Board  of 
Board  of  Police  Commissioners,  93  N.  Equalization,  64  Mo.  294;  House  v. 
Y.  97.  Clinton  County  Court,    67   Mo.   522; 

3  People  V.  Board  of  Police,  93  N.  State  v.  Chica'j;o  &c.  R.  Co  ,  89  Mo. 
Y.  97.  See  also  People  u.  Police  Cora-  34;  Chicago  &c.  R.  Co,  y.  Young,  96 
missioners,  23  Hun  (N.  Y.),  353;  Peo-  Mo.  39. 

654 


JUDICIAL   PROCEEDINGS    TO    REINSTATE.      [1  Thoilip.  Corp.   §  826. 

charter.  1  Nor  can  it  wind  up  a  corporation,  except  where  the 
power  is  given  by  statute,  or  where  it  comes  to  it  as  an  incident 
of  some  of  the  heads  of  its  jurisdiction.  It  has  no  superintend- 
ence over  the  officers  of  a  corporation,  except  to  hold  them 
answerable,  and  to  restrain  them,  in  cases  of  frauds  and  breaches 
of  trust,  and  to  compel  them  to  account  as  trustees. ^  It  has  no 
power  to  award  an  injunction,  indefinitely  suspending  an  officer 
of  a  corporation  from  the  exercise  of  his  functions;  for  this  is 
an  indirect  mode  of  removing  him  from  ofiice,  and  the  power  of 
amotion  does  not  reside  in  the  judicial  courts,  and  especially  not 
ill  the  courts  of  equity.^  But,  as  hereafter  seen,  this  jurisdiction 
is  constantly  involved  in  the  case  of  expulsions  from  unincorpo- 
rated societies,^  m  the  case  of  schisms  in  religious  corporations,^ 
and  in  even  the  case  of  other  corporations.^  But  it  has  been 
refused,  to  reinstate  directors  who  have  been  removed  by  a  vote 
of  the  shareholders.^  Where,  under  the  statute  or  other  instru- 
ment which  governs  the  execution  of  a  </■Ms^  the  trustees  have 
the  power  of  removing  an  officer  at  will,  an  officer  removed  by 
them  will  be  reinstated  by  a  court,  if  it  appear  that  they  have 
exercised  their  power  dishonestly  or  corruptly ;  otherwise  not.^ 

1  Post,  I  Cbs.  91,  155.  trary  lies   upon  those  who   object  to 

2  SeeNeal  V.  Hill,  16  Cal.  145.  the  manner  in  which  the  power  has 

3  Griffin  v.   St.  Louis  &c.   Asso.,  4  been  exercised.    No  reasons  need  be 
Mo.  App.  595.  given;  but  if  they  are  given,  the  court 

<  Post,  §  910.  will  looli  at  their  sufficiency.     .     .     . 

6  Post,  §  911.  The  real  question  is,  whether  this  reso- 

6  Post,  §  Ch.  89.  lution  [of    dismissal]  is  valid;  and  it 

T  Inderwick  v.   Snell,  2  Hall   &  T.  must  be  so  if  it  is  the  result  of  the 

412:  14Jur.  727;  19   Law  J.   Ch.  542;  fair  and  honest   opinion   of   the  gov- 

2  Macn.  &  G.  216.  eruing  body.     .     .     .     With  them  the 

»  "  I  think,"  said  Sir  R.  Malins,  V.  legislature  has  left  the    decision  of 

C,  "the  clear  result  of  the  numerous  that    question;     and    so    it  must  be 

authorities  cit^  d  on  both  sides  in  the  left  by  this  court,  unless  I  can  see  that 

argument  in  this  case,  is,  that  all  ar-  a   decision   has  been    arrived  at    for 

hitrary  powers,  such  as   the  power  of  some   corrupt,  improper  or   collateral 

dismissal,  by  exercising  their  pi  as-  object.     ...     It   is  impossible  for 

ure,  which  is  given  to   this  governing  this  court,  when   Parliament  has  put 

body,  may  be  exercised  without  as-  it  so   absolutely  in  the  power  of  the 

signing  any  reason,  provided  thi  y  are  governing  body,  to    interfere.     I  re- 

tairly  and  horn  stly  exercised,  which  peat  that,  according  to  the  construc- 

they  all  must  be  presumed  to  have  tion   of    the    act  of    Parliament,   ray 

oeen  until  the  contrary  is  shown,  and  opinion  is,  that  every  head-master  of 

tnat  the  burthen  of  showing  the  con-  a  public  school,  that  is  of  the  great 

655 


1  Thomp.  Corp.  §  828.]     amotion  of  officers. 

§  827.  Illustration :  Dismissal  of  Schoolmaster  under  En- 
glish Public  School  Act  of  18GS.  —  The  plaintiff,  who  was  appointed 
head  master  of  Rugby  School,  in  November,  1869,  by  the  old  trustees  of 
the  school,  who  were  then  the  governing  body,  was  dismissed  by  the  new 
governing  body,  appointed  under  the  Pubhc  School  Act  of  1868,  in  De- 
cember, 1873.  He  filed  his  bill  in  equity  against  the  governing  body,al- 
lesrinof  that  his  dismissal  was  due  to  the  influence  of  certain  members  of 
the  governing  body  who,  prior  to  their  election,  had  shown  hostility  to  the 
plaintiff's  appointment,  and  had  formed  a  scheme  to  procm-e  its  annid- 
ment ;  and  prajang  that  the  resolution  of  dismissal  might  be  declared  m- 
vaUd.  It  was  held,  on  demurrer,  by  Sir  R.  Malins,  V.  C,  that  the  court 
was  not  justified  in  interfering.  It  was  also  held  that,  although  the 
plaintiff  was  appointed  by  the  old  trustees  in  1869,  the  new  governing  body 
were  not  bound  by  the  rules  and  regulations  in  force  previously  to  their 
appointment,  but  had  a  power  of  dismissal  unfettered  by  those  restric- 
tions. The  Vice  Chancellor  i^roceeded  on  the  ground  that,  under  section 
13  of  the  above  statute,  the  new  governing  body  had  power  to  dismiss  the 
plaintiff  without  notice  and  without  assigning  any  reason  ;  and  that,  as 
they  had  exercised  their  power  of  dismissal  fairly  and  honestly  and  not 
corruptly,  or  for  the  purpose  of  effecting  some  collateral  object,  their 
decision  was  not  subject  to  be  re-tried  by  the  court. ^ 

§  828.  ^Vliere  the  Power  to  Remove  is  Discretionary  in  the 
Due  Exercise  of  the  Powers  of  the  Trustees.  —  A  conclusion 
somewhat  different  from  the  foregoing  was  reached  by  Lord  Romill}^ 
M.  R. ,  in  a  case  where  the  power  was  given  to  the  trustees  to  remove 
the  schoolmaster,  "  upon  such  grounds  as  they  should  at  their  discre- 
tion, in  the  due  exercise  and  execution  of  the  powers  and  trust  reposed 
in  them,  deem  just."  It  was  held  that  this  was  not  a  mere  arbitrary 
discretion  of  removal,  but  that  it  was  a  discretion  subject  to  the  control 
of  the  Court  of  Chancery ;  and  further,  that  it  was  not  competent,  in  the 
exercise  of  such  discretion,  for  the  trustees  to  remove  the  schoolmaster 
upon  an  ex  parte  examination  of  charges  against  him,  without  giving 
him  an  opportunity  of  being  heard  and  of  making  a  defense.^     In  so 

public  schools,  —  for  I  believe  every  that    they    exercise    their  discretion 

one  of  them  is  subject  to  this  act, —  properly      unless    the     contrary      is 

(rcferringto  the  Public  Schools  act  of  shown."     Hayman    v.    Governors   of 

1868, 31  &  .32  Vict.  c.  118)  —  that  every  Rugby  School,  L.  R.   18  Eq.  28,  68,  85, 

heacl-mas'er  is  as  much  at  the  mercy  87;  s.   c.   30  L.  T.    (n.  s.)   217.     See 

of  the  governing  body  as  a  coachman  post,  §  917. 

is  at  the  mercy  of  his  master,  and  can  ^  Hayman  v.    Governors  of  Rugby 

be  dismissed  with  or  without  reason;  School,   L.  R.  18   Eq.  28;    s.  c.  ."0  L. 

they  are  not  obliged  to  give  a"y  reason  T.  (x.  s.)  217. 

whatever,  and  the  court  must  presume  ^  Willis  v.  Child,  13  Beav.  117. 

650 


JUDICIAL   PROCEEDINGS  TO   REINSTATE.      [1  Thomp.  Corp.   §  839. 

holding,  Lord  Romilly,  M.  R.  said:  "  The  powers  which  are  given  in 
such  a  case  as  this,  hke  all  powers  to  be  exercised  for  the  benefit  of 
others,  or  for  purposes  more  or  less  public,  must,  in  one  sense,  be  deemed 
to  be  held  in  trust.  There  are  many  powers,  in  that  sense,  held  to  be 
trusts,  which  cannot  be  enforced  or  controlled  in  this  court.  But 
here  is  a  power  defined  by  this  court  for  the  purpose  of  canying  into 
execution  a  charitable  trust,  and,  it  must,  I  think,  be  considered,  that 
the  word  '  trusts  '  was  added  to  the  word  '  powers  '  for  the  purpose  of 
keeping  in  view  that  it  was  a  trust  for  the  execution  of  which  the  court 
was  providing ;  and  the  emplo3-ment  of  the  word  '  trust,'  especially  when 
considered  with  reference  to  the  direction  to  preserve  a  statement  of  the 
grounds  of  removal,  appears  to  me  to  have  the  effect  of  restricting  the 
large  meaning  of  the  word  '  discretion,'  contained  in  the  earher  part 
of  the  clause.  I  am,  therefore,  of  opinion,  that  the  regulation  does  not 
confer  upon  the  trustees  an  arbitrar}'^  power  to  dismiss  the  master,  upon 
any  grounds  which  they  may  deem  just,  free  from  any  control  of  this 
court.  Considering  that  the  trustees  are  not  the  only  and  absolute  judges 
of  the  sufficiency  of  the  grounds  of  removal  upon  which  they  have  acted, 
and  that  they  are  subject  to  the  jurisdiction  and  control  of  this  coui't  in 
the  execution  of  the  trusts  reposed  in  them,  it  becomes  necessary  to  in- 
quire into  the  manner  in  which  they  have  acted  in  the  present  case." 
And  being  satisfied  that  they  had  acted  improperly,  his  lordship  granted 
an  injunction  to  restrain  them  from  removing  the  schoolmaster.^ 

§  829.  Mandamus  to  Reinstate.  —  Mandamus  is  the  ancient 
remedy  at  common  law  to  restore  an  officer  of  a  corporation 
who  has  been  unlawfully  amoved.^  The  use  of  this  writ  in  the 
English  King's  Bench  extended  only  to  matters  of  public  right, 
and  therefore  it  was  not  granted  to  restore  an  officer  of  a 
strictly  private  corporation.^     But  the  ancient  corporations  in 

1  Willis  V.  Child,  13  Beav.  117,  129,  tion    of    Canterbury,  though  a  fran- 

2  Fuller  V.  riainfleld  Academic  chise  for  life,  being  ouly  private;  so 
School,  6  Coun.  532.  of  solicitor;  contra   of  town    clerk." 

3  Hence,  an  application  for  a  writ  Hurst's  Case,  1  Keb.  349.  Where 
to  be  directed  to  a  company  of  gun-  the  corporation  was  a  private  one, 
makers,  commanding  ihem  to  restore  such  as  the  corporation  of  Lincoln 
an  approver  of  guns  who  had  been  de-  College  in  Oxford,  a  maKdanius  was 
prived  of  his  place,  was  refused.  refused  to  restore  a  felloio  who  had 
Vaughan  v.  Company  of  Gunmakers,  0  been  expelled,  on  the  ground  that  his 
Mod.  82;  s.  c.  2  Ld.  Raym.  989.  The  remedy  was  an  appeal  to  the  visitors, 
report  of  an  old  case  runs  thus:  Lord  Holt,  C.  J.,  said:  "Here  is  a 
"The  court  refused  to  grant  a  vian-  visitor,  to  whom  an  appeal  may  be, 
damiis  to  restore  aUorney  of  corpora-  the  matter  is  ouly   e.xamiuable  before 

42  ()57 


1  Thomp.  Corp.  §  829  ]     amotion  of  officers. 

England,  whether  municipal  or  otherwise,  were  mostly  regarded 
as  public  in  their  character,  and  would  be  classed  as  public  cor- 
porations in  our  day  ;  the  joint-slock  corporation  being  a  modern 
invention.  Running  through  the  old  precedents,  we  find  that  a 
mandamus  has  been  granted  to  restore  n  jurat,  turned  out  upon 
a  claim  that  the  corporation  held  power  to  amove  him  at  pleas- 
ure,—  the  court  finding  that  no  such  power  existed;^  to 
admit  a  fellow  to  a  scholarship,  who  had  been  nominated 
by  the  City  of  Bristol,  which  city  had,  under  the  foundation, 
the  right  to  nominate  two  fellows  ;  ^  to  restore  a  person  to  the 
office  of  clerk  of  the  com[)any  of  masons  of  London;  ^  to  restore 
to  his  office  the  high  bailif  of  Westminster  ;  ^  to  restore  common 
councilmen;^  and  to  enfranchise  an  apprentice  of  a  corpora- 
tion at  the  end  of  his  apprenticeship  according  to  the  custom;  " 


him,  and  no  where  else.  Such  a  col- 
lege is  a  lay  corporation,  and  if  no 
particu'ar  visitor  be  appointed,  the 
founder  and  his  heirs  are  visitors. 
If  it  be  In  case  of  an  ecclesiastical  or 
spiritual  corporation,  and  no  visitor 
appointed,  the  bishop  of  the  diocese 
is  visitor.  This  is  a  private  corpora- 
tion; it  in  no  way  concerns  the  pub- 
lick;  and  we  wi  1  not  grant  any  manda- 
rmis,  and  so  it  was  ruled  iu  this  court 
in  Ailoff's  Case,  who  was  fellow  of 
All  Souls."  Dolben,  J.,  also  said: 
"  I  remember  Dr.  Robert's  Case,  who 
was  a  poor  man,  and  the  court  was 
very  willing  to  have  helped  him,  but 
my  Lord  Hale  said  he  could  by  no 
means  grant  a  mandamus,  for  that  he 
had  taken  his  place  subject  to  those 
terms,  and  as  it  were  secret  condi- 
tions ;  and  he  could  no  more  complain 
of  his  ill  usage,  than  a  man  could  do 
of  an  ill  award,  to  which  he  had  sub- 
mitted." The  court  therefore  re- 
fused to  put  the  college  to  the  expense 
of  making  return  to  an  alternative 
mandamus.  Parkinson's  Case,  Comb. 
143. 

'  Crips  V.  Mayor  of  Maidstone,  1 
Keb.  812. 

2  Rex  V.  St.  John's  College,  Comb. 

658 


238.  Lord  Holt,  C.  J.,  said:  "The 
visitor  shall  determine  all  that  relates 
to  persons  who  are  of  the  foundation; 
but  here  is  a  collateral  interest  in 
Bistol;  there  is  no  part  of  the  col- 
lege ;  the  visitor  hath  no  power  before 
a  person  be  made  a  member."  See 
note,  infra. 

3  Stamp's  Case,  Comb.  348. 

*  Rex  V.  Westminster,  Comb.    244. 

s  Breitand  Johnson's  Case,  Comb. 
214;  Williams'  Case,  2  Keb.  558;  State 
V.  Common  Council  of  Jersey  City, 
25  N.  J.  L.  536. 

6  Weber  v.  Zimmerman,  22  Md.  156. 
"  Serjeant  Holloway  prayed  a  m,an- 
damus  to  enfranchise  an  apprentice 
presented  by  his  master,  according  to 
the  custom,  at  the  end  of  the  seven 
years  at  court  day,  before  mayor  and 
bailiffs  of  Oxon,  they  having  refused 
to  make  him  free,  which  the  court  con- 
ceived without  precedent;  for  hereby 
they  might  engross  the  freedom;  as 
barrister,  if  the  bench  refuse  to  call 
him,  in  Inn  of  Court,  hath  no  remedy; 
so  there  is  norem.  dy  to  elect  mayor, 
etc.;  contra  to  swear  one  elected  sec- 
ondary to  the  clerk  of  the  crown." 
Tovvnsend's  Case,  1  Keb.  458.  On  a 
later  day,  "  the  court  conceived  that  a 


JUDICIAL    PROCEEDINGS    TO    KEINSTATE.      [1  Thoilip.  Coip,    §   829. 

to  restore  a  person  to  the  office  of  sexton;  ^  at  the  suit  of  a  school 
district  to  compel  the   committee  of  the  district  to  reinstate  a 


mandamus  ought  to  issue  to  swear  him 
according  to  the  precedent  13  Car.  1. 
in  Norwich,  where  every  one  by  cus- 
tom is  a  lawful  freeman,  that  hath 
served  seven  years;  andnotwitlistand- 
ing  they  refused  to  swear  him,  for 
which  cause  a  mandamus  was 
granted."  Townsend's  Case,  1  Keb. 
470;  Rex  v.  Townsend,  1  Keb.  659. 
It  was  laid  down,  as  early  as  the  year 
]';70,  by  Lord  Hale  and  his  colleagues 
triat  a  mandamus  wouldnot  lie  to  restore 
the  fellow  of  a  college  who  had  been 
deprived  of  his  fellowship  by  the  sen- 
tence of  the  visitor.  The  judgment  in 
this  case  is  particularly  valuable  for 
tl^e  observations  of  Lord  Hale.  He 
said:  "There  is  a  reason  given  in 
Der  -vihy  a,  mandamus  will  not  lie  in 
the  case  there,  namely,  because  it  was 
pr:iyed  to  be  awarded  to  a  temporal 
c(jrporation."  Further  on  he  said: 
"  That  a  viandamns  lies,  I  will  not 
positively  deny;  but  whether  it  is  fit 
for  us  to  pruceed  after  this  return?  It 
must  be  taken  for  granted,  that  it  is 
not  a  spiritual  corporation;  if  it  were 
you  ought  to  appeal  to  the  visitor,  and 
tlien  to  the  delegates.  It  is  a  private 
society,  as  an  Inn  of  Court;  and  I 
confess,  that  mandamuses  do  gener- 
u  ly  respect  matters  of  public  concern. 
I  never  he-xrd  of  a  mandamus  for  a 
monk.  If  there  be  a  jurisdiction  in 
I'.ie  visitor,  and  he  hath  determined 
t  le  matter,  how  will  you  get  over  that 
sentence?  The  chancellor  is  visitor 
<jf  all  the  king's  free  chapels,  and  2 
11.5  doth  make  him  so  of  all  colleges 
of  the  king's  foundation.  Suppose  a 
temporal  court,  over  which  we  have 
jurisdiction,  doth  give  judgment  in 
assize  to  recover  an  office ;  so  long  as 
that  judgment  stands  in  force,  do  you 
think  we  will  grant  a  mandamus  to 
restore  him  against  whom  the  judg- 
'  lie's  Case,  Ventr.  143,  L53;   Hex 


ment  is  given?  ...  At  this  rate 
we  should  examine  all  deprivations, 
suspensions,  elections,  etc.,  and  by 
the  13th  of  the  queen,  the  laws  of  the 
university  are  confirmed.  We  ought 
not  to  grant  a  mandamus  where  there 
is  a  visitor;  but  in  this  case  the  visitor 
hath  given  sentence."  Appleford's 
Case,  as  reported  in  1  Mod.  82,  84,  85; 
s.  c.  2  Keb.  799;  1  Lev.  23,  65;  2  Lev. 
14;  Sir  T.  Rayra.  56,  94,  100;  Sid.  94, 
152,  346.  The  report  in  Keble  is 
very  brief  and  appears  even  less  ac- 
curate; it  Is  as  follows:  "Turner 
showed  cause  against  a  mandamus  to 
restore  to  a  fellowship  in  New  Cobege 
in  Oxford,  because  he  had  appealed 
to  Evesque  Winchester,  the  local 
visitor,  and  thereof  produced  the 
bishop's  certificate.  Hale,  C,  J.,  said 
26  ed.  3.  in  chancery  a  mandamus  was 
granted,  and  so  of  latter  time;  and 
albeitthese  are  no  such  public  ofHcers, 
for  which  a  mandamus  lieth ;  yet  hav- 
ing been  granted,  this  matter  ought  to 
come  in  by  return,  and  certificate  is 
not  sufTicient;  which  the  court  granted, 
notwithstanding  Dr.  Robert's  Case, 
and  a  mandamus  was  granted."  In 
Dr.  Robert's  Case,  just  cited,  "  Crooke 
prayed  a  mandamus  to  restore  him  to 
the  fellowship  in  Jesus  College  in 
Oxon ;  on  affidavit  that  he  had  applied 
to  the  visitor,  and  he  would  not  med- 
dle. 1.  Keeling,  C.  J.,  conceived  a 
mandamus  ought  to  be  granted,  this 
having  been  ruled  an  estate  of  free- 
hold; and  that  such  gave  voice  in 
choosing  tlu;  knight  of  the  shire;  and 
though  the  thing  were  spiritual,  yet 
the  means  are  temporal  to  it,  as  quare 
imp'dit  of  a  church.  2.  Windom  op- 
posed it  because  Evesque  hath  a  free- 
hold, yet  no  mandamus  lieth  to 
consecrate;  also  the  appeal  to  the 
ordinary  is  the  proper  remedy,  and  he 
V.  Guardians  of  Thame,  1  Stra.  115. 

G59 


1  Thorap.  Corp.  §  829.]     amotion  of  officers. 

teacher  removed  by  them ;  ^  to  compel  the  trustees  of  an  endowerf 
dissenting  meeting  house,  to  admit  a  minister  who  was  duly 
elected  ;  ^  to  restore (?^rct•^07^s•  of  a  hanlcing  corporation,  who  have 
been  refused  the  exercise  of  their  rights  as  directors  by  a  major- 
ity of  the  board  ;  ^  to  restore  ajjastor,  constituted  by  the  chiirter 
of  the  church  a  corporator,  who  was  rcmoyed  ivithont  notice  being 
given  to  the  congregation,  as  prescribed  by  the  constitution  of  the 
society.  But  such  a  mandamus  would  not  be  granted  where  there 
was  any  other  plain  legal  remedy.*  It  was  refused  by  the  King's 
Bench  where  it  was  applied  for  to  restore  one  of  the  proctois  of 
doctor's  commons,  the  court  proceeding  on  the  ground  that  con- 
usance of  such  matters  was  vested  in  the  ecclesiastical,  and  not 
in  the  temporal  courts.^  In  an  American  case  the  idea  has  been 
put  forward  that  the  right  to  the  remedy  by  mandamus  rests  on 
clearer  grounds  where  the  office  from  which  the  relator  has  been 


is  of  right  bound  to  act  in  it.  And  by 
Twisden.  3.  Tliere  is  no  remedy,  but 
by  assize,  if  lie  be  ousted;  and  action 
sur  case,  if  lie  be  not  admitted;  ■which 
4.  Moreton  agreed,  and  the  way  of 
restitution  being  chalked  out,  he  can 
have  no  other.  Keeling,  C.  J.,  said,  a 
mandamus  lieth  to  Evesque,  to  admit 
a  clerk,  where  two  patrons  differ,  and 
to  consecrate,  and  to  induct,  eL-e  there 
would  be  a  wrong  without  a  remtdy; 
and  the  act  of  purliameot  that  Car.  1. 
establisheth  the  jurisdiction  of  the 
Archbishop  in  several  colleges  in 
Oxford,  doth  expressly  di-tinguish 
between  his  visitation  in  matters  of 
faith,  and  his  visitation  of  colleges, 
which  are  lay;  and  the  court  being 
thus  against  the  Chief  Justice,  there 
was  no  mandamus  granted ;  but  they 
would  advise."  Dr.  Robert's  Case, 
2  Keb.  102.  Compare  Rex  v.  Patrick, 
1  Keb.  CIO  and  183;  s.  c.  2  Keb.  65,  68. 
The  same  rule  was  made  in  a  case  de- 
termined some  years  before,  in  the 
14:th  year  of  Charles  II.  The  court 
proceeded  on  the  same  ground, 
namely,  that  the  power  of  removal 
lay  in  the  visitor,—  "  Car  le  visitor  est 
fidei  comraissiarius,  etc.      Nota    que 

(ino 


coment  plusors  del  coUedge  sont  lay  le 
corporation  poit  eslre  spiritual,  et  ne 
poit  estre  moustre  que  cest  court  unque 
graunt  restitution  al  monke  ou  prior 
dat,  etc.,  uncore  plusors  des  monks 
in  Angleterre  fueront  lay,  car  com- 
ent fueront  notaries  uucore  ne  fuer- 
ont in  orders."  Witherington's  Case, 
Sid.  71.  That  a  mandamus  wouM  not 
lie  to  restore  a  fellow  of  a  colleiie,  see 
also  Parkinson's  Case,  Carth.  92;  s.  c. 
3  Mod.  2C5;  1  Show.  74;  IComb.  U3; 
Prohurst's  Case,  Carth.  168. 

1  Oilman  v.   Bassett,  33   Conn.  298. 

2  Rex  V.  Barker,  3  Burr.  1265;  1 
Wm.  Black.  300,  352. 

3  Prieur  v.  Commercial  Bank,  7  La. 
509. 

*  High  Etr.  Rem.,  §  15. 

^  "  Because  this  was  an  ecclesias- 
tical office,  and  a  matter  properly  and 
only  cuguizuble  in  tliat  court;  and 
that  the  temporal  courts  are  not  to  in- 
termeddle or  inquire  into  this  sen- 
tence, or  into  the  proceedings  ia  any 
matter  whereof  they  have  a  proper 
jurisdiction,  but  are  to  give  credit 
thereunto."  Lee's  Case,  Carth.  169; 
s.  c.  3  Mod.  382;  3  Lev.  309;  Skin. 
290;   1  Sliow.  217,  251,  261. 


JUDICIAL    PROCEEDINGS    TO    REINSTATE.      [1  Thomp.  Corp.    §   831. 

removed  is  not  attended  with  pecuniary  profit,  —  the  reason  being 
that,  having  sustained  no  pecuniary  loss,  he  cannot  redress  the 
injury  which  has  been  put  upon  him  by  an  action  for  damages.^ 

§  830.  Several  Writs  where  there  are  Several  Officers. — Where 
several  officers,  standing  in  the  same  grade  of  office,  have  been 
removed,  and  proceed  by  mandamus  to  be  restored,  each  ought 
to  proceed  separately.^  "  Five  persons  cannot  have  one  writ  of 
mandamus  to  be  restored;  for  though  the  end  of  the  writ  is  to 
do  justice,  yet  the  foundation  is  the  wrong  in  turning  them  out, 
and  the  turning  out  of  one  is  not  the  turning  out  of  another; 
nor  can  several  persons  join  in  an  action  on  the  case  for  a  false 
return . "  ^ 

§  831.  Allegation  of  the  Writ.  —  Where  the  writ  of  mandamus  to 
restore  an  officer,  did  not  allege,  in  direct  terms,  that  the  corporation 
was  then  in  existence,  but  alleged  that,  in  October,  1825,  a  year  before 
the  commencement  of  the  proceeding  there  was,  and  for  more  than  thirtj 
years  antecedent  thereto  had  been,  abody  poll  tic  and  corporate,  created 
and  established  by  the  legislature  of  the  State  (naming  it),  — it  was 
held  that  this  was  a  siilncieut  allegation  of  the  existence  of  the  corpora- 
tion; for,  "  as  one  of  the  attributes  of  a  corporation  aggregate  is  im- 
mortality, it  is  a  sufficient  averment  of  its  continuance. "  ^  -  -  -  - 
Where  the  object  of  the  proceeding  by  maniJamus  was  to  restore  the 
petitioner,  who  had  been  removed  from  the  office  of  trustee,  it  was  ob- 
jected that  the  writ  did  not  show  the  existence  of  such  an  office,  or  that 
if  such  an  office  existed,  any  rights,  duties  or  privileges  appertained  to 
it.  The  writ  averred  that  the  corporation  or  body  politic  was  estab- 
lished by  the  name  of  the  Trustees  of  the  Academic  School,  etc. ;  that 
the  plaintiff  was  one  of  the  trustees  duly  elected,  and  in  the  exercise  of 
tine  office  and  enjojang  the  rights  and  privileges  belonging  to  him  as 
trustees;  that  nine  of  the  trustees,  being  a  majority,  were  present  at  a 
meeting,  on  the  14th  of  February,  1826,  and  removed  and  expelled  the 
plaintiff  from  the  office  of  trustee.  It  was  held  that  these  allegations 
were  sufficient,  on  a  trial  on  the  writ  and  return. ^  _  _  _  _  Where 
the  writ  of  mandamus  averred  that  the  corporation  was  estabhshed  by 

J  Fuller  V.   Trustees,  6  Conn.  532,  3  Andover's  Case,  2   Salk.  433,  per 

646.    Compare  Rex  v.  Barker,  2  Burr.  Holt,  C.  J. ;    s.  c.  Holt  441. 

1266.  i  P'ull'T    V.    Academic    School,    6 

^  Rex  V.  Mayor  of  Chester,  Comb.  Coun.  532,  543. 

307.  4  Ibid. 

661 


1  Tlionip.  Coil).  §  83.'{.]     AMOTION  or  officers. 

the  name  of  the  Trustees,  etc.  ;  tliat  the  plaintiff  was  one  of  the  trustees, 
duly  elected  and  enjoying  the  rights  and  privileges  belonging  to  him  as 
trustee ;  and  that  he  continued  to  hold  and  exercise  such  office,  until 
he  was  removed  therefrom, — it  was  held  that  the  q^ce  of  ti'ustee,  its 
tenure  and  duration,  and  the  privileges  pertaining  thereto,  were  sulTi- 
ciently  alleged.  ^ 

§  832.  What  if  Directed  to  the  Individuals  by  Name,  and 
notto  the  Corporation.  —  It  is  not  a  fatal  objection  to  the  writ 
of  mandamus  to  restore  an  officer  of  a  corporation  who  has  been 
removed  from  his  office,  that  it  is  directed  to  the  members  of  the 
corporation  by  name,  instead  of  being  directed  to  the  corporation 
by  its  corporate  name.^  The  old  practice  seems  to  have  been  to 
quash  the  writ,  where  it  was  directed  to  the  corporation  by  a 
wrong  name.  Thus,  in  one  case,  "  the  court  held  the  writ 
naught  because  it  was  directed  to  the  corporation  by  a  wrong 
n:ime."  But  the  writ  of  majidamus'^  need  not  be  directed  to  the 
whole  corporation ;  it  will  be  sufficient  if  it  is  directed  to  those 
members  who  are  to  do  the  act  commanded.  *'  Though  it  should 
be  true,"  said  Lord  Holt,  C.  J,  "  that  a  mandatory  writ  might 
be  directed  to  the  whole  corporation,  yet  it  could  not  be  neces- 
sary it  should  be  directed  to  more  than  those,  or  that  part  of  the 
corpration  that  was  summoned  in  the  execution  of  the  thing  re- 
quired ;  for  it  is  not  in  the  power  of  others  to  put  the  command 
of  the  writ  in  execution."  * 

§  S33.  The  Return  to  the  Mandamus. —  Mandamus  was 
never  allowed  to  restore  an  officer,  removed  for  adequate  cause, 
on  the  ground  of  mere  irregularities  in  the  mode  of  removal ;  ^ 
and  anciently  the  adequacy  of  the  cause  was  judged  of  exclu- 
sively by  the  return  which  the  corporation  made  to  the  maii- 
damus;  for,  as  is  well  known,  until  the  rule  of  the  common  law 
was    changed    by  statute,^  the    return    was    conclusive  and  not 

1  Ibid.  ^  Rex  V.  Griffiths,  5  Barn.  &  Aid.  731. 

'  Fuller    V.     Academic    School,    G  ^  Ey  Stat.   Auue,  chap.  20,  the  per- 

Conu.  533,  543.  son  suing   out  a    writ  of  mandamus 

3  Rex  V.  Mayor  of  Rippon,  2  Salk.  might  plead  to  or  traverse  all  or  auy 

432.  of  the  material  facts  contained  in     he 

*  Rex    V.    Mayor    of    Abingdon,  2  return,  to   which  plea  or  traverse  the 

Salk.  G99;    s.    c.    1    Ld.    Raym.    559  person  making  the  return  may  plead, 

(overruling  Holt's  Case,  2  Jones,  52).  take  issue,  or  demur. 
6(i2 


JUDICIAL    PROCEEDINGS    TO    REINSTATE,      [1  Thomp.  Corp.   §  833, 

traversable;  but  the  only  remedy  of  the  party  aggrieved,  in 
case  the  return  falsified  the  facts,  was  an  action  for  damages  for 
a  false  return,^  If  the  plaintiff  was  not  satisfied  with  the  re- 
turn, it  was  the  practice  for  him  to  bring  an  action  on  the  case 
for  a  false  return,  and  if,  in  such  action,  the  return  should  be 
falsified  by  the  verdict  of  a  jury,  the  court  would  then  award 
him  a  peremptory  mandamus?  As  the  return  could  not  be 
traversed  in  the  particular  proceeding,  the  court  fell  into  great 
strictness  in  construing  it,  and  in  requiring  it  to  set  out  the  facts 
with  exactness  and  precision.  It  was  held  that  it  must  be  cer- 
tain to  every  intent;  and  accordingly  the  old  books  abound  in 
decisions  which  now  seem  to  us  to  involve  an  absurd  strictness 
in  construing  the  words  of  such  returns.  This  strictness  con- 
tinued long  after  the  reason  on  which  it  was  founded  had  ceased 
to  exist.  Notwithstanding  the  statute  of  Anne  already  quoted, 
Lord  Mansfield  in  one  case  said  that  he  took  it  to  be  settled  that 
the  same  certainty  was  still  required  in  the  return  as  before  the 
statute ;  though  at  first  it  miijht  have  been  otherwise  deter- 
mined,  because  the  reason  was  not  the  same.  But  Duller,  J,, 
said  that  the  certainty  to  a  certain  intent  in  general  was  all  that 
was  requisite ;  which  meant  what,  upon  a  fair  and  reasonable 
construction,  might  be  called  certain  without  regarding  the 
possible  facts  which  did  not  appear.^  In  the  severity  of  the 
old  rule  the  relator  had  some  advantages.  If  the  return  was  in- 
sufficient, it  seems  that  it  could  not  be  amended.  Where  it  was 
held   bad   for   repugnancy,    a   peremptory   writ   was  granted.* 

1  Audley's  Case,  Latch.  123,  124;  election  of  the  relator  to  the  office, 
Anon.,  2  Salk.  428;  s.  c.  1  Ld.  Raym.  and  then  avoided  the  election  by  set- 
126,  sub  nom.  Green  v.  Pope.  ting  up  that  he  had  procured  his  elcc- 

2  "  When  the  action  is  brought  for  tiou  by  bribery,  "  et  quod  non  fuit 
a  false  return,"  said  Lord  Holt,  C.  J.,  electus,''^—  it  was  held  that  here  was  a 
"and  if  it  is  falsifled,  we  cannot  re-  repugnancy,  and  that  a  peremptory 
fuse  a  peremptory  mandamus.''''  writ  ought  to  go.  Reg.  v.  Mayor  of 
Buckley  v.  Palmer,  2  Salk.  430;  Rex  Norwich,  Ilolt,  444.  So  also  when 
V.  Mayor  of  Abingdon,  2  Salk.  431,  the  return  stated  that  Ihi;  relator  was 
per  Lord  Holt,  C.  J.  on  such  a  day  electus  etperfectns;  then 

3  Rex  V.  Lyme  Regis,  Doug.  148.  showed  for  cause  of  removing  hlni, 
Compare  Rex  r.  Mayor  of  Liverpool,  2  his  non-attendance  at  the  session; 
Burr.  731  ;  Rex  v.  Bailiffs  of  Morpeth,  then  stated  that  he  had  not  taken  the 
1  Strange,  .58.  sacrament  within  a  year    before    his 

*  Accordingly,  whore  the  return  at  elect  on,  and  that  therefore  his  elec- 
Vu-st  admitted  that  there   had  been  an      tion  was   null  and   void,— the    court 

GG3 


1  Tliomp.  Corp.  §  833.]     amotion  of  officers. 

That  the  prosecutor  has  in  due  manner  resigned  his  oflSce,  is,  of 
course,  a  good  return  to  a  mandamusio  restore.^  So,  it  is  good 
ground  for  quashing  a  writ  of  mandamus,  granted  to  restore  a 
person  to  the  office  and  functions  of  pastor  under  the  charter  of 
a  religious  society,  that  the  petitioner  was  subsequently  disquali- 
fied from  holding  such  office  under  the  charter. ^  <<  JVon  fuit 
electus  "  is  a  good  return  to  a  maiidamusio  induct  into  an  office.^ 
The  same  consequence  followed  where  it  contained  a  negative 
pregnant.^  Moreover,  in  order  to  be  a  good  return,  it  was 
necessary  that  it  should  traverse  the  fads  alleged  in  the  writ,  and 
not  the  conclusions.^  Where  the  relator  founded  his  right  to  the 
office  upon  an  election,  it  was  necessary  for  the  return  to  set 
forth  the  manner  of  the  election,  in  order  to  support  its  allega- 
tion that  the  relator  was  not  duly  elected.''  It  was  required  to 
traverse  the  essential  allegations  of  the  writ,  concerning  the 
charter  of  the  corporation,  or  else  show  that  the  defendants  hud 
complied  with  the  provisions  of  the  charter  as  described  in  the 
writ.  When,  therefore,  the  writ  described  the  constitution  of  the 
corporation  in  certain   terms,  it   was  not   a  good  return  to  de- 


was  of  opinion  that  the  return  was  bad, 
by  reason  of  the  repugnant  and  con- 
tradictory matter  (citing  Holt,  444); 
and  that  the  returns  to  mandamuses 
were  to  be  kept  to  the  same  strict- 
ness, since  the  mandamus  act,  nono 
anncB,  as  before;  and  a  peremptory 
writ  was  granted.  Reg.  v.  Mayor  of 
Pomfret,  10  Mod.  Rep.  107. 

1  Rex  V.  Mayor  of  Rippon,  1  Ld. 
Raym.  563;  2  Salk.  433. 

2  Weber  V.  Zimmerman,  23  Md.  45. 

3  Reg  V.  Twitty,  7  Mod.  83;  Reg. 
V.  Corp.  of  Cornwall,  11  Mod.  174. 
And  see  Reg.  v.  Aldborough,  10  Mod. 
101,  199. 

*  Where  the  object  of  the  mandamus 
was  to  compel  the  defendants  to 
certify  the  election  of  a  person  as  re- 
corder of  York,  the  writ  saying  that 
the  corporation  being  duly  assembled 
proceeded  to  the  election  of  a  recorder 
and  tlie  return  "  that  the  corporation 
were  not  duly  assembled  to  pi-oceedto 
6G4 


the  election  of  a  recorder,"  —  it  was 
held  that  this  was  bad,  because  it  was 
a  negative  pregnant.  Rex  v.  Mayor  of 
York,  5T.R.  66, 

5  Accordingly  where  the  writ  set 
forth  all  the  proceedings  touching  the 
election  to  a  corporation  office  and 
concluded  with  the  words  "  by  reason 
whereof,  A.  was  elected;"  it  was  held 
a  bad  return  to  say  that  *'  he  was  nc^t 
elected."  The  defendants  should 
traverse  one  of  the  facts  alleged 
which  went  to  show  that  he  was 
elected.  Rex  v.  Mayor  of  York,  5  T. 
R.  66. 

6  The  report  of  an  old  case  runs 
thus:  *' Nota,  that  four  several  re- 
torns  on  four  several  mandamus''s  to 
restore  to  places  of  aldermen,  etc., 
within  that  corporation,  were  quasht, 
per  airiam,  for  sayiug  they  were  not 
duly  elected  generally,  without  setting 
forth  the  manner,  etc."  Rex  v.  Mayor 
of  Stafford,  2  Keb.  264. 


JUDICIAL   PROCEEDINGS   TO   REINSTATE.      [1  Thomp.  Corp.  §  834. 

scribe  the  constitution  in  other  terms  and  show  compliance  with 
it  as  thus  described.^  Where  it  set  up  the  existence  of  a  custom, 
by  which  it  was  competent  to  the  defendants  to  remove  the 
officer  at  will,  it  was  necessary  that  the  existence  of  the  custom 
should  be  positively  alleged.^ 

§  834.  Return  may  Show  any  Number  of  Causes.  —  The  re- 
turn to  a  mandamus,  sued  out  to  admit  a  person  to  a  corporate 
franchise,  may  show  any  number  of  causes  upon  which  his  amo- 
tion is  justified,  provided  they  be  consistent  with  each  other.' 
But  where  the  matters  returned  are  repugnant,  the  rule  is  other- 
wise, because  then  the  court  cannot  tell  what  to  believe.*  So, 
where  the  defendants  first  returned  an  election,  and  then  re- 
turned circumstances  avoiding  it,  and  finally  returned  that  there 
was  no  election  at  all,  a  peremptory  mandamus  was  granted.^ 
But  where  several  independent  causes  are  returned,  and  although 
not  inconsistent  with  each  other,  some  are  good  and  others  are 
bad,  the  court  may,  it  has  been  held,  quash  the  bad  and  send 
the  good  to  the  prosecutor  to  plead  to  or  traverse  the  rest.^  So, 
where  the  return  was  that  the  party  was  not  duly  elected,  and 
also  that  there  was  a  custom  to  remove  ad  libitum,  according  to 
which  he  was  removed,  it  was  held  a  good  return  ;  for  he  might 
be  in  possession  de  facto,  and  either  ground  would  justify  his 
removal.^     Where  it  was  returned  that  B.  was  not  a  burgess; 

1  Rex  V.  BailifEs  of  Maiden,  2  Salk.  not  appear  that  the  corporation  had 

431;  s.  c.  1  Ld.  Raym.  481.  any  such  power,  but  only  by  the  re- 

"^  Thna,  to  a,  mandamus  to  restore  cital;  whereas  they  should  have  re- 

J.  S.,  to  be  one  of  the  common  coun-  turned  they  had  sucha  power  positive- 

cil-house  of  the  corporation  of  Coven-  ly."    Rex    v.    Mayor  of    Coventry,  2 

try,  it  was  returned  that  they  were  an  Salk.  430;  s.  c.  1  LI.  Raym.  391 . 
ancient  corporation,  and  that  the  king,  ^  Wright  v.  Fawcett,  4  Burr.  2041, 

by  his    letters-patent,  reciting    their  2045;  R.-g.  v.  Norwich,  2  Salk.  436. 
customs,  amonist  which   was  that  of  *  Rex  v.  Mayor  of  Cambridge,  2  T. 

electing  persons  to  be  of  the  common  R.  456,461. 

couucil-house,    and    removing    them  '*  Reg.  v.  Norwich,  2  Salk.  436;  s.  c. 

ad  UhUunXy  CC\(\.   grant   and  permit  all  2  Ld.  Raym.  1244;  Holt,  444. 
their  liberties,  customs,  etc.,  and  that  ^  Rex  u.  Mayor  of  Cambridge,  2  T. 

they,  by  force    of  the    said    custom,  R.    456;    Compare  Rex  v.    Mayor   of 

time   out  of   mind,  used   at  secundum  York,  5  T.  R.  66. 

formanmeraruvipatentiumprcedict.,6\d  '  Rex  ».   Church    Wardens,  Cowp. 

remove  him,  —  it  was    held  that  this  413. 
return   was  nauu'ht,    "  because  it  did 

6G5 


1  Thomp.  Corp.  §  835.]     amotion  of  officers. 

that  he  was  not  eligible  to  the  office  of  common  councilman ;  and 
that  he  was  not  elected;  —  it  was  held  that  these  were  not  in- 
consistent returns.^  So,  where  it  was  returned,  first,  that  tlie 
person  was  not  duly  elected  sexton ;  and  secondly,  that  there 
was  a  custom  to  remove  and  that  he  was  removed  pursuant  to 
such  custom,  —  these  were  not  inconsistent  returns,  because  the 
person  might  have  been  elected  in  fact,  and  afterwards  removed. ^ 
"  Where,"  said  Lord  Mansfield,  "is  the  repugnancy  in  this  re- 
turn? If  he  was  not  duly  elected,  he  certainly  has  no  right  to  be 
restored.  But  whether  duly  elected  or  not,  they  show  a  right  by 
custom  to  remove  him  at  pleasure,  and  they  have  done  so.  There 
is  no  repugnancy  in  saying  that  he  was  7iot  duly  elected,  but  that, 
being  in  fact  elected,  they,  according  to  an  ancient  custom,  re- 
moved him  from  the  office.  In  either  case  they  were  equally 
entitled  to  exercise  that  right."  ^  But  where  the  object  of  the 
mandatnus  was  to  compel  the  defendants  to  certify  the  election 
of  a  person  as  recorder  of  York,  which  election  was  stated  in  the 
writ  to  have  taken  place  on  the  15th  of  January,  and  it  was  re- 
turned that  the  corporation  were  not  then  duly  assembled,  and 
also  that  afterwards,  to  wit,  on  the  15th  day  of  January,  1789, 
the  corporation  did  assemble,  and  elected  another  person,  —  it 
was  held  that  this  was  an  inconsistent  return.  The  day  was  ma- 
terial, and  therefore  the  laying  it  under  a  videlicet  did  not  signify.^ 

§  835.  When  not  Necessary  to  Aver  Power  of  Removal.  — 

It  was  held  that,  in  a  return  to  a  mandamus  to  restore  a  corpora- 
tor to  his  membership,  where  it  was  stated  that  the  party  was 
removed  by  the  corporate  body  at  large,  it  was  not  necessary  to 
aver  that  the  power  of  removal  was  vested  in  them,  because  that 
was  incidental  to  them,  unless  it  had  been  given  by  their  charter, 
or  by  some  by-law  or  regulation,  to  a  select  portion  of  them.^ 
"It  is  one  of  the  first  principles  of  pleading,"  said  Buller,  J., 
"that  you  have  only  occasion  to  state  facts;  which  must  be 
done,  for  the  purpose  of  informing  the  court,  whose  duty  it  is  to 

1  Rex  V.  Mayor  of  Cambridge,  2  T.  *  Rex  v.  Church  Wardens,    Cowp. 
R.  45().  413,  414. 

2  Rex  V.   Church  Wardens,  Cowp.  *  Rex  v.  Mayor  of  York,  5  T.  R.  66. 
413.  5  ]^ex    V.  Mayor    of    Lyme    Regis, 


Doug.  144. 


666 


JUDICIAL    PROCEEDINGS    TO    REINSTATE.       [1  Thomp.  Corp.    §   836. 

declare  the  law  arising  upon  those  facts,  and  to  apprise  the  oppo- 
site party  of  what  is  meant  to  be  proved,  in  order  to  give  him  an 
opportunity  to  answer  or  traverse  it.  It  is  now  settled  to  be 
matter  of  law,  that,  prima  facie,  the  power  of  amotion  is  in  the 
body  at  large.  Being  matter  of  law,  it  is  not  traversable.  But 
the  present  prosecutor  may  now  reply,  that  the  power  is  not  ac- 
cordino'  to  the  general  law  in  this  case,  but  in  a  select  body,  which 
may  then  be  tried  by  a  jury.  If  the  return  be  certain  on  the 
face  of  it,  (hat  is  sufficient,  and  the  court  cannot  intend  facts  in- 
consistent with  it,  for  the  purpose  of  making  it  bad.  We  must 
consider  the  charter  as  truly  stated,  because  nothing  appears  to 
contradict  it;  and,  y£  so,  the  law  says,  that,  by  such  a  charter, 
the  corporation  at  large  have  the  power  of  amotion.  If  presump- 
tions were  to  be  allowed,  certainty  in  every  particular  would  be 
necessary,  and  no  man  could  draw  a  valid  and  sufficient  return. 
If  the  power  of  amotion  is,  in  this  place,  in  a  select  part,  and  the 
present  return  is  bad  on  that  account,  I  am  clear  that  an  action 
will  lie. "^ 

§  836.  Instances  of  Good  Returns  in  such  Cases.  —  It  is  suffi- 
cient, in  the  return  to  a  mandamus  which  sets  up  a  corporate  act,  that 
it  be  averred  that  the  act  was  done  by  the  corporation,  naming  it ;  it  is  not 
necessary  to  be  so  explicit  as  to  state  that  the  act  was  done  by  the  major 
|9ari  of  the  corporation.2  -  -  -  -  The  power  of  holding  a  corporate 
meeting  for  amotion  being  incident  to  the  power  of  amotion,  it  need  not 
be  set  out  in  a  return  to  a  mandamus.^  _  .  .  -  The  nice  distinc- 
tions taken  concerning  the  return  to  the  writ  of  mandamus,  as  thus  used, 
are  well  illustrated  by  a  case  where  it  was  returned  nunquam  futt  debite 
electus  —  that  he  never  was  duly  elected.  The  return  was  held  to  be  good, 
though  it  would  have  been  better  to  have  made  a  general  return,  namely, 
nunquam  fait   electus   in  officium,  without  saying  debited     .     .     -     - 

1  Ibid.,  154.  be    intended    to  have  been  made  by 

2  Thus,  where  a  mandamus  was  thera  all.  Rex  v.  Town  of  Rippon,  2 
prayed  for  to  restore  an  alderman  who      Keb.  15. 

had  been  turned  out  of  his  place  for  ^  r^x  v.  Mayor  &c.  of  Lyme  Regis, 

refusing  payment  of  tlie  tax  assessed  1  Douiil.  14!). 

by  the  burgesses   and  aldermen  in  his  *  Lambert's  Case,  Carth.  170.  "  On 

presence,  under  a   by-law,  it  was  ob-  mandamus  to  restore  him  to  the  town 

jected  that  tiie   asses-raent  was  not  chirk's   oflice,  they  retorn'd,  tliat  he 

said  to  have  been  made  by  the  major  was    never  debite    admissus,    and    so 

I nrt;  but  the  court  said  that  it  would  they    could    not    restore,    which  per 

667 


1  Thonip.  Corp.  §  837.]     amotion  of  officers. 

It  is  of  course  a  sufficient  return  to  a  mandamus  to  restore  an  officer  of  a 
corporation  that  lie  has  iiever  been  remooed  by  the  corporation,  or  by  anj' 
of  the  corporation.!  -  -  -  It  has  been  laid  down  that  a  return  by  a 
corporation,  in  its  right  name,  to  a  writ  of  mandamus  directed  to  it  in  a 
wrong  name,    is  well  enough.^ 

§  837.  Sufficient  if  Made  by  Proper  Officer  until  Falsi- 
fied. —  Where  the  mandamus  was  directed  to  the  mayor,  bailiffs, 
and  burgesses  of  a  municipal  corporation,  and  the  return  was 
made  by  the  mayor  alone,  and  a  motion  was  made  to  stay  the 
filing  of  it,  upon  suggestion  that  it  had  been  made  by  the  mayor 
and  a  minor  part  of  the  bailiffs  and  burgesses,  and  against  the 
consent  of  the  greater  number,  who  would  have  obeyed  the  writ, 
wherefore  the  greater  number  prayed  that  they  might  falsify 
this  return  and  put  in  another, —  the  motion  was  overruled, 
Lord  Eldon,  C.  J.,  saying:  "Where  a  writ  is  directed  to  a 
single  officer,  as  sheriff,  and  a  return  is  made  by  a  stranger, 
without  any  privity,  he  may  any  time  that  term  wherein  the  writ 
is  returned,  come  iu  and  disavow  it,  but  not  after  the  term. 
But  in  this  case,  where  the  writ  is  directed  to  several,  and  the 
mayor,  who  is  the  most  principal  and  proper  person,  returns  and 
brings  in  the  writ,  it  is  not  fit  that  we  should  examine,  upon  af- 
fidavit, whether  there  was  the  consent  of  the  majority.  We 
will  take  it,  and  leave  you  to  punish  the  mayor  for  this  misde- 
meanor, if  he  be  guilty;  for  it  is  a  great  crime  which  will  not 
only  merit  a  heavy  fine,  but  a  peremptory  mandamus  will  be 
granted,  if  the  return  be  falsified.  If  they  are  all  equally 
parties,  this  might  ])e  another  case."  The  return  was  accord- 
ingly filed,  and  at  the  same  time  leave  was  given  to  file  an  infor- 

curiam  is  valid  ground  of  action  upon  record  being  speiled,  the  town  cannot 

tlie  case   [for  a  false  return] ;  contra  certainly    show   it.     Also   beins;  said 

if  it  hudheennunquam  debito  vioclo  ad-  contra  cfficinm   et  ju7'amenticm,  it  shall 

missns,    by    Twisden.      But    the  rest  be  inteuded  in  a   retorn  to  be  volun- 

agroed  it  also  well  enough."     Res  v.  tary,   and  the  retorn  was  confirmed; 

Hereford,  1  Keb.  055.     In  one  case,  to  although  it's   not   said,  that  the  de- 

a  mandamus  to  restore  an  alderman,  fendaut  was  a  resident  within  the  pre- 

it  was  returned  "  that,  contrary  to  his  cinct    of    the    leet,  to  which  he  was 

oath,   spoliavit  et  dilaceravU  quondam  summoned."     Town  of  Wigon  v.  Pil- 

recorda    of   such  a  court,  which  was  kingt  )n,  1  Keb.  597. 

after  presented,  without  showing  the  ^  Rex  v.  Colchester,  2  Keb.  188. 

presentment;    which,   per    curiam,  is  ^      Rex  v.  Mills,  1  Keb.  623. 
well  enough  on  mandamus,  in  that  the 
668 


JUDICIAL   PROCEEDINGS    TO    REINSTATE.       [1  Tbomp.   Corp.    §   839. 

mation  against  the  mayor. ^  In  another  case,  "  the  mandamus 
was  granted  to  the  mayor,  etc.,  of  Norwich.  It  was  moved  that 
the  sense  of  the  mayor  differed  from  the  majority  of  the  cor- 
poration, and  that  he  would  execute  the  writ,  whereas  the  cor- 
poration were  for  returning  an  excuse,  etc.,  and  they  prayed 
that  the  mayor  might  be  ordered  to  deliver  the  writ  to  the  rest 
of  the  corporation.  Sed  non  allocatur;  for  he  is  the  head  and 
principal,  and  take  your  course  against  him."  ^ 

§  838.  Whether  the  Return  Should  be  Under  Corporate 
Seal.  —  It  seems  to  have  been  held  sufficient,  in  the  case  of  a 
mandamus  to  the  mayor  and  burgesses  of  an  incorporated  bor- 
ough, for  the  return  to  be  under  the  AaucZ  and  sea?  of  the  mayor, 
without  being  under  the  common  seal  of  the  corporation.'  "  The 
seal,"  said  Lord  Holt,  C.  J.,  referringto  the  common  seal  of  the 
corporation,  "  is  not  necessary  to  a  record.  In  Bagg's  Case  the 
mayor  did  subscribe.  It  is  directed  to  Dr.  Gower  byname."  * 
In  another  case  the  corporation  made  a  return  to  a  mandamus, 
which  was  neither  signed  nor  under  the  common  seal.  It  was 
moved  that  it  might  be  signed.  Lord  Holt,  C.  J.,  said:  "  It  is 
usual  for  the  mayor  to  sign  it,  though  not  legally  necessary; 
therefore  let  him  sign  it."  ^  In  another  case  of  the  same  nature, 
there  was  neither  hand  nor  seal  to  the  return.  Lord  Holt,  C.  J., 
said  :  "It  needs  not ;  it  is  received  as  a  record ;  it  hath  been  so 
ordered,  but  never  by  me;  I  know  when  it  began,  and  when  they 
beo-an  to  put  the  common  seal  to  it,  which  was  not  necessary. 
Before  the  statute  of  York  the  sheriff  needed  not  to  have  put  his 
name.  You  may  bring  an  action  for  the  false  return,  either 
against  the  corporation  or  against  the  particular  person  that  pro- 
cured it."  « 

§  839.  Variance  between  Writ  and  Return,  —  An  instance  of 
the  absui-d  strictness  to  which  pleadings  were  carried  in  cases  of  nianda- 

1  Rex  V.  Mayor  of  Abbingdon,  2  <  Rex  v.  St.  John's  College,  Comb. 
Salk.   431;  s.  c.   Carth.  499;  Cases  B.      279. 

\l,  401.  ^  Rex     V.    Mayor     of    Colchester, 

2  Rex  V.  Mayor  of  Norwich,  2  Salk.      Comb.  324. 

432;  s.  c.  Holt,  444.  ^  Lidleston  v.    Mayor    of    Exeter, 

3  Powell  V.  Price,  Comb.  41.  Comb.  422. 

669 


1  Thomp.  Corp.  §  840.]     amotion  of  officers. 

mus,  before  the  statute  of  9  Anne,^  will  be  found  in  a  case  of  this  kind 
which  arose  in  the  Queen's  Bench  in  the  fourth  year  of  Anne.  At  that 
time  legal  proceedings  were  recorded  in  the  Latin  language.  The  writ  was 
intended  to  be  directed  to  the  baiUffs,  burgesses,  and  commonalty  of  the 
town  of  Ipswich.  It  was  directed,  ballivis,  burgensibus,  et  communitat, 
villce  de  Gippo.  The  return  was,  responsio  ballivorum,  burgensium,  et 
commun.  villce  de  Gipioico,  sive  burgi  Gipwicipatet,  etc  nos  ballivi,  etc., 
return  the  constitution  so  and  so.  After  showing  the  ground  upon  which 
they  had  turned  Sergeant  Whiteacre  out  of  his  office,  they  concluded 
thus:  ^'■Etulterius  certificarmis  quod inhabitantes villce prcedict.  nunquam 
nuncupati  fuerunt  per  7iomen  ball ivorum,  burgens.,  etcom.  villce  de  Gippo, 
etc."  The  report  goes  on  to  recite:  "  This  case  pended  long,  and  was 
often  argued  upon  several  objections ;  and  first  the  chief  justice  held, 
that  Gippus  and  Gipwicus  were  different  names,  so  that  the  writ  was 
misdirected ;  but  then  they  should  have  returned  the  special  matter  ac- 
cordingly, and  rehed  upon  it ;  for  now  they  had  admitted  themselves  to 
be  the  coi'poration  to  whom  the  writ  was  directed,  by  returning  executio, 
etc.  And  a  corporation  may  have  several  names  ;  ^  and  here,  it  being 
started,  whether  a  corporation  should  lose  its  old  name  by  a  new 
charter  2  the  chief  justice  said,  it  would,  where  the  new  charter  altered 
the  very  constitution  in  the  integral  parts  of  it ;  as  if  bailiffs  and  bur- 
gesses are  made  mayor  and  aldermen,  or  mayor  or  burgesses,  or  where 
an  abbott  and  convent  are  translated  into  a  dean  and  chapter ;  but  if  the 
bailiffs  and  burgesses  villce  de  Gippo  accept  a  charter,  constituting  them 
baihffs  and  burgesses  villce  de  Gipwici,  and  giving  them  further  pri\i- 
leges,  and  that  they  shall  be  so  called  ;  this  is  a  new  name  only,  for  the 
old  corporation  remains  in  the  integral  parts  of  it.  Powell  (a  justice), 
being  not  satisfied  in  the  first  point,  it  finished  without  resolution,  by 
discovering  that  Gippo  in  the  latter  end  of  the  return  was  with  a  dash, 
and  in  the  writ  without,  so  that  then  it  was  not  ad  idem."  The  court, 
after  considering  various  other  objections,  "  ordered  a  peremptory 
mandamus,  and  that  it  should  be  directed  according  to  the  first  writ, 
\'iz.,  villce  de  Gippo,  and  must  not  differ."  * 

§  840.  Other  Points  of  Practice  in  Proceedings  by  Manda- 
mus. —  In  such  a  proceeding,  objections  to  a  writ  of  inandamus 
which  are  merely  technical,  must  be  taken  in  limine  on  a  motion 
to  quash,  and  cannot  prevail  after  the  return.^     The  end  of  the 

1  Ante,  §  833.  *  Reg.  v  Bailiffs  of  Ipswich,  2  Salk. 

2  Ante,  §  291,  et  seq.  434;  s.c.  2  Ld.  Raym.  1233. 

*  Ante  §  289.  ^  Fuller   v.    Academic     School,     6 

670 


JUDICIAL   PROCEEDINGS    TO    REINSTATE.      [1  Thomp.  Corp.    §  841. 

su?nmons  is  that  the  pt^ty  against  whom  the  writ  is  directed  may- 
be heard  for  himself ;  and  therefore,  as  in  other  cases  where  he 
has  voluntarily  ajjjjeared  and  has  been  heard  upon  the  merits  of 
the  controversy,  the  want  of  a  summons  is  no  objection. ^  An 
action  will  lie  for  a  suppressio  veri,  in  a  return  to  a  mandamus, 
as  well  as  for  an  allegatio  falsi.^ 

§  841.  Principles  upon  Which  the  Judicial  Courts  Review 
Sentences  of  Amotion.  —  As  already  stated,  and  as  hereafter 
more  fully  stated  when  treating  of  the  expulsion  of  members  of 
corporations  and  societies,  the  judicial  courts  do  not,  when  applied 
to  to  reinstate  the  member  or  to  restrain  the  corporation,  or 
society,  or  its  managers,  from  interfering  with  his  rights  of 
membership,  assume  to  retry  the  merits  or  to  rejudge  what  has 
passed  in  rem  judicatam  before  the  corporate  judicatory.^  This 
was  the  rule  on  which  the  Supreme  Judicial  Court  of  Massachu- 
setts proceeded,  when  reviewing  the  sentence  of  amotion  under 
a  statutory  appeal,  given  to  the  court  from  the  judgment  of  the 
visitors  of  an  educational  corporation.  The  statutes  of  that  cor- 
poration (the  Andover  Theological  Seminary)  gave  an  appeal  to 
visitors  from  acts  of  the  trustees,  and  made  it  the  duty  of  the 
vi-itors  to  hear  the  whole  case  anew.  The  trustees  having  re- 
moved a  professor,  he  appealed  to  the  visitors,  by  whom  the  re- 
moval was  confirmed ;  and  he  then,  under  a  statute  of  the  State, 
appealed  to  the  Supreme  Court.  The  court  held,  that  any  irreg- 
ularity or  injustice  in  the  proceedings  before  the  trustees,  could 
not  be  taken  into  consideration ;  their  sentence  being  vacated  by 
the  appeal  to  the  visitors.*  The  court  also  intimated  that  if  a 
party  would  impeach  the  judgment  of  the  visitors  on  the  ground 
of  partiality  or  corruption,  unlawful  admission  or  rejection  of 
evidence,  or  any  other  decision  not  apparent  on  the  record,  he 
should  make  seasonable  demand  that  the  evidence  be  reduced  to 
writing,  so  that  it  may  come  up  to  the  court  with  the  record  ;  or 
tender  a  bill  of  exceptions.^     It  was  also  ruled  that  the  court  has 

Conn.  532,  544;  Rex«.  Mayor  of  York,  »  ^nte,  §  825;  post,  §014. 

5  T.  11.  G6,  74.  *  Murdock's  Appeal,  7  Pick.  Mass. 

1  Kex^j.  Mayor  of  Wilton,2  Salk.428.      303,  327. 

-  Rex  V.    Mayor    of    Lyme   Regis,  *  Ibid. 

Dou:^.   144. 

671 


1  Thomp.  Corp.  §  811.]     amotion  of  officers. 

no  authority,  on  such  appeal,  to  examine  the  evidence  by  way 
of  a  rehearing,  but  must  determine  the  questions  upon  the  re- 
cord of  the  visitors;  and  therefore  merely  incorrect  judgment  of 
the  visitors  was  not  a  ground  for  the  interference  of  the  court.' 
The  court  is  restricted  to  the  decision  of  the  questions  whether 
the  visitors  have  acted  contrary  to  the  statutes,  and  whether  they 
have  exceeded  their  jurisdiction. ^  The  court  would  not  reverse 
the  decision  of  such  a  board  of  visitors  removing  such  an  officer 
for  cause,  on  the  ground  that  they  had  refused  to  conduct  the 
trial  with  open  doors,  or  to  admit  persons  not  engaged  in  the 
proceeding,  although  their  course  in  so  doing  may  have  been  un- 
wise ;  but  the  reviewing  court  would  presume  that  they  had  sat- 
isfactory reasons  for  conducting  the  trial  in  this  way;  and  al- 
though the  tenure  of  such  an  officer  was  during  good  behavior, 
yet  it  was  subject  to  forfeiture  upon  the  honest  judgment  of  the 
proper  tribunal  that  the  officer  had  ceased  to  behave  well,  in  the 
sense  attached  to  that  phrase  by  the  founders  of  the  charity. "^ 
In  Connecticut,  the  ruling  of  the  court,  in  a  leading  case,  was 
that  the  courts  of  justice  had  a  supervising  jurisdiction  over  the 
proceedings  of  the  trustees  of  a  charitable  corporation,  inde- 
pendent of  any  power  of  visitation ;  and  that  they  would  exercise 
this  jurisdiction  by  mandamus,  to  the  end  of  reinstating  an 
officer  removed  by  the  other  officers,  where  the  cmises  assigned 
for  the  removal  were  insuffi^cient.^  The  modern  English  doctrine 
is  that  where  it  appears  from  the  showing  of  an  officer  that  the 
corporation  justly  though  irregularly  removed  him  from  his 
office,  a  mandamus  to  restore  will  not  be  granted.^  Though  a 
coiporation  may  have,  by  statute,  a  power  to  remove  an  officer 
holding  a  freehold  office,  yet  the  court  of  Queen's  Bench  will  in- 
terfere if  the  power  is  exercised  in  an  unlawful  manner  ;  but  if 
exercised  in  a  lawful  manner,  the  fact  that  it  was  not  wisely  or 
discreetly  put  in  force  in  the  particular  case,  will  not  induce  the 

1  Ibid.  ^  Rex  v.  Mayor  &c.   of  Axbridge, 

2  Ibid.;  S.  P.,  Murdock  v.  Phillips  Cowp.  523;  Rex  u.  Mayor  &c.  of  Lou- 
Academy,  12  Pick.  (Mass.)  244.  don,  2  T.  R.  177;  Rex  v.  Mayor  &c.  of 

3  Murdock's  Appeal,  7  Pick.  (Mass.)  Bristol,!   Dowl.  &   R.  389;  sub  nom. 
303.  Rex  V.  Griffiths,  5  Barn.  &  Aid.  731. 

•*  Fuller    V.    Plainfield      Academic 
School,  6  Conn.  532. 
672 


JUDICIAL   PROCEEDINGS   TO    REINSTATE.       [1  Thomp.  Corp.   §  84:1. 

court  to  interfere.  Therefore,  where,  in  a  proceeding  by  a  cor- 
poration to  remove  an  officer  upon  an  accusation  of  inability  or 
neglect  of  duty,  there  has  been  such  evidence  given  as,  in  an 
ordinary  trial,  would  justify  the  judge  in  leaving  it  to  the  jury^ 
as  matter  of  fact,  whether  the  accusation  was  made  out,  the 
court  will  not  interfere  with  the  decision  arrived  at  by  the  cor- 
poration.^ 

1  Osgood  V.  Nelson,  L.  R.  5  H.  L.  636. 

43  673 


1  Thomp.  Corp.]      expulsion  of  membeus. 


CHAPTER    XYII. 

EXPULSION  OF  MEMBERS. 

Art.  I.  Power  to  Expel:  Grounds  of  Expulsion,  §§846-876. 
II.  Corporate  Proceedings  to  Expel,  §§881-899. 
III.  Judicial  Proceedings  to  Reinstate,  §§904-930. 

Article  I.  Power  to  Expel  :  Grounds  of  Expulsion. 


Section 

846.  Preliminary    observations:    dis- 

tinctions. 

847.  Power  of  expulsion  incident  to 

corporation. 

848.  This  power  exercised  by  the  cor- 

poration —  not  by  the  direct- 
ors. 

849.  By-laws   authorizing   the  expul- 

sion of  members. 

850.  Illustrations    of  good  and    bad 

by-laws  providing  for  the  ex- 
pulsion of  members. 

851.  Validity    of    by-laws    providing 

for  expulsion  for  the  non-ful- 
fillment of  commercial  con- 
tracts. 

852.  By-law     prohibiting     members 

from  gathering  in  public  places 
to  buy  and  sell  "  futures  "  out- 
side of  the  exchange  room. 

853.  By-laws  when  not  euforcible  by 

forfeiture  of  membership. 

854.  Grounds   of  expulsion   at    com- 

mon law:  Bagg's  case. 

855.  Further    of     Bagg's    case:  how 

and  by  whom  and  in  whatman- 
nt  r  disfranchised. 

856.  Grounds      of      disfranchisement 

under  rule  of  Lord  Mansfield. 

857.  Cases  within  these  principles. 

674 


Section 

858.  Cases  not  within    these    princi- 

ples. 

859.  Expulsion  for  infamous  crimes: 

whether  a  previous  conviction 
necessary. 

860.  Offenses    against    the  member's 

duty  as  a  corporator. 

861.  Acts  injurious  to  the  society  or 

to  its  reputation. 

862.  Illustrations:     "conduct      inju- 

rious to  the  character  and  in- 
terests of  the  club." 

863.  Frauds  upon  the  society. 

864.  Expulsion   from   merchants'   ex- 

chauge    for     dishonest    con- 
duct 

865.  Suspension    for    bankruptcy    or 

insolvency. 

866.  Contempt  against  corporate  offi- 

cer. 

Criticising  the  management. 

Offenses  against  other  mem- 
bers. 

Refusal  to  submit  to  arbitration 
or  to  comply  with  award. 

870.  Illustration. 

871.  Appealing  to  the  judicial  courts. 

872.  "Negligence,   mi-^conduct  iu  of- 

fice,  or  any  other  reasonable 
causes." 


867 
868 


869. 


POWER  TO  EXPEL.     [1  Thomp.  Corp.  §  846. 

Section  Section 

873.  Expulsion  of  members  of  incor-     875.  Enlistino;  in  the  volunteer  army 

porated  medical  societies.  in  time  of  war. 

874.  Members  of  trades  union  worli-      876.  Trial  under  an  act  of  the  legisla- 

ing  for  parties  against  whom  ture  passed  subsequently  to  the 

a  strike  had  been  ordered.  offense. 

§   84:6.    Preliminary    Observations  —  Distinctions.  —  The 

subject  of  which  it  is  intended  to  treat  in  this  chapter  relates  ex- 
clusively to  corporations  and  associations  not  having  a  joint  stock. 
It  is  assumed  that  no  such  body,  having  a  joint  stock  in  which  its 
members  are  severally  interested  as  proprietors,  can  deprive  them 
of  their  property  rights  by  expelling  them  from  the  corpora- 
tion or  society  unless  such  power  has  been  expressly  conferred 
by  the  charter.^  Another  distinction,  which  must  be  taken  in 
respect  of  this  question,  is  the  distinction  between  what  is  called 
disfranchisement  and  what  is  called  atnolion,  in  the  books  of  the 
common  law.  Disfranchisement  is  the  term  applied  to  the  ex- 
pulsion of  a  member  of  a  corporation,  whereby  his  franchise,  or 
freedom,  to  use  the  language  of  old  books,  employed  chiefly  with 
reference  to  municipal  corporations  created  by  royal  charter  or 
existing  by  prescription, —  was  taken  away.  The  term  amotion 
is  applied  merely  to  the  removal  of  an  officer  of  a  corporation, 
and  most  of  the  old  law  upon  this  subject  is  an  outgrowth  of  the 
ancient  common-law  principle  that  an  office  was  property.^  An- 
other distinction,  wiiich  must  be  kept  in  mind  in  respect  of  this 
question,  is  the  distinction  between  rights  in  a  corporation  and 
rights  in  an  unincorporated  society .  In  the  former  case  the  mem- 
ber has  rights  granted  by  the  legislature,  which  cannot  be  taken 

1  Ang.  &  A.  Corp.,  §  410;  Wood-  2  gee  as  to  these  distinctions 
ward,  C.  J.,  in  Evans  v.  Philadelphia  Bagg's  Case,  11  Co.  Rep.  93;  Earle's 
Club,  50  Pa.  St.  107,  117;  Pulford  Case,  Carthew,  173;  White  v.  Brown- 
V.  Fire  Dep't  of  Detroit,  31  Mich,  ell,  4  Abb.  Pr.  (n.  s.)  (N.  Y.)  HV>, 
458,  465.  The  statute  of  Wisconsin  1!)2;  s.  c.  2  Daly  (N.  Y),  32'.),  357; 
(Wis.  Rev.  St.  1878,  §  1772),  re-  Com.  v.  St.  Patrick's  Benevolent  So- 
quiring  that  the  articles  of  asso-  ciety,  2  Binn.  (Pa.)  441;  s.  c.  4  Am. 
elation  by  persons  desiring  to  form  Dec.  453;  Fuller  w.  Trustees,  6  Conn, 
a  corporation  shall  state  the  mcth-  532;  People  v.  Medical  Society,  24 
ods  and  conditions  upon  which  Barb.  (N.  Y.)  570;  Evans  v.  Philadcl- 
members  shall  be  accepted,  dis-  phia  Club,  50  Pa.  St.  107;  Willcock 
charged,  or  expelled,  does  not  apply  to  Corp.  270. 
a  stock  corporation.  Eilgertoii  To- 
bacco Manf.  Co.  v.  Croft,  69  Wis.  2j6. 

675 


1  Thomp.  Corp.  §  846.]     kxpulsion  of  mk.mbeus. 

away  by  the  society  unless  authorized  by  the  governing  statute 
or  charter,  or  unless,  under  the  principles  of  the  common  law, 
in  the  extreme  cases  hereafter  spoken  of.  But  in  the  latter  case 
the  member  has  no  rights  of  a  higher  dignity  than  those  springing- 
out  of  a  voluntary  contract  between  himself  and  his  fellow  mem- 
bers. Such  contracts  are  upheld  when  not  contrary  to  law  or  to 
public  policy,  and  the  member  may  thereby  voluntarily  subject 
himself  to  summary  expulsion  for  causes  and  in  modes  which 
would  not  be  justified  in  the  case  of  a  corporation  existing  under 
a  charter  or  act  of  the  legislature.* 


^  See  as  to  this  distinction  the 
discussions  In  White  v.  Brownell, 
i  Abb.  Pr.  (n.  s.)  (N.  Y.)  162,  192 
s.  c.  2  Daly  (N.  Y.),  329,  358;  In- 
nes  V.  Wylie,  1  Car.  &  K.  257,  262 
Brancliert?.  Roberts,  7  Jur.  (n.  s.)  1185 
Hopliius  V.  Exeter,  L.  R.  5  Eq.  63 
Blisset  V.  Daniel,  10  Hare,  493. 
This  distinction  has  been  learnedly 
pointed  out  by  that  exceptionally  able 
judge,  Charles  F.  Daly,  in  a  well  con- 
sidered case,  in  which  he  said:  "A 
member  of  a  corporation,  whether  it 
be  municipal,  eleemosynary  or  pri- 
vate, is  in  the  enjoyment  of  a  franchise 
the  right  to  which  is  not  derived  from 
the  body,  but  is  created  by  statute  or 
exists  by  prescription,  and  therefore 
cannot  be  taiien  away  by  the  act  of  the 
corporation,  except,  as  I  have  said, 
in  certain  extreme  cases.  As  it  is  a 
right  conferred  by  statute,  or  de- 
rived from  immemorial  custom 
which  implies  the  existence  of  a  grant, 
it  can  neither  be  taken  away  by  the  act 
of  the  corporation,  nor  withheld  by 
the  act  of  the  corporation,  from  any  one 
eligible  to  the  enjoyment  of  it.  .  .  . 
But  in  an  unincorporated  voluntary 
association,  lilse  the  one  now  under 
consideration  [an  exchange  called 
the  Open  Board  of  Brokers],  the  privi- 
lege of  membership  is  not  given  by 
statute,  or  derived  through  prescrip- 
tion, as  in  a  corporation,  but  is  cre- 
ated and  conferred  by  the  organization 
676 


itself.  It  is  not  a  franchise  —  a  fran- 
chise being  a  particular  privilege  vest- 
ed in  individuals,  wliicli  is  confeerrd 
by  a  grant  from  a  sovereign  or  gov- 
ernment [citiug  Finch  Sura.  C.  L.  164  ; 
3  Kent  Com.  458];  while,  on  the  con- 
trary, the  privilege  of  membership  iu 
a  voluntary  association  is  derived  ex- 
clusively from  the  body  that  bestows 
it,  aud  may  be  conferred  or  withheld 
at  its  pleasure.  The  law  cannot  com- 
pel such  an  organization  to  admit  an 
individual  to  a  membership,  as  may  be 
done  in  the  case  of  a  corporation,  nor 
can  it  interfere  to  restore  a  member 
who  has  been  deprived  of  the  privi- 
lege for  not  complying  with  the  condi- 
tions upon  which  the  enjoyment  of  it 
was  made  to  depend,  A.  member  of  a 
body  of  this  description,  has,  as  such, 
undoubtedly  rights  which  the  law  will 
protect;  but  they  do  not  rest  upon  the 
same  ground,  and  are  by  no  means  co- 
extensive with  tlie  franchise  enjoyed 
by  a  member  of  a  corporation.  They 
depend  upon  the  nature  of  the  organ- 
izatiDU,  upon  the  object  for  which  it 
was  formed,  and  upon  the  rules,  reg- 
ulations, constitution  or  by-laws 
which  are  explanatory  of  its  pur- 
pose, and  which  the  body  has  adopt- 
ed for  its  government.  Individu- 
als who  form  themselves  into  a  vol- 
untary association  for  a  common 
object  may  agree  to  be  governed  by 
such  rules  as    they  think  proper  to 


POWER  TO  EXPEL.     [1  Thomp.  Corp.  §  847. 

§  847.  Power  of  Expulsion  Incident  to  Corporation.  — The 

power  to  disfranchise  a  member  for  sufficient  cause,  as  hereafter 
stated,^  existed  and  exists  at  common  law,  as  an  incident  to  every 
corporation,  except  those  having  a  joint  stock. ^  The  inherent 
power  of  a  corporation  other  than  a  joint-stock  corporation  to 
expel  a  member  for  sufficient  cause  rests  on  substantially  the 
same  ground  as  its  powers  to  amove  an  officer,^  and  the  decisions 
supporting  the  power  in  the  two  cases  are  often  cited  interchange- 
ably.    Reasoning  on  this  subject,  it  has  been  said:   '*  There  is  a 


adopt,  if  there  is  nothing  in  them  in 
conflict  with  the  law  of  the  land;  and 
those  who  become  members  of  the 
body  are  presumed  to  know  them  — 
to  have  assented  to  them  —  and  they 
are  bound  by  them.  [Citing  Innes  v. 
Wylie,  1  Car.  &  K.  262;  Brancker  v. 
Roberts,  7  Jur.  (n.  s.)  1185;  Hopkin- 
son  u.  Exeter,  L.  R.  5  Eq,  63.]  Such 
an  organization  may  prescribe  the  con- 
ditions upon  which  persons  will  be 
admitted  to  membership,  as  well  as 
the  conditions  upon  which  the  contin- 
uation of  membership  will  depend ;  and 
where  they  have  no  regulation  upon 
the  subject,  they  may  expel  a  member 
by  a  vote  of  the  majority,  if  he  has 
been  notified  of  the  charge  against 
him,  and  afforded  an  opportunity  of 
being  heard  in  his  defense.  [Citing 
Innes  v.  Wylie,  supra.']  Voluntary 
bodies  of  this  kmd  will  be  held  to  the 
fair  and  honest  administration  of  the 
rules  which  are  in  force  when  any  pro- 
ceeding is  instituted  against  a  member ; 
but  where  a  member  is  expelled  in  con- 
formity with  the  rules,  and  the  pro- 
ceedings are  regular  and  in  good  faith, 
it  is  final,  and  no  judicial  tribunal  can 
interfere."  Whiter.  Brownell,  4  Abb. 
Pr.  (N.  Y.)  162,192-4  s.  c.  2  Daly 
(X.  Y.),  329,  358;  citing  to  the  last 
point  Com.  v.  Pike  Beneficial  Society, 
8  Watts  &  S.  (Pa.)  250. 

1  Post,  §  854. 

2  Rex.  V.  Richardson,  1  Burr.  617; 
Fawcett  v.  Charles,  13  Wend.  (N.  Y.) 


473 ;  Com.  v.  Guardian  of  the  Poor,  6 
Serg.  &  R.  (Pa.)  4G9,  473,  per  Duncan, 
J.;  Smithy.  Smith, 3Desau.  (S.C.)557, 
581.  To  this  extent  Bagg's  Case  (11 
Co.  Rep.  93)  is  overruled  by  the  later 
English  decisions  above  cited.  Bagg's 
Case,  although  discussing  largely  the 
power  of  disfranchisement,  was  really 
a  case  of  amotion,  the  relator  in  the 
mandamus  proceeding  being  one  of  the 
twelve  burgesses  of  Plymouth.  That 
the  same  principle  applies  to  the  amo- 
tion of  an  officer,  is  equally  clear  of 
doubt.  Woodward,  C.  J.,  in  Evans  v. 
Philadelphia  Club,  50  Pa.  St.  107,  117. 
It  was  also  reasoned  by  the  same 
learned  judge  in  the  same  case  that 
"  The  power  of  disfranchisement 
which  does  destroy  the  member'sfran- 
chise,  must;  in  general,  be  conferred 
by  statute,  and  is  never  sustained  as 
an  incidental  power,  without  statute 
grant,  except  ia  two  cases :  First,  on 
conviction  of  the  member  in  a  court  of 
justice  of  an  infamous  offense.  And, 
second,  where  he  has  committed  some 
act  against  the  society  which  tends  to 
its  destruction  or  injury."  Statement 
of  doctrine  by  Woodward,  C.  J.,  at 
7iisi  prius,  in  Evans  v.  Philadelphia 
Club,  50  Pa.  St.  107,  117,  aflirmed  by 
an  equal  division  of  the  Supreme 
Court.  Ibid.  127.  Contrary  to  the 
doctrine  of  the  text,  see  People  v.  New 
York  Cotton  Exchange,  8  Hun  (N.  Y.), 
216;  more  fully  stated,  pos«,  g  851. 
3  Ante,  §  802. 

fi77 


1  Tlionii).  Coip.  §  849.]     EXPULSION  of  members. 

tacit  condition  annexed  to  this  franchise,  which,  if  the  member 
break,  he  may  be  disfranchised ;  and  where  the  offense  is  merely 
against  his  duty  as  a  corporator,  he  can  be  tried  only  for  it  by 
the  corporation.  Unless  this  power  were  incident  to  the  corpo- 
ration, offices  might  be  forfeited  for  offenses,  and  yet  there  would 
be  no  means  to  carry  the  law  into  execution."  ^ 

§  848.  This  Power  Exercised  by  the  Corporation  —  Not  by 
the  Directoi's.  — The  power  of  expelling  a  member  from  a  cor- 
poration exists  only  in  the  society  at  large,  unless  the  charter, 
governing  statute,  or  some  by-law  thereby  expressly  authorized, 
vests  this  power  in  a  smaller  number,  as  in  the  board  of  directors, 
the  trustees,  or  the  managing  committee.''^  The  reason  is,  thai. 
it  is  the  ordinary  office  of  such  managing  boards  or  committees 
to  conduct  the  business  of  the  corporation,  and  not  to  determine 
matters  touching  its  constituent  character.  But  expulsions  of 
members  by  the  directors  are,  of  course,  upheld  where  there  is 
a  statute  vesting  this  power  in  them  ;^  and  in  the  case  of  volun- 
tary associations,  where  this  power  is  vested  in  the  board  of 
managers  or  other  judicatory,  by  the  articles  of  association, 
which  form  a  contract  among  the  members.* 

§  849.  By-laws  Authorizing  the  Expulsion  of  Members.  — 

It  has  been  said:  "  When  a  corporation  is  duly  organized,  it  has 
power  to  make  by-laws  and  expel  members,  though  the  charter 
is  silent  upon  the  subject.  If  the  power  is  expressly  granted  in 
general  terms,  it  is  conferred  to  enable  the  corporation  to  accom- 
plish the  object  of  its  creation,  and  is  limited  to  such  objects  or 
purposes."  *"    Where  the  authority  to  expel  a  member  of  a  corpora- 

'  Duncan,  J.,  in  Com.  v.  Guardians  lations,    and    by-laws    thereof."     A 

of  the    Poor,  6  Serg.  &  R.  (Pa.)  469,  rule  providing  for  expulsion  by  the 

473.  board  of  directors   was  held  valid  on 

2  Hassler  v.   Philadelphia  Musical  the  ground  that  it  was  not  essential 

Assoc,   14  Phila.  (Pa.)  233;  State  u.  that  the  power  should  be  exercised  by 

Chamber  of  Commerce,  20  Wis.  63.  the  body  of  the  corporators.     Pitcher 

*  State  V.  Milwaukee  Chamber  of  v.  Chicago  Board  of  Trade,  121  111. 
Commerce,  47  Wis.  670,  686.  The  412;  13  N.  E.  Rep.  187;  11  West.  Rep. 
charter  of  the  Chicago  Board  of  Trade  38 ;  2  R.  &  Corp.  L.  J.  89. 
provided  that  the  corporation  "shall  *  Compare  Peoples.  New  York  Com- 
have  the  power  to  admit  or  expel  such  mercial  Assn.,  18  Abb.  Pr.  (N.  Y.)  271. 
persons  as  they  may  see  flt,  in  the  '••  State  ex  rel.  v.  Chamber  of  Corn- 
manner  prescribed  by  the  rules,  regu-  merce,  20  Wis.  63,  71;  reaffirmed  in 
678 


POWER  TO  EXPEL.     [1  Tliomp.  Corp.  §  84:9? 


tion  is  sought  for  in  a  by-law,  certain  prerequisites  must  exist. 
Unless  the  power  to  enact  by-laws  is,  by  the  charter  or  governing 
statute  or  by  immemorial  usage,  conferred  on  the  directors,  trust- 
ees, or  other  body  smaller  than  the  corporation  at  large,  a  by-law 
in  order  to  be  valid,  must  be  enacted  by  the  constituent  body.-^ 
Moreover,  the  validity  of  such  by-laws  depends  upon  the  well 
known  rule  that  they  must  be  reasonable.'^  They  must  not  be 
contrary  to  law,  to  good  morals  or  to  public  policy.^  They 
must  not  operate  as  ex  jiost  facto  laws;  *  they  must  not  authorize 
the  expulsion  of  members  for  trivial  or  minor  offenses;  ^  they 
must  not  impose  excesdve  fines ^  nor  more  than  one  fine  for  the 
same  delinquency."  They  may  annex  to  their  prohibitions  vesi- 
EonohXe  penalties,  in  the  form  of  pecuniary  j^/ies;  ^  but  such  fines 


Dickenson  v.  Chamber  of  Commerce, 
29  Wis.  45;  s.  c.  9  Am.  Rep.  5U. 

1  Post,  §956;  Carroll  v.  Mullanphy 
Savings  Banlv,  8  Mo.  App.  249,  253; 
State  Savings  Asso.  v.  Nixon-Jones 
Printing  Co.,  25  Mo.  App.  642 ;  Morton 
Gravel  Koad  v.  Wysong,  51  Tnd.  4,  12; 
Union  Bauk  v.  Ridgley,  1  Harr.  &  G. 
(Md.)  324;  Rex  v.  Westwood,  2  Dow 
&  CI.  21,  36.  Charters  and  governing 
statutes  exist  in  some  cases  conferring 
this  power  on  the  directors.  Meclian- 
ics'  Bank  v.  Merchants'  Bank,  45  Mo. 
513 ;  posi,  §  978.  But  where  the  power 
is  not  so  conferred,  it  is  at  common 
law  incident  to  the  corporation  (Rex  v. 
Westwood,  2  Dow.  &  CI.  21,  86),  and 
not  to  the  directors. 

2  That  corjiorate  by-laws  and  or- 
dinances will  be  set  aside  by  the  judic- 
ial courts  when  deemed  unreasonable, 
see  posf,  §1021;  Morris  &c.  R.  Co.  v. 
Ay  res,  29  N.  J.  L.  393;  State  v.  Over- 
ton, 24  N.  J.  L.  435;  s.  c.  61  Am, 
Dec.  671;  Neier  v.  Missouri  Pacitlc  R. 
Co.,  12  Mo.  App.  25;  Merz  v.  Missouri 
Pacific  R.  Co.,  14  Mo.  App.  459;  St. 
Louisu.  Weber,  44Mo  547;  St.  Louis  v. 
St.  Louis  R.  Co.,  14  Mo.  App.  221 ;  Me- 
chanics' Bank  v.  Merchants'  Bank,  45 
Mo.  513;  s.  c.  100  Am.  Dec.  388;  cited 
and  approved  in  Spurloc-k  v.  Pacific  R. 
Co.,    61  Mo.   3'2G;  Beronjohn  v.    Mo- 


bile, 27  Ala.  58.  A  by-law  authoriz- 
ing the  expulsion  of  a  member  of  a 
mercantile  body  for  dishonest  conduct 
as  a  merchant  is  not  unreasonable. 
People  V.  New  York  Commercial  Asso., 
18  Abb.  Pr.  (N.  Y.)  271;  Hurst  w.  New 
York  Produce  Exchange,  100  N.  Y. 
605,  mem.  s.  c.  in  full,  1  Cent.  Rep. 
260.  Reasonableness  of  a  by-law  pro- 
hibiting members  of  an  exchange 
from  gathering  and  trading  in  public 
places  in  the  vicinity  of  tile  exchange 
room  before  or  after  excliange  hours: 
State  V.  Milwaukee  Chamber  of  Com- 
merce, 47  Wis.  670,  683. 

3  Sayre  v.  Louisville  &c.  Asso.,  1 
Duv.  (Ky.)  143;  s.  c.  85  Am.  Dec.  613; 
post,  §  1010. 

*  People  V.  Fire  Department,  31 
Mich.  458,  465;  post,  §  1019. 

^  Woodward,  C.  J.,  in  Evans  v. 
Philadelphia  Club,  50  Pa.  St.  107,  117; 
Com.  V.  St.  Patrick's  Benevolent  Soci- 
ety, 2  Binn.  441 ;  s.  c.  4  Am.  Dec.  453. 

"  Ilagerman  v.  Ohio  &c.  Asso.,  25 
Oh.  St.  186;  Lynn  v.  Freeraansburg 
&c.  Asso.,  117  Pa.  St.  1  ;  s.  c.2  Am.  St. 
Roi).  039.  See  also  Ocmulgee&c.  Asso. 
V.  Thomson,  52  Ga.  427 ;  Endlich  Build. 
Asso.,  §  413. 

'  Cahill  V.  Kalamazoo  Mut.  Ins.  Co., 
2  Dong.  (Mich.)  124;  8.  c.  43  Am.  Dec. 
457;  post,  §  1036. 

679 


4  Thomp.  Corp.  §  850.]     expulsion  of  members. 

must  be  certain;^  though  the  modern  doctrine  is,  contrary  to 
the  cases  just  cited,  that  it  is  suflSciently  certain  if  the  by-law 
names  the  highest  limit  of  the  fine,  leaving  to  the  corporation 
the  power  of  mitigation.^  They  cannot  be  enforced  by  a  for- 
feiture of  goods,  for  forfeitures  are  against  magna  cliarta;  ^  nor 
by  itnpi'isonment,  unless  authorized  by  charter,  statute  or  cus- 
tom according  to  old  views ;  *  and  it  ^vould  seem  not,  according 
'  to  modern  conceptions,  except  in  the  cases  of  the  by-laws  or  or- 
dinances of  municipal  corporations. 

§  850.  Illustrations  of  Good  and  Bad  By-Laws  Providing 
for  tlie  Expulsion  of  Members. —  A  benevolent  society  incorporated 
for  the  purpose  of  providing  a  fund  for  sick  and  indigent  members,  the 
articles  of  association  of  which  do  not  fix  any  qualification  in  respect  of 
religious  opinions,  cannot  make  a  by-law  which  wiU  authorize  the  expul- 
sion of  members  on  grounds  of  religious  behef.^  -  -  -  -  A  volun- 
teer fire  company,  upon  the  creation  of  a  paid  fire  department,  ceased 
to  run  to  fires,  and  converted  its  effects  into  cash,  and  leased  its  engine 
house.  Some  months  afterwards  it  amended  its  by-laws,  changing  the 
rate  of  dues  from  twelve  and  one-half  cents  to  two  dollars  a  month.  A 
member,  did  not  assent  to  the  increase  of  dues,  and  did  not  pay  them, 
for  which  reason  his  name  was  erased  from  the  books.  In  a  proceeding 
by  mandamus  to  restore  him,  it  was  held  that  the  amendment  to  the 
by-laws  was  unreasonable,  and  that,  upon  a  dissolution  of  the  company 

1  Ang.  &  A  Corp.,  §  360;  Wood  w.  in  a  joint-stock  company  for  non- 
Sear]e,  J.  Bridg.  141;  s,  c.  3  Leon.  8;  payment  of  calls,  such  measure  not 
Mobile  V.  Yuille,  3  Ala.  137;  Master  being  authorized  by  the  legislature. 
Stevedore  Asso.  v.  Walsh,  2  Daly,  But,  of  course,  this  holding  has  no 
1,  14;  post,  §  1010.  application    to    the    numerous   cases 

2  riper  V.  Chappell,  14  Mees.  &  W.  where  such   a  power   or  forfeiture  is 
624  (overruling  to  this  extent  Wood  v.  conferred  by  charter  or  statute. 
Searle,  supra) ;  Huntsville  v.  Phelps,  *  See    Chamberlain    of     London's 
27  Ala.  58  (overruling  to  this  extent  Case,    5   Co.   Eep.  63b,  where  it  was 
Mobile  V.  Yuille,  3  Ala.  137).  held  that  the  City  of   London  might 

*  Master  Stevedore  Association  u.  imprison  for  a  breach  of  its  by-laws; 

Walsh,  2Daly  (N.  Y.),l,  14.    See  Bos-  also  City  of  London's  Case,   8    Co. 

worth   V.Bergen,  7    Mod.  459;    s.  c.  Eep.  241,  253,  where  a  similar  doctrine 

Lutw.  1324 ;  Kirk  v.  Nowill,  1  T.  R.  118.  is  laid  down.     Compare  Rex  v.  Newdi- 

See  in  illustration  of  the  text,  Hart  v.  gate,  Comb.  10. 

Mayor  of  Albany,  9  Wend.  (N.  Y.)  571.  ^  People  v.  St.  Franciscus  Benevo- 

In  Re  Long  Island  R.  Co.,  19  Wend.  lent  Soc,    24  How.    Pr.   (N.  Y.)    216. 

(N.  Y.)  37;    s.  c.  32  Am.  Dec.  429,  it  And  see  People  u.  Farrington,  22  Id. 

was  held  that  a  by-law  was  void  which  294. 
forfeited  the  shares  of  the  members 
680 


POWER  TO  EXPEL.     [1  Thoiup.  Corp.  §  851. 

and  a  distribution  of  its  property  among  its  members,  the  relator  was 
entitled  to  his  share  as  a  member.^  .  .  _  -  By-laws  which  pre- 
scribe a  trial  of  the  members  of  the  corporation  for  any  delinquencies 
before  a  select  number  of  members  appointed  by  the  president,  and 
presided  over  by  him,  without  the  right  of  appeal,  and  confine  the 
evidence  to  such  as  may  be  brought  by  members  only,  and  prescribe 
that  members  shall  be  dropped  without  trial,  if  fines  imposed  by  said 
by-laws  are  not  paid,  are  not  so  unreasonable  as  to  be  declared  null  and 
void  by  a  court  of  equity,  and  the  ofllcers  restrained  from  enforcuig 
them.2  -  -  -  -  The  defendant  was  a  member  of  a  corporation, 
created  under  the  laws  of  New  York,^  membership  in  which  was  re- 
stricted to  the  members  of  certain  "local  assemblies  "  of  the  "  Knights 
of  Labor  "  under  the  jurisdiction  of  "  District  Assembly  49."  Section 
three  of  the  statute  referred  to  pro^^ded  for  the  termination  of  member- 
ship in  the  corporation  by  death,  voluntary  withdi-awal,  and  expulsion. 
It  was  held,  that  a  by-law  which  declared  that  the  removal  of  a  local 
assembly  from  the  jnrisdictiou  of  District  Assembly  49  should  be 
equivalent  to  a  voluntary  withdrawal  of  all  membership  in  the  corpora- 
tion, was  in  conflict  with  the  statute,  and  that  the  removal  for  insubor- 
dination, in  which  defendant  took  no  part,  from  the  jurisdiction  of 
District  Assembly  49,  of  the  local  assembly  of  which  he  was  a  member, 
would  not  deprive  him  of  his  membership  on  that  ground.*     -     -     -     - 

§  851.  Validity  of  By-Laws  Providing  for  Expulsion  for 
the  Non-fulfillment  of  Commercial  Contracts.  —  An  incorpo- 
rated merchant's  exchange  or  chamber  of  commerce  empowered  by  its 
charter  to  expel  its  members  in  the  manner  to  be  prescribed  by  its  rules 
and  by-laws,  may  make  a  by-law  providing  for  the  expulsion  of  a  member 
for  the  non-fulfillment  of  any  contract,  whether  wi-itten  or  verbal,  and 
such  a  by-law  will  not  be  held  um-easonable  because  it  authorizes  the 
expulsion  of  a  member  for  refusing  to  perform  a  contract  which  is  void 
by  the  statute  of  frauds,  since  there  is  no  reason  founded  in  moraUty  or 
commercial  integrity  why  such  a  contract  should  not  be  performed,  nor 
will  it  be  held  unreasonable  in  its  application  to  a  contract  such  as  passes 
under  the  ordinary  name  of  an  "  option  deal,"  ^  It  has  been  reasoned 
upon  this  question  that  "  one  of  the  principal  objects  of  the  corporation 
undoubtedly  is  '  to  establish  a  high  moral  standard  in  conducting  busi- 

1  Ilibernia  Fire  Engine  Co.  v.  Com-  *  New    Yorli    Protective    Ass'n   v. 

monwealth,  03  Fa.  St.  264.     Compare  McGrath,  6  N.  Y.  Supp.  8. 

Diligunt  Fire  Co.   v.  Coramonwealth,  '^  Dickenson    v.  Chamber  of   Com- 

75  Pa.  St.  291.  merce,  29    Wis.  45;  s.    c.    9  Am.  Rep. 


2  Ilusscy  V.  Gallagher,  fil  Ga.  8G.  544. 

»  Laws  N.  Y.   1876,  c.  2G7. 


681 


1  Thomp.  Corp.  §  851.]     expulsion  of  members. 

ness  transactions,  and  to  exercise  somewhat  of  a  control  over  those  who 
belonged  to  it  in  their  trade  with  each  other,  and  with  strangers.  It 
reaches  a  little  beyond  the  precise  legal  rights  of  its  members  in  their 
business  condnct,  subj-ecting  them  to  a  supervisory  care,  so  far  as  fair 
dealing  is  concerned,  to  which  they  would  not  be  ordinarily  amenable 
in  any  tribunal  known  to  the  land.'  "  ^  Contrary  to  the  generally  under- 
stood rule  of  the  common  law,  we  find  an  opinion  in  the  Supreme  Court 
of  New  York  by  Brady,  J.,^  which  proceeds  upon  the  view  that  the  doc- 
trine in  regard  to  forfeitures,  whereby  forfeitures  are  not  favored, 
apphes  to  the  question  under  consideration,  so  as  to  result  in  the  con- 
clusion that  the  power  to  forfeit  the  seat  of  a  member  does  not  exist, 
unless  it  is  conferred  upon  the  corporation  or  upon  the  judicatory  of  the 
corporation  which  attempts  to  make  the  forfeiture,  in  express  terms. 
The  case  was  that  of  a  member  of  the  New  York  Cotton  Exchange,  and 
the  learned  judge  said:  "  There  is  neither  in  the  charter  of  the  appel- 
lants, nor  the  by-laws,  however,  any  express  authority  to  consider  and 
determine  who  is  the  owner  of  a  right  of  membership,  which  is  in  dispute. 
Whatever  may  be  their  power  over  matters  directly  connected  with  the 
business  which  prompted  their  organization,  or  with  the  adjustment  of 
controversies  between  its  members,  or  the  establishment  of  just  and 
equitable  principles  in  the  cotton  trade,  or  acquired  by  voluntary 
submission  to  them  or  their  committees  under  the  charter  and  by-laws, 
there  is  no  express  authority  conferred  upon  them  to  pass  upon  the  title 
to  a  seat  among  them ;  nor  is  there  anything  in  the  by-laws  to  wliich 
our  attention  has  been  called  authorizing  it  incidentally  or  by  imphcation. 
They  could  not,  therefore,  usurp  the  power  absolutely,  to  pass  upon  the 
relator's  claim,  and  when  he  resorted  to  the  courts  to  prevent  them  from 
disposing  of  his  property,  he  was  not  only  not  guilty  of  improper  con- 
duct, but  asserting  a  right  secured  to  him  by  the  fundamental  law  of 
the  land.  It  may  be  that  a  member  would  be  bound  by  the  decision  of 
the  appellants  in  specified  cases,  which  being  properly  the  subject  of 
a  reasonable  by-law,  duly  authorized,  would  be  recognized  as  lawful 
within  the  principles  governing  them.  The  appellant,  however,  on  such 
subjects,  can  take  nothing  by  implication.  Forfeitures  depend  upon 
clear  and  explicit  language,  and  are  even  looked  upon  with  disfavor. 
Expulsions  from  a  corporation  should  not  be  accomplished  by  hurried 
and  incomplete  investigations.  A  meml^er  of  a  corporation  may  so 
hedge  himself  in  by  agreement  as  to  yield  the  protection  which  one  seeks  in 

1  Ibid.,  quoting  from  People  ex  rel.  ^  Davis,  P.  J.,  and  Daniels,  J.,  con- 

V.  New  YorkComraercial  As.so.,18  Abb.      curring  in  the  result. 
Pr.  (N.  Y.)  271,  279.     See  also  People 
V.  Chicago  Board  of  Trade,  40  III.  112. 
682 


POWER  TO  EXPEL.     [1  Thomp.  Corp.  §  852. 

the  ordinary  affairs  of  life,  and  enlarge  the  authority  that  may  be  used 
against  him,  but  when  it  is  said  he  has  done  so,  it  should  appear  bej^ond 
all  reasonable  doubt.  The  presumption  should  be  against  the  power  to 
expel  except  for  the  causes  recognized  by  the  adjudged  cases,  because 
it  is  in  the  nature  of  a  forfeiture,  which  the  law  does  not  favor.  The 
right  to  appeal  to  another  tribunal,  if  to  be  foreclosed,  should  be  so 
by  contract  or  agreement,  not  by  mere  construction  of  language  em- 
ployed in  a  by-law,  or  by  impUcation  from  something  contained  in  it ; 
when  this  power  is  assumed,  and  upon  either  of  these  elements,  and 
there  is  any  doubt  of  its  existence,  it  should  be  rejected  in  the  adminis- 
tration of  the  law.  This  seems  to  be  a  just  doctrine.  The  power 
should  be  unquestionable. ' '  i  The  by-laws  of  the  New  York  Produce 
Exchange,  creating  an  "  arbitration  committee"  to  hear  and  decide 
controversies  between  members,  etc.,  and  a  "  complaint  committee  "  to 
entertain  accusations  against  any  member  of  willful  violation  of  the 
charter  or  by-laws,  of  fraudulent  breach  of  contract,  of  conduct  incon- 
sistent with  just  and  equitable  principles  of  trade,  or  of  other  miscon- 
duct, and  authorizing  the  further  proceedings  of  summoning  and 
hearing  a  member  so  accused,  before  the  complaint  committee  and  again 
before  the  board  of  managers  and,  if  the  accusation  is  finally  substan- 
tiated, of  suspending  or  expelling  him  by  a  two-thirds  vote  of  the 
board,  have  been  held  just  and  reasonable,  and  fully  authorized  by  the 
charter.  2 

§  852.  By-law  Prohibiting  Members  from  Gathering  in  Pub- 
lic Places  to  Buy  and  Sell  *'Fvitures"  outside  the  Exchange 
Room.  —  The  Supreme  Court  of  Wisconsin  has  upheld  the  following 
by-law  of  the  Milwaukee  Chamber  of  Commerce :  ' '  Members  of  the 
Chamber  of  Commerce  are  hereby  prohibited  from  gathering  in  any 
public  place,  in  the  \'icinity  of  the  exchange  room,  and  forming  a  market 
for  the  purpose  of  making  any  trade  or  contract  for  the  future  delivery 
of  grain  or  provisions,  before  the  time  fixed  for  opening  the  exchange 
room  for  general  trading,  or  after  the  time  fixed  for  closing  the  same 
daily ;  and  any  member  who  shall  make  any  trade  or  contract  in  the 

1  People  V.  New  York  Cotton  Ex-  of  Appeai.s  three  judges  (Danforth, 
change,  8  llun  (N.  Y.),  21G,  219.  Rapallo   and    Finch,   JJ.")    dissented. 

2  Ilurst  V.  New  York  Produce  Ex-  As  the  Common  Pleas  is  composed  of 
change,  100  N.  Y.  605,  mem.;  .s.o.  in  three  judges,  it  would  appear  that  a 
full,  1  Central  Rep.  2G0.  This  case  minority  succeeded  in  reversing  an 
reversed  an  order  of  the  New  York  aggregate  majority  of  judges  on  tlie 
Common  Pleas  at  general  terra  afTirra-  question  here  decided,  and  that  the 
ing  the  orders  of  the  special  term  case  is  therefore  not  of  the  best  au- 
granting  an  injunction.     In  the  Court  tliority. 

683 


1  Tliomp.  Corp.  §  853.]     expulsion  of  members. 

luauner  herein  prohibited,  shall  be  deemed  to  have  violated  this  rule, 
and  he  may,  therefor,  be  fined  by  the  president  in  a  sum  not  exceeding 
$5.00  for  each  and  eveiy  such  offense,  and  shall  be  Hable  to  such  addi- 
tional discipline  as  the  board  of  directors  may  determine;  and  any 
member  refusing  or  neglecting  to  pay  any  such  fine  shall  be  suspended 
by  the  board  of  directors  from  all  privileges  of  the  association  during 
the  time  that  such  fine  shall  remain  unpaid."  The  court  regarded  the 
rule  as  a  mere  police  regulation,  enacted  for  the  purpose  of  affording 
the  members  of  the  chaml:)er  free  and  convenient  insfress  to  and  egress 
from  the  chamber  and  to  prevent  confusion  and  disturbance  in  the  public 
places  near  its  exchange  room,  which  might  result  from  the  unlimited 
right  of  the  members  to  trade  in  those  places.  They  therefore  regarded 
it  as  proper  for  the  good  government  of  the  chamber,  and  did  not  see 
that  it  imposed  an  unlawful  restraint  upon  trade,  or  that  it  was  unreason- 
able or  unnecessary.  But  the  court  saw  in  it  another  ground  on  which  it 
might  be  upheld :  "  It  may  be  that  experience  had  shown  that  the  un- 
restricted right  of  the  members  to  form  a  market  at  the  time  and  in  the 
places  specified  in  the  rule,  for  the  purpose  of  making  the  class  of  con- 
tracts therein  mentioned,  tended  to  promote  irregular  transactions  by 
persons  not  members  of  the  chamber  and  not  amenable  to  its  rules." 
The  court  further  observed  that  if  it  was  true  as  the  relator  had  given 
e^•ideuce  tending  to  show,  that  nearly  all  of  the  time  contracts  men- 
tioned in  the  rule  were  wagering  or  gambling  contracts,  and  therefore 
void,  — "it  would  be  difficult  to  hold  that  a  rule  which  operates  as  a 
restraint  upon  the  making  of  such  contracts  is  an  unlawful  restraint 
upon  trade.  In  that  case,  if  it  is  a  restraint,  the  rule  and  the  statute 
are  in  entire  harmony."  ^  It  was  further  held  that  the  above  by-law 
was  not  void  for  uncertainty  in  not  defining  what  was  meant  by  "  a 
public  place  in  the  vicinity  of  the  exchange  room  ' '  or  what  acts  should 
constitute  "  forming  a  market  "  there. ^ 

§  853.  By-Laws  when  not  Enforcible  by  Forfeiture  of 
Membership.  — Unless  authority  to  this  end  is  granted  by  the 
legislature,  a  corporation  cannot  establish  a  by-law  and  annex 
thereto  the  sanction  of  a  forfeiture  of  the  membership  of  the 
members  Avho  violate  it.  "There  can  be  no  power  to  impose 
forfeitures  unless  granted  by  clear  legislative  enactment.  No 
such  power  is  consistent  with  common  law  or  ancient  right,  and 
it  cannot  be  obtained  from  anything  but  the  sovereignty.     The 

1  State  V.    Milwaukee   Chamber   of  2  mn^  687. 

Coiaraercc,  47  Wis.  G70,  683,  686. 
684 


POWER  TO  EXPEL.     [1  Thomp.  Corp.  §  854. 

only  implied  means  for  the  enforcement  of  corporate  charges  and 
penalties  is  by  action.  Summary  means  and  methods  unknown  to 
the  common  law  must  be  authorized  by  express  authority.  And 
it  would  not  be  reasonable  to  enforce  a  pecuniary  obligation  or 
penalty  by  means  disproportionate  to  its  importance.  The  law 
of  the  land  is  made  the  test  for  analogies  in  cases  where  it  affords 
analogies."  ^ 

§  854.  Grounds  of  Expulsion  at  Common  Law :  Bagg's 
Case.  —  The  leading  case  on  this  branch  of  the  law  is  that  of 
James  Bagg,^  decided  in  the  reign  of  James  the  First,  anno  1616. 
Bago-  was  one  of  the  twelve  chief  burgesses  of  the  borough  of 
Plymouth,  in  England,  and  having  been  guilty  of  the  most 
scandalous  and  disorderly  speeches  to  the  mayor  and  fellow 
burgesses  was  expelled;  but  the  King's  Bench,  then  presided 
over  by  Sir  Edward  Coke,  restored  him  by  mandamus.  Ac- 
cording to  the  report  of  Lord  Coke,  two  questions  were  con- 
sidered:  1.  What  were  sufficient  causes  to  disfranchise  a 
citizen,  freeman  or  burgess  of  any  city  or  borough  incorporate, 
and  to  discharge  him  of  his  freedom  and  liberty,  and  what  not. 
2.  How  and  by  whom,  and  in  what  manner  such  citizen  or  bur- 
gess shall  be  disfranchised.  ' '  As  to  the/r6-^  it  was  resolved  that 
the  cause  of  disfranchisement  ought  to  be  grounded  upon  an  act 
which  is  against  the  duty  of  a  citizen  or  burgess,  and  to  the  preju- 
dice of  the  public  good  of  the  city  or  borough  whereof  he  is  a 
citizen  or  burgess,  and  against  his  oath  which  he  took  when  he  was 
sworn  a  freeman  of  the  city  or  borough  ;  for,  although  one  shall 
not  be  charged  in  any  judicial  court  for  the  breach  of  a  general 
oath,  which  he  took  when  he  became  officer,  minister,  citizen, 
burgess,  &c.,yet  if  the  act  which  he  doth  be  against  the  said  duty 
and  trust  of  his  freedom  and  to  the  prejudice  of  the  city  or 
borough,  and  also  against  his  oath,  it  enforces  much  the  cause 
of  his  removal,  and  there  is  a  condition  in  law  taclle  and  an- 
nexed to  his  freedom  or  liberty;  which  if  he  breaks,  he  may  be 
disfranchised;   but   words  of  contempt,  or  contra  bonos  mores^ 

1  People    w.    Fire    Department,    31      Co.,  23  Mich.  145;  People  u.  New  York 
Mich.  458,  405,  opinion  ot  tlie  court  by      Cotton   Exchange,    8    Ilun     (N.    Y.), 
Cainpijcll,     J.     See    also    Matter    of      2 It;,   211);  more   fully    stated    in    the 
Long  Island  R.  Co.,  19  Wend.  (N.  Y.)      preceding  section. 
37;    Westcott  V.    Minnesota    Mining  2  gagg's  Case,  11  Co.  Rep.  93. 

685 


1  Thomp.  Corp.  §  854.]     expulsion  of  members. 

although  they  be  against  the  chief  officer,  or  his  brethren,  are 
good  causes  to  punish  him,  as  to  commit  till  he  has  found  good 
sureties  of  his  good  behavior,  but  not  to  disfranchise  him.  80, 
if  he  intends,  or  endeavors  of  himself,  or  conspires  with  others, 
to  do  a  thing  against  tlie  duty  or  trust  of  his  freedom,  and  to 
the  prejudice  of  the  public  good  of  the  city  or  borough,  but  he 
doth  not  execute  it,  it  is  a  good  cause  to  punish  him,  as  is  afore- 
said, but  not  to  disfranchise  him  ;  for  non  officii  conatus,  nisi  se- 
quatur  eff'ec'us;  and  non  o-fficit  afectus  nisi  sequatiir  efectus.  And 
the  reason  and  cause  thereof  is,  that  when  a  man  is  a  freeman  of 
a  city  or  borough,  he  has  a  freehold  in  his  freedom  for  life,  and 
to  others,  in  their  politic  capacity,  has  an  inheritance  in  the  lands 
of  the  said  corporation,  an  interest  in  their  goods,  and  perhaps 
it  concerns  his  trade  and  means  of  living,  and  his  credit  and 
estimation;  and  therefore  the  matter  which  shall  be  a  cause  of 
his  disfranchisement  ought  to  be  an  act  or  deed,  and  not  a  co- 
nation or  an  endeavor,  which  he  may  repent  of  before  the  execu- 
tion of  it,  and  from  whence  no  prejudice  ensues;  and  they  who 
have  offices  of  trust  and  confidence  shall  not  forfeit  them  by  en- 
deavors and  intentions  to  do  acts,  although  they  declare  them 
by  express  words,  unless  the  act  itself  shall  ensue,  — as  if  one 
who  has  the  keeping  of  a  park  should  say  that  he  will  kill  all  the 
game  within  his  custody,  or  will  cut  down  so  many  trees  within 
the  park,  but  doth  not  kill  any  of  the  game,  nor  cut  down  any 
trees, — it  is  not  any  forfeiture;  and  sic  de  siinilihus,  for  in  all 
such  cases,  either  there  ought  to  be  an  act,  or  such  a  negligence 
as  tantamounts,  SC77.  when  destruction  of  the  game  &c.,  ensues. 
If  a  bishop,  archdeacon,  parson  &c.,  fells  all  the  trees,  it  is  a 
good  cause  of  deprivation.^  So,  if  a  Prior  aliens  the  land  which 
he  has  injure  domus  sum,  it  is  a  cause  of  deprivation,  as  appears 
in  9  E.  4.  34.  a.  If  a  Prior  makes  dilapidation,  it  is  a  good  cause 
to  deprive  him,  as  it  is  held  in  29  E.  3.  16.  a.,  28  H.  6.  46.  a.  But 
if  it  be  but  a  conation,  or  endeavor,  without  any  act  done,  in  none 
of  those  cases  is  it  any  cause  of  deprivation  ;  for  in  those  cases, 
voluntas  non  repuintur  pro  facto.  And  if  a  contempt  (^be  it  of 
omission  or  commission  )  should  be  a  good  cause  to  disfranchise, 
the  best  citizen  or  burgess  might  be,  at  one  time  or  other  dis- 


^  Ciliug  Y.  arb.  2  Ileury  4,  3b. 

686 


GROUNDS  OF  EXPULSION.     [1  Thomp.  Corp.  §  856. 

franchised,  which  would  be  a  great  cause  of  faction  and  contention 
in  cities  and  boroughs."  ' 

§  855.  Further  of  Bagg's  Case  :  How,  by  Whom  and  in  What 
Manner  Disfranchised. —  "As  to  the  second^  it  was  resolved 
that  no  freeman  of  any  corporation  can  be  disfranchised  by  the 
corporation,  unless  they  have  authority  to  do  it  either  by  the  ex- 
press words  of  the  charter  or  by  prescription,  but  if  they  have 
not  authority,  neither  by  charter  nor  by  prescription,  then  he 
ought  to  be  convicted  by  course  of  law  before  he  can  be  removed ; 
and  it  appears  by  Magna  Charta,  cap.  2d,  mdlus  liber  homo  capia- 
tur,  vel  imprisonetur,  aut  disseisitur  de  libera  tenemenio  suo  vel 
libertatibus,  vel  liberis  consuetudinibus  suis  &o.,  nisi  per  legale 
judicium  parium  suorum,  vel  per  legeyn  terrce,  and  if  the  corpo- 
ration have  power,  by  charter  or  prescription,  to  remove  him  for 
a  reasonable  cause,  that  will  be  per  legem  terroe;  but  if  they 
have  no  such  power,  heoughtto  he  conY\c,ie({  per  judicumjjorium 
suorum,  etc.,  as  if  a  citizen,  or  freeman,  be  attainted  of  forgery  or 
perjury  or  conspiracy,  at  the  King's  suit,  etc.,  or  of  any  other 
crime  whereby  he  is  become  infamous,  upon  such  attainder  they 
may  remove  him.  So,  if  he  be  convictedof  any  such  offense  which 
is  against  the  duty  and  trust  of  his  freedom,  and  to  thepul)lic  prej- 
udice of  the  city  or  borough  whereof  he  is  free,  and  against  his 
oath, —  as  if  he  has  l)urnt  or  defaced  the  charters,  or  evidences  of 
the  city  or  borough  or  razed  or  corrupted  them,  and  is  thereof 
convicted  and  attainted,  these  and  the  like  are  good  causes  to  re- 
move him."  2 

§  856.  Grounds  of  Disfranchisement  under  Rule  of  Lord 
Mansfield — The  statement  given  by  Lord  Mansfield  of  the 
three  grounds  upon  which  an  officer  of  a  corporation  may  be 
amoved,^  has  been  adopted  by  several  American  courts,  as  fur- 
nishing grounds   on  which  alone  a  corporation  has  the  inherent 

1  Bagg's  Case,  II  Co.  Rep.  93,  98.  4G9,  473;  People  v.  Medical   Society, 

2  Bagg's  Case,  1 1  Co.  Rep.  93,  99.  32  N.  Y.  187,  1 94 ;  Com.  v.  St.  Patrick's 
8  .4K«e,  §  806.     See  Rex  ?;.  Richard-      Benevoleut  Society,    2  Binney  (Pa.), 

son,  I    Burr.  517;  Lord   Mansfield  in  441,  448;  s.  c.  4  Am.  Dec.  4  53.     Com- 

Rex  V.   Town  of   Liverpool,   2    Burr.  pare  Riddell   v.  Harmony  Fire  Co.,  8 

723,  732;  reaffirmed  in  Com   v.  Guard-  Phil.  (Pa.)  310;  Ilarmsteadu.  Washing- 

ians  of  the  Poor,   6  Serg.  &  P.  (Pa.)  ton  Fire  Co.,  8  Phil.  (Pa.)  331. 

687 


1  Thomp.  Corp.  §  857.]     expulsion  of  members. 

power  to  expel  one  of  its  members.^  The  fact  that  the  charter 
of  an  incorporated  society  enumerates  certain  grounds  of  ex- 
pulsion does  not  necessarily  exclude  the  right  of  the  society  to 
create  other  grounds  by  by-laws,  the  same  being  consistent  with 
the  law  of  the  land  and  with  the  general  purposes  of  the  society. 
*'In  the  nature  of  the  thing,"  said  Tilghman,  C.  J.,  *'  it  is  per- 
fectly consistent  that  expulsion  should  take  place  in  the  case 
provided  for,  and  also  in  such  other  cases  as  the  good  govern- 
ment of  the  society  might  require."  ^ 

§  857.  Cases  within  these  Principles.  —  Stating  conclusions 
and  not  details,  it  has  been  held  that  a  member  of  an  incorpo- 
rated mercantile  body  may  be  rightfully  expelled  for  obtaining 
goods  under  false  pretenses;^  that  a  member  of  a  benevolent 
society  may  be  expelled  for  fraudulently  altering  an  account 
against  the  society ;  *  that  a  member  of  a  charitable  society  may 
be  expelled  for  feigning  sickness  in  order  to  obtain  relief  from 
the  society;  ^  that  an  inmate  of  a  home  for  aged  seamen  may  be 
expelled  for  misbehavior  at  the  table ;  ^  that  a  member  of  an  in- 
corporated board  of  underwriters  may  be  expelled  for  issuing 
policies  of  insurance  for  smaller  amounts  than  those  established 
by  the  rules  of  the  corporation ;  '  that  a  member  of  a  mutual 
benefit  society  may  be  expelled  for  receiving  the  fee  of  an  ap- 

1  People   V.    Medical    Society,    24  conduct  as  clearly  violates  the  funda- 

Barb.  (N.  Y.)  571,  578;  People  v.  New  mental  objects  of  the  association  and, 

York  Commercial  Association,  18  Abb.  if  persisted  in,  and  allowed,    would 

Pr.  (N.  Y.)  271,  278;  Leech  w.  Harris,  thwart   those    objects     or    bring  the 

2  Brewst.  (Pa.)  571,  577  (unincorpo-  association  into  disrepute."  Otto  v. 
rated  association)  ;  Cora.  u.  St.  Patrick  Tailors'  &c.  Union,  75  Cal.  308,314, 
Benevolent  Society,  2  Binn.  (Pa.)  441,  opinion  by  Searle,  C.  J. 

448;  Cora.  v.  Guardians  of  the  Poor,  6  ^  Com.   v.   St.  Patrick  Benevolent 

Serg.&R.  (Pa.) 409,473;  Downer,  J., in  Soc,  2   Binn.    (Pa.)   441    448;  s.   c.  4 

State  ex  rel.  v.  Chamber  of  Commerce,  Am.  Dec.  453. 

20  Wis.  63,  71;  reaffirraed  in  Dicken-  ^  People  v.  New  York  Commercial 

son  V.  Chamber  of  Commerce,  29  Wis.  Association,  18  Abb.   Pr.  (N.  Y.)  271. 

45;  s.  c.  9  Ara.  Rep.  544.     In  a  recent  ^  Cora.  v.  Philanthropic  Society,  5 

case  the   grounds   of   expulsion  frora  Binn.  (,Pa.)  486. 

voluntary  societies   were  said   to  be:  ^  Society  of  the  Visitation  u.  Com., 

"  1.  A  violation  of   such  of  the  estab-  52  Pa.  St.  125. 

lished  rules  of  the  association  as  have  ^  People  v.  Sailors'  Snug  Harbor,  5 

been  subscribed   to  or  assented  to  by  Abb.  Pr.  (n.  s.)   (N.  Y.)  119  (sem!'le). 

the  member,  and  as  pi'ovide  for  expul-  '  People  v.  Board  of   Fire  Under- 

sion  for  such  violation;  2.  For  such  writers,  14  N.  Y.  Supr.  Ct.  248. 
688 


GROUNDS  OP  EXPULSION.     [1  ThoQip.  Corp.  §  859. 

plicant  for  admission  and  failing  to  pay  it  over,  and  for  taking 
from  the  chest  the  original  roll  of  the  society  and  refusing  to 
return  it;  ^  that  a  member  of  a  medical  society  may  be  expelled 
for  violating  a  contract  with  another  member,  to  whom  he  has 
sold  his  practice,  not  to  practice  medicine  within  certain  limits. ^ 

§  858.  Cases  not  within,  these  Principles.  —  On  the  other 
hand,  a  member  of  an  incorporated  benevolent  society  cannot  be 
expelled  under  a  by-law  for  "  vilifying"  another  member  ;^  and 
generally  the  use  of  contemptuous,  insulting  or  disrespectful 
language  by  one  member  of  a  corporation  to  another  member,  or 
even  to  an  officer,  is  not  sufficient  ground  of  expuLsiou;  *  nor  is 
absence  from  its  stated  meetings;  ^  nor  insulting  or  striking  an- 
other member  of  an  incorporated  [club  within  the  club-house,  it 
being  a  corporation  possessing  property  ;  ®  nor  for  a  member  of 
an  incorporated  mutual  benefit  society  to  enlist  in  a  volunteer 
army  in  time  of  war,  the  prohibition  of  its  by-laws  extending 
only  to  entering  a  standing  army ;  ^  nor  for  refusing  to  submit 
differences  to  arbitration.^  Again,  in  regard  to  unincorporated 
clubs,  there  is  English  authority  to  the  effect  that  it  will  be  left 
to  the  judicatories  of  such  clubs  to  determine  what  conduct  in  a 
member  will  justify  his  expulsion.' 

§  859.  Expulsion  for  Infamous  Crimes :  Whether  a  Previous 
Conviction  Necessary.  —  Contrary  to  what  was  said  in  Bugg's 
Case,^"  it  seems  to  be  settled  that  where  the  expulsion  is  for  an 

'People    V.  St.  George's    Society,  aflBrmed  on  appeal  by  an  equally  divid- 

28  Mich.  2(>1.  ed  court.     The  learned  Chief  Justice 

^  Barrow  v.    Massachusetts  Medi-  made  the  case  turn  on  the  ground  stat- 

cal  Society,  12  Cush.  (Mass.)  402,  409  ed  in  tlie  text. 

3  Cora.  V.  St.  Patrick's  Benevolent  ^  Franlilin  Benevolent  Association 

Society,   2   Biiiu.  (Pa  )  441,  449;  s.  c.  i?.  Com.,  10  Pa.  St.  357.    Itwasconced- 

4  Ain.  Dec.  4.53.  ed  that  such  a  society  has  power   to 

•*  Rex  V.  University  of   Cambridge  withhold  its  benefits  from  members 

(Dr.   Bentley's  Case),  1  Str,  557;  s.  c.  who,  contrary  to  its   regulations,  as- 

2  Ld.  Raym.  1334;  Fort.  202;  Earle's  sume  the  perils  of  war. 

Case,  Carthew,  173.  s  Green  v.  African  Metliodist  Epis- 

''  Rex   V.  Richardson,  1    Burr.    517,  copal  Society,  1  Serg.  &  11.   (Pa.)    254. 

541.  0  Lytllcton  v.  Blackburn,  83  L.  T. 

•'  Evans  v.  Philadelphia  Club,  .50  Pa.  (n.  s.)  G41 ;  s.  c.  45  L.  J.  (n.  8.)  219, 

St.  107.     Tlie  decision  in  this  case,  of  ^^  11  Co.  Rep.  93,  99. 
Woodward,   C.  J.,    at  nisi  prius  was 

44  689 


1  Thomp.  Corp.  §  860.]     expulsion  of  members. 

infamous  offense  not  immediately  connected  with  the  duty  of 
the  accused  as  a  corporator,  it  is  not  necessary  that  there  should 
first  have  been  a  trial  and  conviction  upon  an  indictment.^ 

§  860.  Offenses  against  the  Member's  Duty  as  a  Corpora- 
tor. —  Within  the  meaning  of  the  rule  of  Lord  Mansfield  and 
other  subsequent  cases,  offenses  against  the  corporators'  duty  as  a 
corporator,  consist  of  "  things  done  that  work  the  destruction  of 
the  body  corporate,  or  the  destruction  of  the  liberties  or  privi- 
leges thereof."  2  In  the  case  of  corporations  these  grounds  of 
expulsion  may  be,  of  course,  extended  by  the  legislature,  in  the 
charter  or  governing  statute,  subject  only  to  constitutional  limit- 
ations; and  in  the  case  of  voluntary  associations,  by  compact 
among  the  members  in  the  form  of  their  articles  of  association, 
constitutions,  or  by-laws,  subject  only  to  the  principle  that 
they  shall  not  be  contrary  to  law  or  public  policy.  It  is  said  to 
be  a  tacit  condition  of  membership  in  an  incorporated  associa- 
tion of  underwriters  formed  for  the  purpose  of  establishing  uni- 
formity in  insurance  policies  and  contracts  of  the  associates,  that 
a  member  will  not  oppose  or  injure  the  interests  of  the  corpo- 
rate body.  Accordingly,  it  has  been  held  that  if  a  member  in- 
sures for  a  smaller  amount  than  thus  established  by  the  rules  of 

1  Rex  V.  Richirclson,  1  Burr.  517,  of.  And  of  the  same  opinion  was  the 
538,  539;  overru.ing  on  this  point  whole  court;  whereupon  Sir  Thomas 
Bagg's  Case,  11  Co.  Rep.  93.  See,  Earle  had  a  peremptory  mandamits  to 
however,  Leech  v.  Harris,  2  Brewst,  restore  him,  the  causes  returned  being 
(Pa.)  571;  People  ?».  New  York  Com-  altogether  insufficient  to  remove  him." 
mercial  Association,  18  Abb.  Pr.  (N.  The  causes  In  the  particular  case  were 
Y.)  271.  writing  a  false  and  contumelious  letter 

2  Ang.  &  A.  Corp.,  §§  349,  358;  2  to  the  Secretary  of  State  concerning 
Kent  Com.  297,  299;  Earle's  Case,  the  mayor  of  the  town  and  certain 
Carthew,  173.  \J-pon  mandamus  to  re-  citizens  thereof;  riotously  and  in- 
store  Sir  Thomas  Earle  to  the  office  of  solently  threatening  the  mayor  at  a 
common  councilman  of  the  city  of  meeting  of  the  mayor  and  aldermen; 
Bristol:  "  It  was  insisted  that  tliere  causing  the  common  council  books  to 
cannot  be  any  cause  to  disfranchise  a  be  brought  before  the  Lord  Lieuten- 
member  of  a  corporation  unless  it  be  ant  of  the  city,  with  the  intention  to 
for  such  a  thing  done  which  works  to  make  an  accusation  against  the  mayor 
the  destruction  of  the  body  corporate  and  to  betray  the  secrets  of  the  city, 
or  the  destruction  of  the  liberties  etc.  Sir  Thomas  Earle's  Case,  Carth. 
and  privileges  thereof,  and  not    any  173. 

personal  offense  of  one  member  there- 

690 


GROUNDS  OF  EXPULSION.     [1  Tliomp.  Corp.  §  861. 

the  corporation,  he  breaks  this  tacit  condition  and  may  be  ex- 
pelled by  the  corporation  on  a  due  trial  and  conviction.^ 

§  861.  Acts  Injurious  to  the  Society  or  to  its  Reputation.  — 

Where  the  articles  of  association  of  a  society  authorized  the  ex- 
pulsion of  a  member  for  being  concerned  in  scandalous  or  im- 
proper proceedings,  which  might  injure  the  reputation  of  the 
society,  —  it  was  held  to  be  a  good  cause  of  expulsion  under  these 
articles  that  a  member  had  altered  a  physician'' s  bill  from  $4  to 
$40,  and  had  presented  that  bill  to  the  corporation  as  the  ground 
of  his  claim. 2  Under  articles  of  association  authorizino;  the  ex- 
pulsion  of  members  guilty  of  improper  conduct  calculated  tohving 
the  society  into  disrepute,  it  has  been  held  that  it  cannot  be  said 
that  charges  of  (1)  receiving  of  an  applicant  for  admission  his 
proposed  initiation  fee  and  failing  to  pay  it  over  to  the  society 
or  to  return  it  to  the  applicant,  who  had  complained  thereof  to 
various  persons  ;  and  (  2)  having  been  entrusted  by  the  secretary 
with  the  keys  of  the  society  chest  to  obtain  a  receipt  book  there- 
from ;  and  of  having,  at  the  same  time,  and  without  leave,  taken 
from  such  chest  the  original  roll  of  the  society,  and  refused  to 
return  it,  — are  insufficient  to  warrant  an  expulsion.  The  court 
further  observed  that  proceedings  for  the  expulsion  of  a  mem- 
ber, under  articles  of  association  agreed  to  by  all  the  members, 
are  to  be  considered  without  too  much  regard  to  technicalities, 
and  that  substantial  justice  is  to  be  kept  in  view,  rather  than 
mere  form,^  But  where  the  members  of  an  intended  corpora- 
tion presented  their  so-called  charter  to  the  Supreme  Court  of 
Pennsylvania  for  approval,  under  the  statute  of  that  State,*  and 
it  was  found  that  it  allowed  the  association  tO  expel  any  member 
who  should  be  "  guilty  of  actions  which  may  injure  the  associa- 
tion," the  court  refused  to  approve  this,  for  the  reason  that  it 
gave  to  the  corporation  an  indefinite  power  of  expulsi<m  over  its 
meml)ers.  Lowrie,  C.  J.,  said  :  "  For  any  action  which  may  in- 
jure them,  they  may  expel;  and  therefore,  they  may  expel  a 
member  for  becoming  insolvent.     It  is  totally  incompatible  with 

»  People  V.   Board  of  Fire  Under-  s  people  v.  St.  George's  Society,  28 

writers,  5  Ilun  (N.  Y.),  248.  Mich.  2G1. 

2  Com.    V.  riiilanthropic   Society,  6  *  Ante,  §  111,  et  seq. 

Binn.  (Pa.)  480. 

G91 


1  Thomp.  Corp.  §  863.  j     expulsion  of  members. 

the  whole  spirit  of  our  institutions,  to  clothe  any  body  with  such 
indefinite  power  over  its  members;  for  it  is  equivalent  to  social- 
ism, and  is  a  rejection  of  all  individual  rights  within  the  associa- 
tion. It  is  common  in  such  charters  to  found  the  right  of 
expulsion  on  the  fact  that  the  member  has  been  found  guilty 
of  some  crime,  on  a  trial  in  court ;  and  this  is  quite  proper."  ^ 

§  862.  Illixstrations  :  "  Conduct  Injurious  to  the  Character 
and  Interests  of  the  Club."  —  In  several  cases  which  have  been  be- 
fore the  courts,  members  were  expelled,  either  by  a  general  meeting  of 
the  club,  or  by  a  quorum  of  its  governing  committee,  under  a  by-law  or 
rule  of  the  club  providing  for  the  expulsion  of  a  member  for  "  conduct 
injurious  to  the  interests  of  the  club."  It  will  now  be  considered  under 
what  circumstances  the  com'ts  have  refused  to  interfere  in  behalf  of  the 
expelled  member,  when  expelled  under  the  operation  of  such  a  rule. 
The  rules  of  the  Conservative  Club  authorized  the  committee  to  call  a 
general  meeting  "  in  case  any  circumstances  should  occur  likely  to  in- 
jure the  welfare  and  good  order  of  the  club,"  and  provided  that  anj^ 
member  might  be  removed  by  the  votes  of  two- thirds  of  the  persons 
present  at  such  meeting.  One  of  the  members  of  the  club  had  given  a 
pledo-e  to  support  certain  "  Liberal  "  candidates  at  an  election.  Upon 
this  a  general  meeting  was  called,  under  the  rule  in  question,  and  he 
was  expelled  by  a  vote  of  the  requisite  majority.  It  was  held  by  Lord 
Komilly,  M.  R.,  that  as  the  club  was  a  club  of  a  pohtical  character,  a 
court  of  justice  could  not  say  that  the  member  had  not  been  expelled 
because  of  something  "  likely  to  injure  the  welfare  and  good  order  of 
the  club."  He  read  the  by-law  by  interjecting  the  words  "likely  in 
their,  the  committee''s  opinion,  to  injure,"  etc.  "  That  rule,"  said  he, 
"  amounts  to  this,  that  if  such  circumstances  as  are  there  referred  to 
should  arise,  it  would  be  the  duty  of  the  committee  to  call  a  meeting  and 
submit  the  matter  for  the  judicial  decision  of  the  members  of  the  club 
at  that  meeting,  and  then  it  would  be  for  them  to  determine  whether 
any  '  circumstances  likely  to  endanger  the  welfare  and  good  order  of  the 
club  '  had  taken  place. ' '  And  he  held  that,  where  such  a  meeting  had 
been  called  and  a  vote  of  expulsion  by  the  requisite  majority  had  taken 
place,  there  was  no  appeal  from  the  decision  thus  arrived  at,  to  the 
judicial  courts,  so  long  as  it  appeared  that  the  members  of  the  club  had 
arrived  at  the  result  bona  fide,  and  without  any  caprice  or  improper 
motive.  "  None  but  the  members  of  the  club,"  said  he,  "  can  know 
the  little  details  which  are  essential  to  the  social  well-being  of  such  a 

1  Butchers'  Beneficial  Association.  35  Pa.  St.  151. 
692 


GROUNDS  OF  EXPULSION.     [1  Thoinp,  Corp.  §  863. 

society  of  geutlemeu,  and  it  must  be  a  veiy  strong  case  that  would  in- 
duce this  court  to  interfei-e."  ^  -  -  -  -  In  another  case  a  member  of 
a  club  caused  to  be  printed  and  circulated  a  pamphlet  entitled,  ' '  A  Farce 
and  a  Villany  —  Heads  I  win,  Tails  You  Lose," — ia  which  the  con- 
duct of  Lieutenant-General  Stephenson,  who  was  also  a  member  of  the 
club,  was  severely  reflected  on.  A  copy  of  this  pamphlet  was  enclosed 
in  a  wrapper  on  the  outside  of  which  was  printed  ' '  Dishonorable  con- 
duct of  Colonel  (now  Lieutenant-General)  Stephenson,"  and  was  sent 
by  the  plaintiff,  by  post,  to  Lieutenant-General  Stephenson  at  his  official 
address,  the  Guards'  orderlj^  room,  at  the  Horse  Guards.  This  having 
been  brought  to  the  notice  of  the  committee  of  the  club,  and  the 
member  in  question,  not  ha\iug  disavowed  the  act  upon  being 
charged  therewith,  was  expelled  from  the  club,  at  a  meeting  called 
by  the  general  committee  in  pui'suance  of  its  rules,  of  which  meet- 
ing plaintiff  was  notified,  by  a  vote  of  108  in  favor  of  expulsion 
to  36  against  expulsion.  It  was  held  by  the  Court  of  Appeal,  affirm- 
ing the  decision  of  Jessel,  M.  R.,  that  a  judicial  court  could  not 
say  that  this  expulsion  had  taken  place  malajides^  and  consequently  the 
coui'trefused  to  reinstate  the  expelled  member.-  -  .  -  -  In  another 
case  an  old  and  gallant  officer,  a  member  of  the  Army  and  Navy  Club, 
while  intoxicated,  used  the  expression   to  the  guest  of  a  member  of  the 

club  "  It  is  a  d d  lie. ' '     On  becoming  sober  he  apologized  in  writing, 

both  to  the  guest  and  to  the  member  of  the  club  whose  guest  he  had  in- 
sulted. For  this  offense  he  was  expelled  vntJiout  notice  and  tvilhoiot  an 
opportunity  of  being  heard  by  the  committee  of  the  club.  It  was  held  by 
LordRomiUy,  M.  R.,  that  the  resolution  of  the  committee  was  voul^  be- 
cause they  had  acted  without  notice  and  contrary  to  natural  justice.  He 
disclaimed  the  power  of  sitting  as  court  of  appeal  upon  the  action  of  the 
club,  in  a  case  where  the}^  proceeded  upon  notice,  such  as  they  were 
bound  to  give  in  a  ^was/- judicial  proceeding.  But,  at  the  same  time,  he 
took  the  liberty  of  tendering  this  advice  to  the  committee  of  the  club : 
' '  I  hope  the}^  will  carefully  consider  whether  such  an  offense  as  this  is 
of  so  grave  a  character  as,  in  the  interests  of  the  club,  to  warrant  the 
immediate  expulsion  of  an  old  and  gallant  officer,  who  has  been  for 
many  3'ears  a  member  of  the  club.  It  is  not  for  me  to  express  any 
opinion  upon  this  part  of  the  case,  but  I  hope,  when  the  committee  come 
to  reconsider  it,  as  they  will  undoubtedly,  that  they  will  consider  it  with 
an  impartial  mind,  and  without  any  reference  to  the  circumstances  that 
have  since  occurred.  Be  that  as  it  may,  in  my  opinion  a  committee, 
acting  under  such  a  rule  as  this,  are  bound  to  act,  as  Lord  Ilatherly 

1  Hopkinson  v.  Marquis  of  Exeter,  ^  Dawkins  v.  Antrobus,  17  Ch.  Div. 

L.  R.  5  Eq.  63,  68.  G15. 

693 


1  Tliomp.  Coij).  §  863.]     expulsion  of  members. 

said,  according  to  the  ordinary  principles  of  justice,  and  are  not  to  con- 
vict a  man  of  a  grave  offense,  which  shall  warrant  his  expulsion  from  the 
club,  without  fair,  adequate  and  sufficient  notice,  and  an  opportunity''  of 
meeting  the  accusations  brought  against  him.  They  ought  not,  as  I  un- 
derstand it,  according  to  the  ordinary  rules  by  which  justice  should  be 
administered  by  committees  of  clubs,  or  by  another  body  of  persons  who 
decide  upon  the  conduct  of  others,  to  blast  a  man's  reputation  forever  — 
perhaps  to  ruin  his  prospects  for  life,  without  giving  him  an  oppor- 
tunity of  either  defending  or  palliating  his  conduct.^"  -  -  -  - 
It  has  been  held  that  it  is  competent  for  the  managing  com- 
mittee of  a  club,  by  the  requisite  majority  under  its  rules,  to  expel 
a  member  of  the  club  for  making  disparaging  remarks  in  criticism 
of  the  action  of  the  committee  of  the  club  and  the  character  of 
the  committee.  A  rule  empowered  a  majority  of  two- thirds  of  the 
committee  to  expel  any  member,  whose  conduct  they  deemed  injurious 
to  the  character  and  interests  of  the  club.  The  plaintiff,  a  member, 
had  at  a  club  meeting  protested  against  G.'s  re-admission  as  a  member 
of  the  club,  as  being  contrary  to  the  rules,  and  designated  the  com- 
mittee as  a  "  pocket  borough,"  and  on  another  evening  (November  30, 
1881),  he  had  used  the  same  term  in  the  club-house,  stating  also  that 
the  "  committee  could  pass  and  alter  any  rules  they  deemed  fit."  Some 
of  the  plaintiff's  remarks  were  made  at  the  bar  of  the  club.  The  com- 
mittee, by  a  majority  of  two-thirds,  passed  a  resolution  that  the 
plaintiff's  conduct  November  30,  1881,  and  in  the  club  generally,  in 
pubhcly  disparaging  the  committee  before  strangers  and  the  club  serv- 
ants, was  injurious  to  the  character  and  interests  of  the  club,  and  that 
the  plaintiff  be  requested  to  resign.  The  majority  included  G.  without 
whose  vote  it  would  not  have  been  complete.  The  plaintiff  moved  to 
restrain  the  committee  from  expelling  him,  alleging  that  the  resolution 
was  solely  the  result  of  malice  towards  him  on  the  part  of  some  of  the 
committee  and  particularly  of  G.,  and  not  of  a  bona  fide  regard  for  the 
interests  of  the  club.  The  court  dechned  to  interfere,  holding  that 
there  was  nothing  to  show  that  the  resolution  of  the  committee  was  not 
bona  fide,  the  reason  given  for  demanding  the  resignation  of  the  mem- 
ber not  being  of  itself  evidence  of  malice. ^ 

§  863.  Frauds  upon  the  Society. —  As  suggested  by  a  pas- 
sage in  a  previous  section,^  frauds  committed  upon  the  society  to 
the    prejudice    of   its    funds,    as  by  charging   the  society  with 

1  Fisher   v.  Kean,   11  Ch.  Div.  353,  i  Lambert  v.  Addison,  46  L.  T.  (n. 

362.  8.)  20. 

3  Ante,  §  861. 
694 


GROUNDS  OF  EXPULSION.     [1  Thomp.  Corp.  §  864:. 

money  which  the  member  has  never  paid,  furnish  good 
grounds  of  expulsion. ^  If,  therefore,  a  member  of  a  mutual 
benefit  society  "feigns  himself  sick  without  being  so,  or  con- 
tinues to  draw  relief  after  his  recovery,"  he  may  be  expelled. ^ 

§  864.  Expulsion  from  Merchants'  Exchanges  for  Dishonest 
Conduct. — An  incorporated  mercantile  association,  formed  among 
other  things,  "to  inculcate  just  and  equitable  principles  in  trade," 
may,  it  has  been  held,  expel  a  member  for  obtaining  goods  under 
false  pretenses,  though  the  offense  is  not  committed  within  the  local 
jurisdiction  of  the  corporation,  nor  against  any  member  thereof. 
The  theory  of  the  court  is  that,  when  a  member  of  a  corporation 
performs  an  act  in  direct  contravention  of  the  purposes  for 
which  the  charter  was  obtained,  he  may,  under  Lord  Mansfield's 
rule  above  stated,^  be  expelled.*  On  like  grounds,  a  by-law  of  a 
chamber  of  commerce,  providing  for  the  expulsion  of  a  member 
for  non-compliance  with  the  terms  of  any  contract,  whether  ver- 
bal or  written,  has  been  held  reasonable  and  valid,  even  though 
the  contract  which  was  violated  in  the  particular  case  was  void 
under  the  statute  of  frauds,  and  not  made  during  a  session  of  the 
exchange.^  But  it  has  been  held  that,  where  it  appears  from  the 
regulations  of  a  board  o/brokers  that  their  rules  are  intended  ex- 
clusively to  enforce  compliance  with  contracts  relating  to  deal- 
ings in  stocks,  a  member  cannot  be  expelled  by  reason  of  his 
non-compliance  with  a  contract  relating  to  oil  leases,  that  being 
a  contract  not  relating  to  s^oc/js,  but  to  lands.  The  court  said: 
"  The  purchase  of  a  tract  of  land  is  not  a  stock  contract.  The 
renting  of  a  house,  a  store  or  an  oil  well  or  the  privilege  of  tak- 
ing oil  from  land  is  not  a  stock  contract.  To  so  hold  would  be 
an  utter  perversion  of  terms;  and,  under  the  term  stocJc  contract, 
would  enable  the  board  of  brokers  to  assume  jurisdiction  over 
their  members  in  contracts  tonching  realty  or  personal  property, 
however  remote  they  might  be  from  shares,  stocks,  and  loans 
such  as  the  board  operates  in.     What  the  plaintiff  really  submit- 

1  Com.  V.  Guardians  of  the  Poor,  *  People  v.  N.  Y.  Commercial  As- 
G  Sers.  &  R,  (Pa.)  4C9.  sociation,  18  Abb.  Pr.  (N.  Y.)  271. 

2  Society  for  Visitation  of  the  Sick  *  Dickenson  v.  Chamber  of  Cora- 
Scc.v.  Commonwealth,  .62  Pa.  St.  125.  merce,  29  Wis.  45. 

■5  Ante,  §  806. 

695 


1  Thomp.  Corp.  §  866.]     expulsion  of  members. 

ted  to  when  he  became  a  member  of  the  board  of  brokers  was 
that  the  board  should  tiike  jurisdiction  if  he  should  refuse  to 
comply  with  his  stock  contracts,  not  that  they  should  have  juris- 
diction of  his  contracts  touching  lands,  houses  or  leasehold  es- 
tates or  farming  interests."  ^ 

§  865.  Suspension  for  Bankruptcy  or  Insolvency.  —  As  al- 
ready seen,  we  have  the  great  authority  of  Lord  Mansfield  for 
the  proposition  that  bankruptcy,  being  in  many  cases  a  misfor- 
tune rather  than  a  crime,  is  not  sufficient  ground  for  removing  a 
member  of  the  common  council  of  a  municipal  corporation.  This 
rule  obviously  does  not  a[)ply  in  the  case  of  incorporated  mer- 
chants' exchanges,  or  brokers'  boards,  which  are  established  with 
the  primary  object  of  affording  a  place  where,  and  establishing 
rules  under  which,  its  members  may  meet  and  trade  with  each 
other.  It  is  essential  to  the  purpose  of  such  a  corporation,  that 
its  members  should  keep  the  contracts  thus  made  with  each  other, 
and  where  a  member  becomes  disabled  from  keeping  his  con- 
tracts by  reason  of  insolvency,  there  is  no  just  ground  why  this 
should  not  be  made  a  cause  of  suspension  from  the  society, 
especially  where  this  is  in  accordance  with  its  rules  by  which  he 
agreed  to  be  governed  when  he  became  a  member.^ 

§  866.  Contempt  against  Corporate  Officer.  —  The  mere  fact 
that  a  member  of  a  corporation  has  committed  a  gross  contemx)t  against 
the  judicial  process  of  the  corporation,  it  haAing  power  to  issue  such 
process,  and  against  an  officer  of  the  coriaoration  possessing  under  such 
process  the  power  of  a  judge,  has  been  thought  an  insufficient  ground 
of  depriving  him  of  his  privileges  in  the  corporation.  This  was  the 
opinion  of  the  judges  in  the  case  of  the  celebrated  Doctor  Richard 
Bentle}'.^  The  university  had  issued  against  Dr.  Bentley  process  in  an 
action  of  debt  for  the  sum  of  four  pounds  and  six  shilHngs,  and  caused 
it  to  be  served  upon  him  by  its  beadle,  to  appear  at  the  next  court  of 
the  university.  The  beadle  waited  upon  the  learned  Doctor,  at  his 
lodgings  within  the  jurisdiction,  and  showed  him  the  process,  and  served 
him  with  it.     "And,  uj^on  discourse  between  them  concerning  the  pro- 

1  Leech  v.  Harris,  2  Brewst.  (Pa.)  ^  Rex  v.  University  of  Cambridge, 
571,579.  5   Str.    157;    s.   c.  2  Ld.  Raym.  1334; 

2  Moxey  v.  Pliiladelpliia  Stock  Ex-  Fort.  202. 
change,  14  Phila.  (Pa.)  185. 

696 


GROUNDS  OF  EXPULSION.     [1  Thouip.  Corp.  §  866. 

cess  and  the  ^^ee-chancellor,  Bentle}'  contemptuously  said,  the  process 
was  illegal  and  unstatutable,  and  he  would  not  obey  it."  He  also  "  took 
the  process  out  of  the  hands  of  the  beadle,  saying  the  vice-chancellor 
was  not  his  judge,  et  quod  prced'  procancellarius  stulte  egit.''  For 
which  contempt  the  university,  at  its  next  court,  on  the  deposition  of  the 
beadle,  suspended  Dr.  Beutley  ab  omni  gradu  suscepto.  The  Doctor 
applied  to  the  King'  Bench  for  a  mandamics,  and  got  his  wi-it.  The 
chancellor,  masters,  and  scholars  of  the  university  discovered  that  they 
were  not  the  highest  judicatory  in  England,  but  that  they  could  be  com- 
pelled to  appear  at  Westminster  Hall,  according  to  the  ancient  formula, 
•'  before  the  King  himself."  They  also  discovered  that,  when  they  got 
there,  although  the  King  himself  was  not  on  the  bench.  Sir  Peter  Parker 
was  there  in  his  stead,  vnth  the  puisne  judges  at  his  elbows.  "  The 
university,"  said  the  Chief  Justice,  "  ought  not  to  think  it  any  condem- 
nation of  their  honour  that  their  proceedings  are  examinable  in  a  superior 
court.  I  am  sure  that  this  court,  which  is  superior  to  the  university, 
thinks  it  none.  For  my  own  part,  I  can  say,  it  is  a  consideration  of 
great  comfort  to  me,  that  if  I  do  err,  my  judgment  is  not  conclusive  to 
the  party,  but  my  mistake  will  be  rectified,  and  so  injustice  not  be 
done."  The  learned  Chief  Justice  then  proceeded  to  belabor  Dr. 
Bentley  as  follows:  "As  to  the  proceedings  against  Dr.  Beutley,  it 
must  be  agreed  that  the  vice-chancellor  had  conusance  of  the  cause,  and 
so  the  suit  was  well  instituted  against  him.  I  must  likewise  take  the 
process  to  compel  an  appearance  to  be  regular,  being  averred  to  be  ac- 
cording to  the  course  of  that  court.  As  to  Dr.  Bentley' s  behavior  upon 
being  served  with  the  process,  I  must  say  it  was  very  indecent,  and  I 
can  tell  him,  if  he  had  said  as  much  of  our  process,  we  would  have  laid 
him  by  the  heels  for  it.  He  is  not  to  arraign  the  justice  of  the  pro- 
ceedings out  of  court  before  an  officer,  who  has  no  power  to  examine 
it.  "NVTien  he  said  the  \ace-chancellor  '  stulte  egit,'  it  was  what  he  might 
have  been  bound  over  to  his  good  behavior  for ;  but  I  believe  it  is  also 
estabUshed  that  such  a  behavior  will  not  warrant  a  suspension  or  depri- 
vation. He  said  he  would  not  obey,  but  non  constat,  but  he  thought 
better  of  it  afterwards  and  did  appear.  I  cannot  think  the  evidence  of  this 
contempt  was  sufficient.  It  does  not  appear  to  have  been  on  oath,  as  it 
should  have  been."  Powys,  J.,  concurred  in  omnibus.  Eyre,  J.,  was 
of  the  same  opinion.  He  said:  "  But  surely  for  a  contempt  they  can 
not  deprive.  We  punish  our  officers,  but  we  do  not  turn  them  out." 
Fortescue,  J.,  also  said:  "  A  deprivation  can  never  be  the  proper  pun- 
ishment for  a  contempt,  because  it  cannot  hold  in  the  case  of  under- 
graduates." ^ 

1  Rex  V.  University  of  Cambridge,  1  Str.  557;  2Ld.  Raym.  1334;  Fort.  202. 

697 


1  Thorn  p.  Corp.  §  868.]     expulsion  of  mkmbers. 

§  867.  Criticising  the  Management.  —  The  rules  of  a  proprie- 
tary clnh  provided  "  that  if  in  the  opinion  of  the  committee,  or  twenty 
members,  who  shall  certify  the  same  in  writing,  the  conduct  of  a  mem- 
ber is  injurious  to  the  character  and  interests  of  t'le  club,  the  commit- 
tee by  a  majority  of  two-thirds  present  at  a  meeting  summoned  for  that 
purpose,  may  recommend  such  member  to  retire,  or  expel  him."  The 
plaintiff  wrote  a  long  letter  to  the  committee,  calling  their  attention  to 
certain  matters  which,  in  his  opinion,  required  explanation,  and  sug- 
gested certain  alterations  in  the  administration  of  the  club,  and  gave 
notice  that,  unless  one  of  the  rules  was  at  once  altered  by  the  commit- 
tee, he  should  himself  move  for  its  alteration  at  the  next  annual  general 
meeting  of  the  club.  The  committee  simply  acknowledged  the  receipt 
of  this  letter,  and  informed  the  plaintiff  that  his  proposals  could  be 
made  and  attended  to  at  the  next  annual  general  meeting.  Wliereupon 
the  plaintiff  wrote  in  a  tone  which  the  committee  considered  very  dis- 
courteous, and  accordingly  requested  him  to  withdraw  the  objectionable 
letter.  On  his  refusing  to  do  so,  the  committee,  in  the  exercise  of  the 
powers  given  them  by  the  rules  of  the  club,  called  a  committee  meeting 
to  consider  the  plaintiff's  conduct,  and  expelled  him  from  the  club,  on 
the  grounds  that  such  conduct  on  the  part  of  a  member,  if  unchecked, 
would  weaken  and  paralyze  their  authority  to  maintain  the  discipline 
of  the  club.  The  plaintiff  filed  his  bill  to  restrain  the  committee  from 
expelling  him,  charging  that  the  power  vested  in  the  committee  had 
been  exercised  capriciously  and  maliciously.  It  was  held  by  Vice-Chan- 
cellor  Bacon  that  the  court  was  not  justified  in  interfering  between  mem- 
bers and  the  committee,  because  the  power  given  by  the  rules  had  been 
exercised  hona  fide,  for  the  welfare  of  the  club,  in  the  opinion  of  the 
committee,  and  there  had  been  no  fraud  or  had  faith  in  their  ex- 
ercise. ^ 

§  868.  Offenses  against  Other  Members. —  From  what  has 
already  been  seen,^  it  will  be  inferred  that  offenses  against  other 
members  of  the  society  will  afford  no  ground  of  suspension,  un- 
less they  are  of  such  a  character  as  to  amount  to  violation  of  the 
duty  of  the  member  toward  the  society  ;  and  this  must,  of  course, 
depend  upon  the  nature  of  the  society,  the  nature  of  the  offense, 
and  the  time  when  and  place  where  it  is  committed.  In  a  mutual 
benefit  society,  the  fact  of  one  member  making  charges  against 
another,    that    he    had    "  assisted    as    president    of   the  soci- 

1  Littleton   v.  Blackburn,  33  L.  T.  *  Ante,  §  862. 

(N.  8.)    041;  s.  c.  45  L.  J.  (N.  S.)  219. 

698 


GROUNDS  OF  EXPULSION.     [1  Thomp.  Coi'p.  §  868. 

ety  in  defrauding  the  society  of  the  sum  of  fifty  cents;" 
and  charging  him  with  "  defaming  and  injuring  the  same 
in  public  taverns,"  have  been  held  not  a  sufficient  ground 
of  expulsion.^  In  a  leading  case  in  Penus/lvania,  the  char- 
ter of  an  incorporated  benevolent  society  provided  that,  in 
order  to  observe  decorum  in  the  society  while  sitting,  there  should 
be  no  insulting  or  disrespectful  behavior  to  any  of  the  society  ; 
and  any  member  so  transgressing,  should  for  the  first  offense,  be 
fined  in  the  sum  of  one  dollar,  for  the  second,  in  double  that  sum, 
and  for  the  third,  be  expelled  the  society.  A  by-law  of  the 
same  society  provided  that  *■'■  vilifying  any  of  its  members" 
should  be  a  crime  against  the  society,  for  which  the  member 
guilty  of  it  should  be  punished  by  removal  from  office,  fine,  or 
expulsion,  etc.  It  was  held  that  the  by-law  was  not  invalid,  be- 
cause of  the  existence  of  the  charter  provision,  though  it  was  in- 
herently invalid.  "  My  opinion,"  saidTilghman,C.  J.,  "  will  be 
founded  on  the  great  and  single  point  on  which  the  cause  turns. 
Is  this  by-law  necessary  for  the  good  government  and  support  of 
the  affairs  of  the  corporation?  I  cannot  think  that  it  is.  I  have 
considered  the  case  with  a  mind  strongly  disposed  to  give  a  liberal 
construction  to  the  power  of  making  by-laws.  It  is  my  wish  to 
give  all  necessary  powers  for  carrying  into  effect  the  benevolent 
purposes  of  this  society,  and  many  others  which  have  lately 
been  incorporated  on  similar  principles.  But  these  powers  must 
not  be  constrained,  or  the  societies,  instead  of  being  protected, 
will  be  diitsolved.  The  right  of  membership  is  valuable,  and  not  to 
be  taken  away  without  an  authority  fairly  derived  either  from  the 
charter,  or  the  nature  of  corporate  bodies.  Every  man  who  be- 
comes a  member  looks  to  the  charter ;  in  that  he  puts  his  faith,  and 
not  in  the  uncertain  willof  a  majority  of  the  members.  The  offense 
of  vilifying  a  member,  if  in  private  quarrel,  is  totally  uncon- 
nected with  the  affairs  of  the  society,  and  therefore' its  punish- 
ment cannot  ])e  necessary  for  the  good  government  of  the  corpora- 
tion. So  far  from  it,  that  it  appears  to  me  that  taking  cognizance 
of  such  offenses,  will  have  the  pernicious  edect  of  introducing  pri- 
vate feuds  into  the  bosom  of  the  society  and  interrupting  the 
transaction  of  business.     I  consider  it  as   a  point  of  very  great 


'  Cora.  V.  German  Society,  15  Pa.  St.  251. 

GOO 


1  Thornp.  Corp.  §  868.]     expulsion  of  members. 

importance,  in  which  thousands  of  persons  are,  or  very  soon  will 
be,  interested;  for  the  members  of  these  corporations  are  increas- 
ing rapidly  and  daily.  On  mature  reflection,  it  appears  to  me 
that,  without  an  express  power  in  the  charter,  no  man  can  be 
disfranchised,  unless  he  has  been  guilty  of  some  offense,  which 
either  affects  the  interests  or  good  government  of  the  corpo- 
ration,or  is  indictableby  thelawof  the  land."  It  was  accordingly 
held  that  the  by-law  was  voidy  and  a  peremptory  mandamus  was 
issued  to  restore  the  member  to  his  franchise.^  In  another  case 
in  the  same  State,  it  appeared  that  two  members  of  an  incorpo- 
rated club  were  sitting;  toixether  in  conversation  in  the  bar-room 
of  the  club-house ;  that  a  third  member  came  in  and  used  insulting 
language,  understood  by  one  of  the  two  to  be  applied  to  himself, 
who  thereupon  strncJc  the  offender; — yet  the  act  was  held  not 
such  as  would  justify  his  expulsion  from  the  club  by  the  mem- 
bers thereof.^  Mr.  Justice  Woodward  made  his  decision  in  this 
case  turn  upon  the  fact  that  the  corporation  was  the  oioner  of 
•property.  He  said:  "  But  what  is  conclusive  of  this  case  is,  that 
the  corporation  possesses  propert}'^,  real  and  personal,  and  is  at 
liberty  to  accumulate  more  until  an  annual  revenue  of  $3,000, 
comes  to  be  enjoyed  ;  and  the  relator  has  purchased  and  paid  for 
the  right  to  participate  in  that  franchise.  It  is  not  a  joint-stock 
company  at  present,  for,  under  its  by-laws,  no  pecuniary  profits 
are  divisible  among  the  members ;  but  it  may  become  so,  and 
whether  it  does  or  not,  the  relator  has  a  vested  interest  in  its 
estate,  and  cannot  be  deprived  of  it  by  the  proceedings  that  were 
had  against  him.  On  this  point  the  authorities  are  clear,  and 
without  conflict.  Nothing  but  an  express  power  in  the  charter 
can  authorize  a  money  corporation  to  throw  overboard  one  of  its 
members.  I  have  shown  that  the  act  of  incorporation  contained 
no  such  power.  On  the  contrary,  it  excluded  it;  for  the  pro- 
viso reads  that  '  nothins:  herein  contained  shall  be  so  construed 
as  to  authorize  said  Philadelphia  Association  and  Reading  Room 
to  do  any  oilier  act  or  acts  in  their  corporate  capacity  than  are 
herein  expressed."^  The  decision  is  believed  to  be  unsound. 
Not  only  most  incorporated  clubs,  but  also  religious,  benevolent 

1  Com.  V.  St.  Patrick's  Benevolent  2  Evans    v.   Philadelphia   Club,  60 

Soc,  2  Binn.  (Pa.)  441,  449;  s.c.  4  Am.  Pa.  St.  107. 

Dec.  453.  8  Ibid.  118. 
700 


GROUNDS  OF  EXPULSION.     [1  Thomp.  Coi'p.  §  869. 

and  other  societies  formed  for  ideal  purposes,  generally  own  more 
or  less  property  in  which  the  rights  of  the  members  are  usufruc- 
tuary merely.  Nevertheless,  according  to  the  entire  current  of 
judicial  authority,  such  corporations  stand  upon  an -entirely  dif- 
ferent footing  from  joint-stock  corporations,  organized  for  mere 
pecuniary  gain,  in  respect  of  the  power  of  expulsion  over  their 
members.  In  the  case  of  a  club  organized  for  social  purposes, 
one  of  the  first  duties  of  the  member  toward  the  club  would  seem 
to  be  to  keep  the  peace  with  his  fellow-members.  While  the 
club  might  not  exercise  the  power  of  expulsion  over  him  for  a 
breach  of  the  peace  against  another  member,  committed,  so  to 
speak,  inpais,  yet  it  should  seem  that  it  might  clearly  do  so,  for 
a  breach  of  the  peace  against  such  a  member  committed  in  the 
club-house  itself.  It  should  further  be  ad  Jed  that  upon  an  ap- 
peal to  the  court  in  bank  the  judgment  was  affirmed  by  an  equal 
division  of  the  court. 

§  869.  Refusal  to  Submit  to  Arbitration  or  to  Comply  with 
Award.  —  As  suggested  in  the  previous  chapter,  the  judicial 
courts  have  always  been  jealous  of  the  establishment  of  private 
rules  or  enjraorements  by  which  persons  surrender  their  ri^ht  to 
appeal  for  justice  to  the  courts  of  their  country;  and,  as  here- 
after been,i  the  Supreme  Court  of  the  United  States  has  held  that 
a  statute  of  a  State  requiring  a  foreign  corporation,  as  a  condi- 
tion of  doing  business  within  the  State,  to  enter  into  an  agree- 
ment not  to  remove  suits  against  it  from  the  State  to  the  Federal 
courts,  has  been  held  bad.  Upon  similar  lines  of  reasoning, 
courts  have  refused  to  uphold  an  expulsion  of  a  member  of  a 
corporation  because  of  his  refusal  to  comply  with  a  regulation 
requiring  differences  to  be  submitted  to  arbitration,  and  also  be- 
cause of  his  refusal  to  comply  with  an  award  made  by  arbitrators 
appointed  in  conformity  with  the  regulations  of  the  corporation. 
According  to  the  discipline  of  the  Methodist  Episcopal  Church, 
by  which  a  society  of  that  church  called  the  African  Methodist 
Episcopal  Society  was  governed,  disputes  between  members  were 
to  be  settled  by  arbitration,  and  any  member,  who  should  com- 
mence an  action  at  law  against  another    member,  was  liable  to 


1  Post,  §  Ch.  195. 

701 


1  Thomp.  Corp.  §  870.]     expulsion  of  members. 

expulsion,  "  except  the  case  be  of  such  a  nature  as  required'and 
justilied  a  process  at  law."  A  member  was  tried  upon  a  charge 
of  having,  contrary  to  the  rules  and  discipline  of'tlie  society, 
entered  a  lawsuit  against  another  member,  was  found  guilty  and 
expelled.  In  a  proceeding  by  mandamus  to  compel  the  society 
to  restore  him  to  his  membership,  the  return  set  forth  that  the 
relator  had  brought  suit  against  one  Howell,  a  member  of  the  so- 
eiety,  in  violation  of  its  rules,  but  did  not  aver  that  the  case  was 
not  of  puch  a  nature  as  required  and  justified  a  process  at  law. 
It  was  held  that,  because  of  this  omission  the  case  was  not  brought 
within  the  exception  to  the  rule,  and  that  the  return  failed  to 
show  lawful  grounds  for  the  expulsion  of  the  member.  A  per- 
emptory writ  to  restore  him  to  his  membership  was  accordingly 
awarded.^  So,  the  mere  fact  ofa  non-compliance  with  an  award 
made  by  arbitrators,  appointed  in  conformity  with  the  articles  of 
association  of  a  mercantile  exchange,  has  been  held  insufficient 
ground  to  warrant  the  expulsion  of  the  member, — the  view  of 
the  court  being  that  "  if  the  defendant  [tiie  corporation]  has  the 
power  and  authority  to  act  as  an  arbitration  court  under  its 
charter,  in  relation  to  all  claims  of  one  of  its  members  against 
another,  arising  from  cotton  transactions,  its  decisions  and  awards 
are  subject  to  be  reviewed  and  examined,  so  far  as  the  legal 
rights  of  the  parties  are  concerned,  by  the  judicial  tribunals  of 
the  State,  in  the  same  manner  as  the  awards  to  other  arbitrators 
are  reviewed  and  examined.^ 

§  870.  Illustration. —  The  articles  of  association  of  a  cotton  ex- 
change, contained  the  following  provision:  "  Any  member  who  shall  be 
accused  of  willfully  violating  the  constitution  and  by-laws,  or  of 
fraudulent  breach  of  contract,  or  of  any  proceeding  inconsistent  with 
the  just  and  equitable  principles  of  trade,  or  of  other  misconduct,  may, 
on  complaint,  be  summoned  before  the  full  board  of  directors  ;  and  if 
the  charges  against  him  be,  in  the  opinion  of  the  board,  substantiated, 
be  may,  by  a  vote  of  not  less  than  two-thirds  of  the  members  of  the 
board,  be  suspended  or  exi^elled  fi'om  the  exchange."  Another  article 
provided  that  all  claims  of  one  member  against  another,  arising  from 
cotton  transactions,  should  be  subject  to  arbitration,  specified  the 
manner  in  which  the  arbitration  should  be  had,  and  estabhshed  a  board 

1  Green  v.  African  Methodist  Epis-  2  Savannah    Cotton    Exchange    v. 

copal  Soc,  1  Serg.  &  R.  (Pa.)  254.  State,  54  Ga.  668,  670. 

702 


GROUNDS  OF  EXPULSION.     [1  Thomp.  Corp.  §  871. 

of  appeals.  It  was  held  that  the  failure  of  a  member  to  comply  with 
an  award  rendered  upon  such  an  arbitration,  against  his  protest  that 
the  exchange  had  no  jurisdiction  of  the  matter  in  issue,  was  not  such 
misconduct  as  would  authorize  his  expulsion.^  The  opinion  in  this  case 
does  not  seem  to  rest  upon  any  sound  foundation.  The  articles  of 
association  appear  to  have  been  the  fundamental  law  of  the  corporation, 
its  charter.  They  constituted  the  compact  between  its  members,  into 
which  every  member  entered  when  he  became  a  member,  and  the  ex- 
pulsion appeal's  to  have  taken  place  strictly  in  accordance  with  that 
compact.     No  sound  reason  is  given  by  the  court  for  its  conclusion. 

§  871.  Appealing  to  the  Judicial  Courts. —  Where  the  char- 
ter of  a  corporation  declared  its  purpose,  among  other  things, 
to  be  "  to  adjust  controversies  between  its  members,  and  to  es- 
tablish just  and  equitable  principles  in  the  cotton  trade;"  and 
gave  it  power  to  make  all  proper  and  needful  by-laws,  not  con- 
trary to  the  constitution  and  laws  of  the  State  of  New  York  or 
of  the  United  States;"  and  "to  admit  new  members  and  expel 
any  member,  in  such  manner  as  may  be  provided  by  the  by- 
laws;" and  the  by-laws  provided  for  the  expulsion  of  members 
for  improper  conduct,  but  did  not  state  what  should  be  considered 
as  such  ;  and  there  was  m  the  charter  or  by-laws  no  express 
authority  to  determine  who  was  the  owner  of  a  right  to  a  mem- 
bership in  dispute, —  it  was  held  that,  in  the  case  of  a  dispute 
as  to  the  right  to  a  membership,  one  who  had  been  a  member 
claiming  the  right  to  retain  his  membership  against  another  party 
claiming  to  have  acquired  it,  was  not  guilty  of  improper  con- 
duct in  appealing  to  the  judicial  courts  for  an  injunction  upon 
the  corporation  to  prevent  a  sale  of  his  seat.  The  case  was  that 
the  relator  was  in  default  upon  a  contract,  and  the  by-laws  pro- 
vided that  in  such  a  case  his  membership  should  be  disposed  of 
by  sale,  and  it  was  so  disposed  of,  and  lie  sued  out  a  writ  of  in- 
junction restraining  the  sale,  and  because  of  his  thus  appealing 
to  the  judicial  courts  his  membership  was  declared  forfeited ; 
and  it  was  held  that  he  was  entitled  to  be  reinstated  by  man- 
damus.'^ 


'  Savannah    Cotton     Exchange    v.      change,  8   Hun    (N.    Y.),     216,    219. 
State,  51  Ga.  6(58.  Compare  Belton  v.  Hatch,    109  N.  Y. 

2  People  V.   New  York  Cotton  Ex-      193. 

703 


1  Thoiiip.  Corp.  §  873.]     expulsion  of  members. 

§  872.  jVejjligrence,  Misconduct  in  Oflicc,  or  any  Other  Rea- 
sonable Canse.  —  The  foregoing  decisions,  with  relation  to  social 
clubs,  are  based  upon  the  analogy  of  a  decision  rendered  in  1850  by 
Lord  Langdale,  M.  R.,  in  a  case  where  the  court  was  applied  to  to  re- 
instate certain  directors  of  a  joint-stock  pctrtiiership,  who  had  been  ex- 
pelled under  the  following  circumstances :  The  expulsion  took  place  at  a 
meeting  of  the  company  regularly  convened.  Resolutions  were  passed, 
remoWng  the  directors  in  question  for  misconduct.  The  resolutions 
were  based  upon  a  provision  of  a  deed  of  settlement  of  the  company,  to 
the  effect  that  such  a  meeting  might  remove  any  director  ' '  for  negli- 
gence, misconduct  in  office,  or  any  other  reasonable  cause."  It  was 
held,  on  a  motion  to  set  aside  the  proceedings  of  expulsion,  and  also  for 
the  election  of  new  directors  and  for  an  injunction  to  restrain  the  new 
directoi's  from  acting,  —  that  the  expression  "reasonable  cause,"  in 
the  deed  of  settlement  did  not  refer  to  such  cause  as,  in  a  court  of  jus- 
tice, would  be  held  reasonable,  but  only  to  such  a  cause  as  should  be 
deemed  reasonable  to  the  shareholders  assembled  at  a  meeting  duly  con- 
vened, and  therefore  that  the  court  had  no  jurisdiction  to  interfere. 
Nor,  where  no  case  of  direct  fi-aud  was  proved,  to  determine  whether  the 
decision  of  the  meeting  had  or  had  not  been  unduly  influenced  by  un- 
founded statements  made  by  persons  taking  an  active  part  in  the  pro- 
ceedings. As  this  may  be  deemed  in  some  sense  a  leading  case  by 
reason  of  its  being  the  foundation  of  the  law  relating  to  the  expulsion 
of  the  members  of  social  clubs,  it  will  be  profitable  to  set  out  the  rea- 
soning of  Lord  Langdale  in  his  opinion.  He  said:  "  Now  the  27th 
clause  of  the  deed  provides  '  that  an  extraordinary  general  meeting 
specially  called  for  the  purpose  may  remove  from  his  office  any  director 
or  auditor  for  negligence,  misconduct  in  office  or  any  other  reasonable 
cause.'  The  argument  for  the  plaintiffs  rested  on  the  allegation  that 
the  general  cause  of  removal  referred  to  in  the  clause,  being  expressed 
to  be  reasonable,  prevents  the  power  referred  to  from  being  a  power  to 
remove  at  pleasure  arbitrarily  or  capriciously,  and  made  it  requisite 
that  the  proceedings  for  exercising  the  power  should  be  in  its  nature 
judicial,  and  that  the  reasonable  cause  should  be  such  as  a  coui't  of  jus- 
tice would  consider  good  and  sufficient.  If  this  argument  could  be  sus- 
tained, all  proceedings  at  such  meeting  would  be  subject  to  the  review 
of  the  courts  of  justice,  which  would  have  to  inquire  whether  the  cause 
of  removal  which  was  charged  was  in  their  view  reasonable,  whether  the 
charges  were  bona  fide  brought  forward,  whether  they  were  substan- 
tiated by  such  evidence  as  the  nature  of  the  case  required,  and  whether 
the  conclusion  was  come  to  upon  a  due  consideration  of  the  charge  and 
evidence.  But  the  deed  is  silent  as  to  these  matters,  and  the  question 
is  whether  any  such  power  of  control  in  the  courts  of  justice  is  to  be 
704 


GROUNDS  OF  EXPULSION.     [1  Thomp.  Corp.  §  872. 

inferred   from   the   words   '  reasonable   cause  '  contained  in   the   27th 
clause ;    whether  the  expression  '  reasonable  cause '  contained  in  such 
a  deed  of   a  trading  partnership  can  be  held  to  be  such  a  cause,  as 
upon  investigation  in  a  court  of  justice  must  be  held  to  be  boyia  fide 
founded  on  sufficient  evidence   and  just ;    or  whether  it  ought  not  to 
be  held  to  mean  such  cause  as,  in  the  opinion  of  the  shareholders  duly 
assembled,  shall  be  deemed  reasonable.     We  think  the  latter  is  the  true 
construction  and   effect   of  the  deed.     In  a  moral  point  of  view,  no 
doubt,  every  charge  of  a  cause  of  removal  ought  to  be  made  bona  fide, 
substantiated  by  sufficient  evidence,  and  determined  on  a  due  consider- 
ation of  the  charge  and  evidence ;  and  those  who  act  on  other  principles 
may  be  guilty  of  a  moral  offense ;    they  may  be  very  unjust,  and  those 
who  (being  present  at  the  meeting)  are  innocently  misled  by  the  state- 
ments made  to  them,  have  ho  doubt  a  just  right  to  complain  that  they 
have  been  led  to  conciu-  in  an  unjust  act.     But  the  question  is,  whether 
by  this  deed  the  shareholders  duly  assembled  at  a  general  meeting  might 
not,  or  had   not  a  right  to,  remove   a  director  for   a  cause  which  they 
thought  reasonable,  without  its  being  incumbent  upon  them  to  prove 
to   this  or  any  other   court  of  justice   that  the   charge  was  true  and 
the  decision  just,  and  that  the  case  was  substantiated  after  a  due  con- 
sideration of  the  evidence  and  charge.     We  cannot  take  upon  ourselves 
to  say  that  in  the  case  of  a  trading  partnership  like  this,  this  court  has, 
upon  such  a  clause  in  the  deed  of  partnership,  jurisdiction  or  authority 
to  determine  whether,  by  the  unfounded  speech  of  any  supporter  of  the 
charge,  the  shareholders  present  may  not  have  been  misled  or  unduly  in- 
fluenced.    All  such  meetings  are  liable  to  be  misled  by  false  or  eiToneous 
statements,  and  the  amount  of   error   or  injustice  thereby  occasioned 
can  rarely,  if  ever,  be  appreciated.     This  court  might  inquire  whether  the 
meeting  was  regularly  held,  and  in  cases  of  fraud  clearly  proved,  might 
perhaps  interfere  with  the  acts  done  ;  but  supposing  the  meeting  to  be  reg- 
ularly convened  and  held,  the  shareholders  assembled  at  such  meeting  may 
exercise  the  powers  given  them  by  the  deed.     The  effect  of  speeches  and 
representations  cannot  be  estimated,  and  for  those  who  think  themselves 
aggrieved  by  such  representations,  or  think  the  conclusion  unreasonable, 
it  would  seem  that  the  only  remedy  is  present  defence  by  stating  the 
truth  and  demanding  time  for  investigation  and  proof,  or  the  calling  of 
another  meeting  at  which  the  whole  matter  may  be  reconsidered.     The 
plaintiffs  objecting  to  this  meeting  and  considering  it  illegal,  protested 
against  it,  but  abstained  from  attending,  and  therefore  made  no  answer 
or  defense  to  and  required  no  proof  of  the  charges  made  against  them. 
The  adoption  of  this  course  was  unfortunate,  but  docs  not  afford  any 
grounds  for  the  interference  of   this  court.     We  are  far  from  thinking 
that  the  chai-ges  made  l)y  Mr.  Snell  against  tlie  plaintiffs  and  Mr.  John- 

•ir,  70.5 


1  Tliomp.  Corp.  §  873.]     expulsion  of  members. 

son  were  well  founded.  He  appears  to  have  made  a  very  exaggerated, 
and  in  some  respects  an  unfounded  statement ;  and  in  the  present  state 
of  the  evidence,  if  the  question  were,  whether  the  charges  were  well 
founded,  we  might  think  it  our  duty  to  say  that  they  are  not.  But  as 
the  real  question  is  whether  the  shareholders  at  the  meeting  had  not  a 
right  to  remove  directors  for  such  causes  as  to  them  seemed  reasonable, 
and  as  we  think  that  on  the  true  construction  of  the  deed,  they  had  such 
right,  we  are  of  opinion  that  the  order  granting  an  injunction  ought  to 
be  discharged."  ^ 

§  873.  Expulsion  of  Members  of  Incorporated  Medical 
Societies.  —  Following  the  decision  of  Lord  Mansfield  in  Rex  v. 
Mayor  of  Liverpool, ^  it  has  been  held  by  the  New  York  Court 
of  Appeals,  that  the  only  common  law  grounds  of  expulsion 
on  which  a  medical  society,  incorporated  under  the  statutes  of 
that  State,  can  expel  a  member,  are  these:  1.  A  violation  of 
duty  to  the  society,  as  a  member  of  the  corporation.  2.  Offenses 
as  a  citizen  against  the  laws  of  the  country.  3.  A  breach  of 
duty  in  respect  alike  to  the  corporation  and  the  laws.  And  that 
the  only  statutory  ground  of  expulsion  was  the  presentment  of 
a  formal  charge  by  a  two-thirds  vote  of  the  society,  and  a  con- 
viction by  the  county  court  "  of  gross  ignorance  or  misconduct 
in  his  profession,  or  of  immoral  conduct  or  habits."  It  was 
farther  held  that  the  code  of  medical  ethics,  adopted  by  the  by- 
laws of  a  county  society,  is  obligatory  on  the  membei-s  alone, 
and  its  non-observance,  previous  to  membership,  furnishes  no 
legal  cause  for  expulsion.^  A  member  of  the  Massachusetts 
Medical  Society  was  tried  and  unanimously  expelled  upon  a 
charge  of  "  gross  immorality,^'  the  grounds  of  the  case  being 
that  for  IX  large  sum  of  money  he  had  relinquished  his  practice  to 
another  member  of  the  society,  had  gone  out  of  the  State  for  a 
year  or  more,  and  then  had  returned  and  brohen  his  contract  with 
such  member  by  resuming  his  practice.  This  fact  was  substan- 
tially admitted,  and  the  accused  had  full  opportunity  of  being 
heard  in  his  defense.  The  society,  under  its  by-laws,  the 
validity  of  which  were  not  challenged,  had  power  to  expel  a 
member  for  (among  other  things)  "  any  gross  and  notorious  im- 

1  Inderwick  v.   Snell,  2  Mac.  &  G.  ^  People  v.  Medical  Soc,  32  N.  Y. 

21<;,  221.  187,  li)4. 

-'  2  Burr.  732. 
706 


GROUNDS  OF  EXPULSION.     [1  Tliomp.  Corp.  §  873. 

morality."  The  court  refused  to  restore  him  by  mandamus^ 
proceeding  upon  the  view  that  such  a  case  had  not  been  shown 
as  to  warrant  the  exercise  of  that  extraordinary  power.  Mr. 
Chief  Justice  Shaw  said:  "The  medical  society,  both  by  its 
charter  and  by-laws,  had  jurisdiction  to  inquire  into  and  pass 
judgment  upon  the  conduct  of  its  members,  and,  in  a  proper 
case,  to  expel  a  member;  and,  'gross  immorality'  in  a  pro- 
fessional transaction,  having  a  tendency  to  bring  the  profession 
into  dishonor  before  the  community,  if  distinctly  charged  and 
proved,  may  be  of  such  character  as  to  justify  the  exercise  of 
their  power.  The  proceedings  appear  to  have  been  conducted 
with  deliberation,  and  several  opportunities  were  given  to  the 
petitioner  to  be  heard  before  the  committee  and  the  counsel- 
ors, and  the  vote  of  expulsion  was  unanimous.  Without  saying 
that  the  cnurt  would  in  no  case  afford  its  authority  by  writ  of 
mandamus  to  restore  a  member  wrongfully  expelled  from  such 
society,  we  cannot  perceive,  upon  examination  of  the  i)roceed- 
ings,  any  evidence  of  haste  or  prejudice  against  the  petitioner, 
or  that  the  society  came  to  a  wrong  decision,  or  acted  in  vio- 
hition  of  the  petitioner's  rights."  ^  It  seems  that  the  doctrine 
of  tivice-in-jeopardy  does  not  apply  to  a  proceeding  to  expel 
a  member  from  a  medical  society.  Accordingly,  it  has  been 
held  that  such  a  society  is  not  precluded  from  prei'errino^ 
charges  against  one  of  its  members  by  the  fact  of  having 
once  refused  to  prefer  the  same  charges. ^  The  mere  fact 
that  the  member  has  been  tried  upon  an  indictment  for  the 
charge  in  a  court  of  criminal  jurisdiction  and  acquitted,  does 
not  deprive  the  medical  society  of  jurisdiction  to  try  him  upon 
a  chariie  of  having  committed  the  same  offense,  in  so  far  as 
it  affects  his  right  of  membership  in  the  society,  and  affords 
no  bar  to  an  inquiry  under  the  statute  for  the  purpose  (»f 
depriving  him  of  his  right  to  practice  physic  and  surgery.^  A 
statute  whirh  undertakes  I o  reguUite,  by  some  general  provision, 
the  practice  of  physic  and  surgery  within  the  State,  and  which, 
with  a  view  to  the  moral  character  as  well  as  the  learning  and 
skill  of  the  members,  gives  to  county  medical  societies  the  right 

1  BaiTow  V.    Massfichusetts    Med,  ^  -Re  Smith,    10  Wend.    (N.  Y)   449. 

«oc.,  12  Cusli.   (Mass.)  402,  409.  3  jftj^^. 

707 


1  Thomp.  Corp.  §  873.]     expulsion  of  members. 

to  try  any  of  their  members  against  whom  specific  charges  of 
gross  ignorance  or  professional  misconduct  or  of  immoral  con- 
duct or  liabits  may  be  brought,  —  has  been  hold  not  unconniilu- 
tional,  as  being  prohibited  by  that  clause  of  the  bill  of  rights  of 
the  constitution  of  the  State  which  declares  that  no  person  shall 
be  held  to  answer  for  a  capital  or  otherwise  infamous  crime, 
with  certain  exceptions,  unless  on  presentment  or  indictment  by 
a  grand  jury.  Nor  does  it  conflict  with  those  provisions  of  the 
State  and  Federal  constitution  which  secure  to  the  citizen  the 
right  of  trial  by  jury;  nor  to  a  provision  of  the  State  constitu- 
tion prohibiting  the  establishment  of  any  now  court,  except  such 
as  shall  proceed  according  to  the  course  of  the  common  law.^  The 
court  reasoned  thus:  *'  When  the  constitution  speaks  of  a  person 
not  being  held  to  answer  for  a  capital  or  otherwise  infamous  crime, 
unless  on  presentment  or  indictment,  etc.,  it  means,  to  answer  in 
a  course  of  criminal  proceedings  ;  to  answer  criminaliter ^  with 
a  view  to  punishment  under  the  criminal  laws,  and  has  no  refer- 
ence whatever  to  those  collateral  or  incidental  proceedings  Avhich 
are  disciplinary  in  their  character  or  have  exclusive  regard  to 
some  special  character  or  relation  which  belongs  to  the  individual. 
The  provision  in  the  constitution  of  the  United  States  in  relation 
to  the  trial  by  jury,  applies  only  to  the  Federal  courts;  and  our 
State  constitution  secures  the  rio-ht  in  all  cases  in  which  it  has 
heretofore  been  used.  Now,  it  never  was  in  use,  before  or  since 
the  adoption  of  the  constitution,  in  cases  like  this.  It  applies  only 
to  cases  of  trials  of  issues  of  fact  in  civil  and  criminal  proceed- 
ings in  courts  of  justice.  The  proceedings  under  this  statute  are 
not  a  trial  as  for  an  offense  with  a  view  to  punishment,  but  a 
mere  summary  inquiry  to  ascertain  facts  for  a  collateral  pur- 
pose. Nor  is  this  a  cou7't  proceeding  differently  from  the  course 
of  the  common  law.  The  provision  of  our  constitution  which 
forbids  the  creation  of  such  courts,  refers,  as  was  correctly 
urged  in  argument,  to  courts  exercising  the  usual  jurisdiction  of 
courts  of  law,  but  proceeding  by  modes  unknown  to  the  common 
law;  but  it  does  not  prohibit,  and  never  has  been  considered  as 
prohibiting  the  organization  of  various  tribunals,  as  commis- 
sioners, etc.,  for  other  purposes  than  the  administration  of  civil 

1  Ibid,  449,  456. 

708 


GROUNDS  OF  EXPULSION.     [1  Thomp.  Corp.  §  875. 

or  criminal  justice.  The  power  conferred  by  this  statute  is 
similar  in  its  character  and  consequences  to  that  which  is  pos- 
sessed by  the  courts  of  record  of  this  State  over  counsellors, 
solicitors  and  attorneys."  ^ 

§  874.  3Ieniber  of  Trades  Union  Workinj?  for  Parties 
against  Wboiu  a  Strike  had  been  Ordered.  —  Where  an  unin- 
corporated trades  union  consisting  of  journeymen  tailors  had  a 
constitution  which  provided  for  no  othe'r  ground  of  expulsion 
than  that  "  if  any  member  defrauds  this  union,  he  shall  be  dealt 
with  as  the  central  body  may  decide,"  —  it  was  held  that  a  mem- 
ber of  an  association  having  a  benefit  fund  could  not  bo  lawfully 
exioelled  when  he  was  guilty  of  no  other  offense  than  that  of 
working  for  parties  against  whom  a  strike  had  been  ordered; 
such  an  offense  under  the  laws  being  punishable  by  a  fine  only; 
that  an  expulsion  for  such  a  cause  was  not  in  good  faith,  was 
not  fair,  and  was  contrary  to  natural  justice ;  and  that  the  charge 
that  "  conspiracy  to  injure  and  destroy  the  union  "  was  in  sub- 
stance but  a  pretext  to  punish  him  for  an  offense  subjecting  him 
to  a  fine  only,  iu  a  manner  Avholly  different  from  the  imposition 
of  the  penalty  provided  therefor.  The  trial  and  conviction  of 
the  member  was  described  as  "  a  travesty  upon  justice,  and  lack- 
ing in  the  essential  elements  of  fairness,  good  faith  and  candor, 
which  should  chiiracterize  the  actions  of  men  in  passing  upon  the 
rights  of  their  fellowraen."  ^ 

§  875.  Enlisting-  in  the  Volunteer  Army  in  Time  of  War.  — 

The  by-laws  of  an  incorporated  beneficial  association  provided 
that  "no  soldier  of  a  standing  army,  seaman,  or  mariner  shall 
be  capable  of  admission;  and  any  member  who  shall  voluntarily 
enlist  as  a  soldier,  or  enter  on  board  of  any  vessel  as  a  seaman 
or  mariner  shall  thenceforth  lose  his  membership."  A  member 
joined  a  volunteer  corps,  raised  in  another  State,  who  tendered 
their  services  to  the  United  States  under  the  act  of  184G,  and 
were  accepted  and  mustered  into  the  service.  The  relator  con- 
tinued in  such  service  in  the  war  with  Mexico,  until  the  expiration 

1  Ihid.,  457.  Mutual  Protective  Uuion,  8  N.  Y,  Supp. 

2  Otto  V.  Tailors'  &c.  Union,  75  Cal.      702. 
308,315,316.     Compare  Merscheim  u. 

709 


1  Thoinp.  Corp.  §  876.]     expulsion  of  members. 

of  his  term.  It  was  held  that  this  act  did  not  autliorize  his  ex- 
pulsion from  the  association,  and  he  was  restored  by  mandamus. 
As  he  joined  a  volunteer  corps  and  as  the  prohibition  was  against 
becoming  a  soldier  of  "  a  standing  army,"  the  act  which  lie  had 
done  was  not  strictly  within  the  prohibition.  The  court  con- 
ceded to  such  a  society  the  power  of  limiting  its  benefits,  so  as 
to  exclude  members  who  should  become  sick  or  disabled  in  con- 
sequence of  the  perils  of  war,  leaving  such  to  be  provided  for 
by  the  government.  The  court  also  suggested  that  it  might 
have  been  the  duty  of  the  court  in  the  first  instance,  to  withhold 
its  certificate  to  a  society  having  such  a  constitution,  on  the 
ground  that  the  provision  deterred  its  members  from  serving 
their  country  in  time  of  peril. ^ 

§  876.  Trial  Under  an  Act  of  the  Legislature  Passed  Sub- 
sequently to  the  Offense.  —  It  has  been  held  that  where  rights 
are  conferred  by  an  act  of  the  legislature  subject  to  determina- 
tion in  a  certain  manner,  and  the  power  to  modify,  alter  or  re- 
peal such  act  is  reserved,  the  legislature  may  prescribe  a  new 
and  different  mode  in  which  the  rights  may  be  put  an  end  to; 
and  that  under  such  modification  of  the  law  a  forfeiture  of  rights 
may  be  declared  although  the  acts  which  are  the  cause  of  the 
forfeiture,  happened  previous  to  such  modification.  It  was  so 
held  where  the  subject  of  the  inquiry  was  the  validity  of  the  ex- 
pulsion by  a  medical  society  of  one  of  its  members  under  an  act 
of  the  legislature  changing  the  mode  of  procedure,  which  act 
was  passed  subsequently  to  the  commission  of  the  offense 
charged.'^ 

1  Franklin  Ben.  Asso.  v.   Com.,  10  «  Rg  Smith,  10  Wend.  (N.   Y.)  449. 

Pa.  St.  357. 

710 


CORPORATE   PROCEEDINGS    TO    EXPEL.       [1  Thoinp.  Coip.    §   881. 


Article  II.     Corporate  Peoceedixgs  to  Expel. 


Section 

881.  Must  proceed  upon   notice,     in- 

quiry and  hearing. 

882.  What  this  principle  includes. 

883.  Right  to  notice  exists  although 

the  evidence   against    the  ac- 
cused may  be  very  cogent. 

884.  Instances  showing  the   right  to 

.  notice. 

885.  Analogous  principle  that  a  public 

officer  is  not  removable  with- 
out notice. 

886.  Deny  ng  the   privilege  of   cross- 

examiuatiou. 

887.  Right   to   an   opportunity   to   be 

heard    on     an      ecclesia-tical 
appeal. 

888.  Expulsion  after  an  acquittal  and 

without  a  second  trial. 

889.  Expulsion  after  first  trial  which 

is  a  nullity. 


Section 

890.  When    second  notice  not   neces- 

sary. 

891.  Incidents  of  the   notice   and   its 

service. 

892.  Effect  of  change  of  residence  in 

connection  with  by  law  re- 
quiring members  to  notify 
their  residence,  to  the  so- 
ciety. 

Of  the  corporate  tribunal  and  its 
constitution. 

Illustrations:      expulsion     by    a 
two  thirds  vote. 

Jurisdiction    of    standing    com- 
mittee of  brokers'  board. 

Illustration. 

Of  the  trial  and  the  evidence. 

Necessity  of  a  sentence  of  expul- 
sion. 
899.  Right  of  appeal. 


893. 


894. 


896. 
897. 
898. 


§  881.  Must  Proceed  upon  Ifotice,  Inquiry  and  Hearing.  — 

It  is  absolutely  essential  to  the  validity  of  the  amotion  of  an  of- 
ficer of  a  corporation,^  or  of  the  suspension  or  expulsion  of  a 
member  of  an  incorporated  or  unincorporated  society,  that  the 
accused  should  be  notified  of  the  charges  against  him,  and  of 
the  time  and  place  set  for  their  hearing;  that  the  accusing  body 
should  piocecd  upon  inquiry,  and  consequently  upon  evidence; 
and  that  the  accused  should  have  a  fair  opportunity  of  being 
heard  in  his  defense. ^     This  rule,  it  is  said,  is  not  confined  to 


1  Ante,  §  820. 

2  Bagg's  Case,  11  Co.  Rep.  93,  99; 
Fisher  «.  Keanc,  11  Ch.  Div.  35o;  llop- 
kinson  v.  Marqui.s  of  Exeter,  L.  li.  5 
Eq.  C3;  Labouchere  v.  Earl  of  Wharn- 
Cliffe,  13  Ch.  Dlv.  340;  Wood  v. 
Woud,  E.  U.  9.  Exch.  190;  Iiiness  u. 
Wylie,  1  Car.  &  K.  257;  Willis  v. 
Childe,  13  Beav.  117;  Murdock  v. 
rhillip.s  Academy,  12  Pick.  (Mass.) 
244;  Hutchinson  v.  Lawrence,  G7 
JIow.  Pr.  (N.  Y.)  38;  R-  Ilammor.smith, 


4  Exch.  87,  97;  Capell  v.  Child,  2 
Cromp.  &  J.  558,  579;  People  v.  Fire 
Department,  31  Mich.  458,465;  Roehler 
V.  Mechanics'  Aid  S(jciety,  22  Mich.  86  ; 
Cora.  V.  German  Society,  15  Pa.  St.  251 ; 
Reg.  V.  Saddler's  Company,  10  H.  L. 
Cas.  404  ;  Com.  v.  Pennsylvania  Asso.  2 
Serg.  &  R.  era.)  14 1 ;  Wiiite  v.  Brownell, 
4  Abb.  Pr.  (n.  s.)  (N.  Y.)  152,  199;  s. 
c.  2  Daly  (N.  Y.),  3-'9;  Loubat  v.  Leroy, 
40  Hun  (N.  Y.),  646,  552;  Fritz  v.  Muck, 
62  How.  Pr.  (N.  Y.)  G9;  Rex  v.  Univer- 
711 


I  Thomp.  Corp.  §  881.]     expulsion  of  members. 

the  conduct  of  strictly  legal  tribunals,  but  is  applicable  to  every 
tribunal  or  body  of  persons  invested  with  authority  to  adjudicate 
upon  matters  involving  civil  consequences  to  individuals. ^  So 
far  as  the  writer  knows,  there  are  but  two  exceptions  to  this 
rule:  1.  In  cases  of  amotion  from  corporations,  where  the 
member  becomes  a  non-resident,  so  that  it  is  impracticable  to  give 
him  notice. 2  2.  In  cases  of  certain  mutual  benefit  societies, 
who've  rules  provide  that  the  non-payment  of  an  assessment  after 
notice  shall,  ipso  facto^  work  a  forfeiture  of  membership,  or  of 
the  member's  benefit  certificate.  These  rules  are  upheld,  on  the 
principle  that  the  right  to  notice  and  a  hearing  is  not  a  right  of 
so  high  a  nature  that  it  may  not  be  waived  by  a  person  who  is 
sui  juris,  and  that  a  member  of  such  a  society  may  therefore 
part  with  it  by  contract,  in  agreeing  to  become  a  member  of  the 
society,  subject  to  its  rules  and  regulations,  among  which  is  the 
regulation  in  question.^  But  where  there  is  no  rule  providing  for 
an  ipso  facto  forfeiture,  the  general  principle  obtains  that  the 
member's  right  of  membership  is  not  forfeited,  unless  an  adjudi- 
cation of  forfeiture  has  been  made  by  the  society  or  its  prescribed 
judicatory,  in  a  proceeding  which  has  taken  place  upon  inquiry, 

sity  of  Cambridge  (Dr.  Bentley's  Case),  Seneca  has  been  quoted  in  several  judi- 

1  Str.  557;  s.  c.  2  Lil.  Raym.  1334;  Fort,  cial  opinions  as  an  expression  of  this 

202;  Ex  parte  Rarashay,  18  Ad.  &  El.  rule:      ^^  Qui     statuit      aliquid    parte 

(n.  s.)  173,  189;  Rex  u.  Town  of  Liver-  inaudita    altera,    cequtim    licet     stat- 

pool,  2  Burr.  723,  731 ;  Wachtel  v.  Noah  uerit,   hand    cequus  fuit."     Sen.  Med. 

Widows'  &c.  Society,  84  N.  Y.  28;  s.  199,   200;  Bang's  Case,  II    Co.   Rep. 

c.  38  Am.   Rep.   478;  Southern  Plank  93,    99;     Wood    v.   Woad,    L.    R.    9 

Road  Company  v.  Hixon,  5   Ind.  165;  Exch.  190,  196,  per  Kelley,  C.  B. ;  Re 

People  V.    St.  Franciscus   Benevolent  Hammersmith,  4  Exch.   87,  97;    Reg. 

Society,  24  How.  Pr.  (N.  Y.)  216;  De-  v.  Archbishop  of   Canterbury,  1  El.  & 

lacy  V.  Neuse  River  Nav.  Co.,  1  Hawks  El.  545,  569,  per  Ld.  Campbell,  C.  J. 
(N.  C),  274;  Bartlett  v.  Medical   So-  i  Wood  v.  Woad,  L.  R.  9  Exch.  190, 

ciety,  32  N.   Y.  187;  Washington  Be-  196,  per  Kelley,  C.  B. 
nevolent  Society  v.  Bacher,  20  Pa.  St.  ^  ^^te,  §821. 

425;  State  v.  Milwaukee   Chamber  of  ^  For  a  striking  illustration  of  this 

Commerce,    47  Wis.    670;  People    v.  see  Blisset  v.  Daniel,    10  Hare,   493, 

Young  Men's  Society,  65  Barb.  (N.  Y.)  where    a    member    of    a    numerous 

357;    Reg.  v.  Archbishop  of  Canter-  partnership     was     expelled    without 

bury,  1  El.  &  El.   545,   559 ;   Beaurain  a  formal  meeting,  and  without  having 

V.  Scott,  3  Camp.  388.     Medical  &  Sur-  an  opportunity  of  making  his  defense, 

gical  Society  v.  Weatherly,  75  Ala.  248;  there  being  no  fraud  or  want  of  good 

Lambert  v.  Addison,  46  L.  T.  (x.  s.)  faith. 
20,    24.    The    following    language   of 
712 


CORPORATE  PROCEEDINGS  TO  EXPEL.     [1  Thomp.  Corp.  §  882. 

in  accordance  with  the  provisions  of  its  statutes.^  This  right  to 
be  heard  is  not  at  all  affected  by  the  strength  or  cogency  of  the 
evidence  against  the  accused.^  Unless  the  accused  has  voluntarily 
parted  with  it,  there  is  no  discretion  to  deny  it,  either  in  the  cor- 
porate judicatory,  or  in  the  judicial  courts,  in  a  proceeding  for 
reinstatement.^  The  right  does  not  depend  upon  the  circumstance 
of  the  accused  being  able  to  present  evidence  in  his  defense ;  he  has 
a  right  to  appear  before  the  tribunal  which  tries  him  for  the 
mere  purpose  of  arguing  in  his  own  behalf.*  Where,  however, 
an  appeal  to  a  higher  judicatory  is  taken  in  writing  and  the  ap- 
peal is  answered  by  the  persons  appealed  against,  and  the  ap- 
pellant replies  in  writing  to  that  answer,  and  makes  no  request 
for  a  further  hearing,  it  will  be  presumed,  in  a  proceeding  for 
his  reinstatement,  that  the  appeal  has  been  sufficiently  heard. ^ 

§  883.  What  this  Principle  Includes.  —  What  this  principle 
includes  has  already  been  discussed  in  respect  of  the  amotion  of 
officers.^  It  may  be  doubted  whether  the  five  distinct  elements 
of  such  a  proceeding,  which  were  held  necessary  in  a  leading 
case^  are  in  strictness  required,  in  order  to  the  validity  of  a  sen- 
tence of  expulsion,  according  to  the  current  of  modern  authority. 
But  it  has  been  held  that  the  return  to  an  alternate  mandamus 
sued  out  to  restore  a  member  who  has  been  expelled  from  a 
corporation,  must  show  that  the  relator  had  notice  to  appear  and 
defend  himself  at  the  meeting  at  which  the  charges  against  him 
were  appointed  to  be  investigated;  that  an  asxembhj  of  the 
proper  persons  was  duly  held;  what  proceedings  took  place 
before  them  ;  that  the  relator  was  convicted,  of  the  offense 
charged  ;  and  that  there  was  an  actual  a^notion  by  the  assembly.^ 
The  right  to  notice  and  an  opportunity  to  defend  necessarily 
implies    that   the  accused    is    entitled    to  be  informed   of  the 

1  See  Illinois  &c.  Soc.  v.  Baldwin,  475,  as  exrf)lained  in  Reg.  v.  Arch- 
86  111.  479;  Olmstead  v.  Fanners'  bishop  of  Canterbury,  I  El.  &  El.  545, 
Mutual  Fire  Ins.  Co.,  50  Mich.  200.  560,  661.     See  also  Reg.  v.  Archbishop 

2  Loubat  V.  Leroy,  40  Hun  (N.  Y.),  of  Canterbury,  6  El.  &  Bl.  546. 
646,  551.  c  Ante,  §§  820,  821. 

•"  Reg,    V.   Archbishop    of    Canter-  '  Murdock  v.  Phillips'  Academy,  12 

bury,  1  El.  &  El.  645,  559.  Pick.  (Mass.)  224;  stated  ante,  §  820. 

^  Ibid.  545,  559.  *  Cora.   v.   German  Soc,  15  Pa.  St. 

*  Rex   V.    Bishop   of   Ely,  5  T.    R.      251. 

713 


1  Thorap.  Corp.  §  882.]     expulsion  of  members. 

charges  against  him.  Accordingly,  a  formal  complaint  is,  in 
general,  necessary  to  the  validity  of  a  sentence  of  expulsion;^ 
but  this  may  be  dispensed  with  in  the  case  of  a  voluntary 
association  or  partnership,  by  the  regulations  of  the  society, 
which  are  in  the  nature  of  a  contract  among  the  members. ^ 
Moreover,  the  statement  that  the  society,  or  its  judicial  body, 
which  passes  the  sentence  of  expulsion,  must  proceed  upon  in- 
quiry, necessarily  implies  that  it  cannot  expel  the  member  in 
case  of  his  failure  to  appear  after  notice,  by  a  mere  sentence  in 
the  nature  of  a  judgment  by  default,  without  hearing  any  evidence 
in  substantiation  of  the  charges  against  him.^  It  has  been  further 
held,  on  grounds  which  are  undoubtedly  sound,  that  this  right  in- 
cludes a  fair  opportunity  to  the  accused  to  cross-examine  the  wit- 
nesses which  are  adduced  against  him.*  It  is  scarcely  necessary 
to  add  that,  where  this  principle  governs,  there  can  be  no  suspen- 
sion or  expulsion  by  the  mere  ministerial  act  of  an  ofBcerof  the  so- 
ciety, —  as,  for  instance,  its  secretary  ;^  nor  by  the  society  itself, 
upon  the  mere  report  of  a  committee  of  investigation,  for  this  is 
not  evidence,  and  in  a  proceeding  thereupon  the  society  does  not 
proceed  upon  inquiry  ;^  and  finally  that  a  corporate  by-law  which 
authorizes  a  suspension  or  expulsion  without  notice  and  a  hearing, 
is  void.^  It  also  follows  from  the  foregoing,  that,  where  there 
has  been  one  trial  and  a  vote  of  expulsion  has  failed  to  carry  by 
reason  of  not  receiving  the  two-thirds  majority  required  by  the 
bv-laws,  the  accused  member  cannot  be  expelled  at  a  subsequent 
meeting,  even  by  a  two-thirds  majority,  without  anew  notice  and 
a  new  hearing,  if  he  can  be  expelled  at  all.  The  reason  is  that 
the  first  trial  operates  as  an  acquittal.^     But  if  the  first  trial  is, 

1  State  V.  Milwaukee   Chamber  of  *  Hutchinson  v.  Lawrence,  67  Huw. 
Commerce,  47  Wis.  G70.  Pr.  (N.  Y.)  38. 

2  See,  for   illustration,   Blisset  v.  ^  People    v.   Fire    Department,   31 
Danifl,  10   Hare,  493,  which   was   the  Mich.  458,  466. 

case  of  a  numerous  partueuship.  ^  Com.  v.  German  Society,  15  Pa. 

3  People   V.   Young  Men's  &c.  So-      St.  251. 

ciety,  65  Barb.   (N.  Y.)  357.     In  every  '  People    v.    Fire   Department,    31 

case  of  judgment  by  default,  before  a      Mich.   458;   Fritz  v.    Mucl<,  62  How. 
final  jiulgmeut  can  be  rendered,  there      Pr.  QN.  Y.)  69. 

must  be  an  inquiry  of  damages,  or,  ac-  ^  Com.  v.  Guardians  of  the  Poor,  6 

cording  to  the  old  common-law  form  of      Serg.  &  R.  (Pa.)  469,  473. 
speech,  a  writ  of  inquiry,  and  this  neces- 
sarily implies  the  hearing  of  evidence. 
714 


CORPORATE    PROCEEDINGS    TO    EXl'KL.       [1  Thoilip.  Coi'p.    §   883. 

for  any  reason,  a  mere  nullity, — as  where  it  has  taken  place 
without  notice,  without  a  formal  complaint,  and  in  the  absence 
of  the  accused,  — the  judicatory  of  the  society  may,  when  ad- 
vised of  that  fact,  treut  it  as  a  nullity,  restore  the  accused  to 
membership,  and  proceed  to  try  and  expel  him  in  the  regular 
way,  in  which  case  his  expulsion  will  be  valid. ^  Moreover, 
where  the  accused  has  had  one  hearing  before  the  judicatory 
vested  with  power  to  remove  him,  and  the  evidence  raises  a  fair 
inference  that  the  inquiry  was  known  to  all  parties  to  be  finally 
closed,  he  will  not  bo  reinstated  by  a  judicial  court  because  there 
was  not  a  second  notice  before  the  sentence  of  removal  was  passed 
upon  him,  where  the  judicial  officer  merely  took  time  after  the 
hearing  to  consider  of  his  judgment.'^ 

§  883.  Right  to  Notice  Exists  Although  the  Evidence  against 
the  Accused  may  he  very  Cogent.  —  The  fact  that  the  evidence 
agaiust  the  accused  member  may  be  very  cogent,  does  not  take  the  case 
out  of  the  rule,  aud  excuse  the  committee  or  judicatory  of  the  society  or 
club  from  giving  him  notice  of  the  proceedings  by  which  it  intends  to  take 
action.  Speaking  of  such  a  case,  it  was  said  by  Daniel,  J, :  "  He  had  no 
opportunity  to  appear  before  the  governing  committee,  or  to  be  heard  con- 
cerning the  action  which  it  might  be  considered  proper  to  take.  If  he 
had  been,  notwithstanding  the  cogency  of  the  evidence  against  him,  he 
might  have  submitted  some  reasons,  or  some  considerations,  which 
would  liave  mitigated  the  action  of  the  members  of  the  committee  in  at- 
tendance, and  resulted  in  a  punishment  short  of  that  which  was  provided 
for  by  the  resolution.  This  probability,  or  even  though  it  may  only  be 
possibility,  has,  in  all  investigations  of  this  description,  been  considered 
sufficient  to  require,  as  a  demand  of  justice,  that  the  part}'' proceeded 
against  shall,  in  all  cases,  have  notice  of  the  hearing  intended  to  be  had, 
and  an  opportunity  to  exculpate  himself  as  far  as  that  may  be  done, 
either  in  the  vindication  or  palliation  of  the  misconduct  forming  the 
foundation  of  the  complaint.  The  legal  principle  is  a  general  one,  af- 
fecting all  proceedings  which  may  result  in  loss  of  property,  position  or 
character,  or  any  disaster  to  another,  —  that  he  shall  be  first  heard  by 
the  board  or  tribunal  considering  his  case  before  that  body  will  be  le- 
gally permitted  to  pronounce  his  condemnation."  ^ 

*  State  V.   Milwaukee  Chamber  of  ^  Loubat  v.  Le  Roy,  40  Him(N.  Y.), 

Commerce,  47  Wis.  G70,  G83.  540,  551.     Reversing  s.  c.  15  Abb.  N. 

2  Ex  parte  Rarasliay,   18  Ad.  &  El.      C.  (n.  s.)  p.  1. 

(N.  8.)    172. 

715 


1  Thomp.  Corp.  §  884.]     expulsion  of  members. 

§  884.  Instance  Showing  the  Right  to  Notice.  —  Where  by 
the  bj'-laws  personal  notice  was  required  to  be  given  in  February  of  each 
year  to  defaulting  members,  without  which  notice  there  could  be  no  for- 
feiture of  their  membership,  it  was  held  that  an  amendment  leaving  the 
declaration  of  the  forfeiture  to  the  secretary,  who  acts  as  witness  and 
judge  on  his  own  assertion,  and  without  either  hearing  or  appeal,  and  in 
a  matter  made  to  depend  on  his  own  performance  of  a  prior  duty,  —  is 
void.^  _  _  _  _  The  constitution  of  a  voluntary  medical  society  pro- 
vided that  if  the  annual  dues  were  not  paid  by  a  certain  time  "  the  de- 
faulter shall  forfeit  his  membership,  .  .  .  and  of  this  he  shall  be 
duly  notified  by  the  secretary,"  and  that  notice  of  the  requirement 
should  be  served  each  year,  and  that  on  reading  the  roll  of  members 
any  such  defaulter  "  shall  be  inmaediately  stricken  from  the  roll."  It 
was  held,  that  the  non-pa^-ment  of  the  dues  at  the  specified  time  was 
not,  ipso  facto,  a  forfeiture  of  membership. ^  -  -  _  _  When  the 
statute  requires  that  charges  shall  be  preferred  before  a  member  of  an 
incorporated  association  can  be  expelled,  this  is  not  done  by  serving  a 
notice  to  appear  to  show  cause  against  expulsion  ' '  for  disobedience  of 
the  order  of  the  boai'd  of  directors."  Nor  does  appearance  in  response 
to  such  a  notice  confer  jurisdiction,  the  member  denying  the  power  to 
proceed.^  _  _  -  _  An  expulsion  of  a  member  without  notice  to  him, 
and  without  a  vote  of  the  corporation,  —  has  been  held  unlawful,  though 
the  charter  provided  that  if  any  member  should  neglect,  for  three 
months,  to  pay  his  arrearages,  he  should  be  expelled.*  -  -  -  -  A 
leading  case  on  this  subject  is  Bentley's  Case,  more  properly  cited  as 
Rex  V.  The  University  of  Cambridge,^  which  was  a  mandamus  by  the  cele- 
brated Doctor  Bentley  to  restore  him  to  his  degrees  in  the  University  of 
Cambridge,  of  which  he  had  been  deprived  b}'  a  court  of  that  University 
called  the  Congregation.  The  return  showed  that  the  University  was,  by 
certain  ancient  statutes,  a  court  of  record,  and  had  conusance  of  certain 
matters  where  one  of  its  members  was  a  party  ;  that  Dr.  Bentley  had  been 
served  with  a  summons  in  debt  for  the  small  sum  of  four  pounds  six 
shillings ;  that  he  had  thereupon  acted  contemptuously  by  saying  that 
the  process  was  illegal ;  that  the  vice-chancellor  was  not  his  judge  ;  that 
the  vice-chancellor  had  acted  rashly,  — stulte  egit;  and  that  he  had  taken 
away  the  process  from  the  beadle.     The   court  of  King's  Bench  held, 

'  People  V.    Fire    Department,   31  *  Commonwealth    v.   Pennsylvania 

Mich.  458,  466.  Benf.  Inst.,  2  Serg.  &  R.  (Pa.)  141. 

2  Medical    &    Surgical    Society    v.  ^  1  Str.  557;  s.  c.  2  Ld.  Raym.  1334; 

Weatherly,  75  Ala.  248  (Brickell,  C.      Fort.  202.     Stated  at  large  under  an- 
J.  dissenting).  other  head,  ante,  §  8G6. 

"  People  V.  Musical   &c.  Union,  47 
Hun  (N.  Y.),  273. 
716 


CORPORATE  PROCEEDINGS  TO  EXPEL.   [1  Thomp.  Coip,  §  885. 

after  two  arguments,  that  Doctor  Bentley  was  entitled  to  be  restored, 
because  it  did  not  appear  from  tlie  return  that  the  Congregation  had 
given  the  relator  notice  that  it  had  met  for  the  purpose  of  considering 
the  question  of  depriving  him  of  his  degrees,  or  that  he  had  had  any 
opportunity  to  make  defense  before  that  court.  All  the  judges  con- 
curred in  this,  and  Mr.  Justice  Fortescue  used  the  following  remarkable 
language :  ' '  The  laws  of  God  and  man  both  give  the  party  an  oppor- 
tunity to  make  defense,  if  he  has  any.  I  remember  to  have  heard  it 
observed  by  a  very  learned  man  upon  such  an  action,  that  even  God 
himself  did  not  pass  sentence  upon  Adam  before  he  was  called  upon  to 
make  his  defense.  '  Adam,'  says  God, '  where  art  thou?  Hast  thou  not 
eaten  of  the  tree  whereof  I  commanded  thee  that  thou  shouldst  not  eat?' 
And  the  same  question  was  put  to  Eve  also. "  -  -  -  -  The  rules  of 
the  Beef  Steak  Club  provided  that  in  case  the  conduct  of  any  member 
should,  in  the  opinion  of  the  committee,  after  inquiry,  be  injurious  to 
the  welfare  and  interests  of  the  club,  the  committee  should  call  upon  him 
to  resign,  and  in  the  event  of  his  refusal  to  do  so,  should  call  a  general 
meeting,  which  was  to  be  called  on  giving  a  fortnight's  notice,  at  which  it 
should  be  competent  for  the  votes  of  two-thirds  of  those  present  to  ex- 
pel such  member.  The  committee  ha\'ing  called  on  the  plaintiff,  a 
member  of  the  club,  to  resign  on  the  alleged  ground  that  his  conduct 
was  injurious  to  its  interests,  and  the  plaintiff  having  refused  to  do  so,  a 
general  meeting  was  summoned  by  notices  issued  on  the  first  of  Novem- 
ber for  the  14th  of  November.  Only  117  members  were  present,  of  whom 
115  voted  —  77  in  favor  of  a  resolution  for  expelling  the  plaintiff,  and  38 
against  it.  The  resolution  was  declared  carried.  On  a  motion  to  re- 
strain the  committee  from  interfering  with  the  enjoyment  by  the  plaintiff 
of  the  benefit  and  use  of  the  club,  it  was  held  on  the  facts  of  the  case 
that  the  committee  had  acted  without  full  inquiry  and  without  giving  the 
plaintiff  notice  of  any  definite  charge;  that  the  general  meeting  was 
summoned  without  proper  notice  ;  that  the  resolution  was  carried  by  an 
insufficient  majority ;  and  that  the  plaintiff  was  entitled  to  an  injunction.^ 

§  885.  Analogous  Principle  that  a  Public  Officer  is  not  Re- 
movable Avithout  Notice. — la  Lord  Campbell's  time  the  Queen's 
Bench  had  occasion  to  consider  the  legality  of  the  act  of  the  chancellor 
of  the  Duchy  of  Lancaster,  in  removing  a  county  judge  under  a  statute 
which  provided  that  "  it  shall  be  lawful  for  the  said  Lord  Chancel- 
lor, ...  if  he  shall  think  fit,  to  remove,  for  inability  or  misbe- 
havior, any  such  judge."  ^     It  appeared  that,  on  a  memorial  addressed 

1  Labouchere    v.  Eurl    of    Wharu-  ^  Stat.  9   &   10  Vict.,  chap.  Of.,  §  IS. 

clifife,  13  Ch.  Div.  346. 

717 


1  Thomp.  Corp.  §  886.]     expulsion  of  members. 

to  the  chancellor,  charging  the  relator  with  general  misbehavior,  and 
particularizing  one  instance  more  strongly,  and  praying  for  his  dis- 
missal, —  the  chancellor  had  held  an  inquiry  which  had  been  attended 
by  the  relator  and  his  counsel,  and  had  heard  evidence  on  the  charges, 
not  on  oath  or  affirmation,  and,  within  a  few  days  after  the  close  of  the 
inquir}^,  had  dismissed  the  relator,  by  an  instrument  finding  inability 
and  misbehavior,  but  not  specifying  any  particular  instances.  Affida- 
vits denying  the  inability  and  misbehavior  in  the  cases  adduced  on  the 
inquiry,  and  generall}',  were  put  in.  The  court  refused  the  rule,  on  the 
ground  that  it  did  not  appear  that  the  relator  had  not  been  fully  heard, 
or  that  the  charges,  if  true,  did  not  show  inabiUty  and  misbehavior,  and 
on  the  further  ground  that  the  decision  of  the  chancellor  was  final,  no 
appeal  therefrom  having  been  provided  for.  On  the  subject  of  the 
right  to  notice  and  an  opportunity  of  being  heard,  Lord  Campbell  reaf- 
firmed the  rule  of  many  other  cases  in  the  following  strong  language : 
"  We  think  that  it  would  have  been  open  to  Mr.  Ramshay  to  show  that  he 
was  removed  without  notice  of  any  charges  against  him,  or  without  an 
opportunity  of  being  heard  in  his  defense,  or  that  no  evidence  was  ad- 
duced to  support  the  charges,  or  that  the  complaints  against  him  were 
not  for  inability  or  misbehavior  in  his  office,  and  were  of  such  a  nature 
that,  if  proved  or  admitted,  they  could  not  disqualify  him  for  his  office, 
or  amount  to  inability  or  mlslx  havi'ir,  within  the  meaning  of  the  Act  of 
Parliament.  Upon  such  affidavits,  we  think  that  we  should  have  been 
bound  to  grant  a  rule  to  show  cause  for  a  quo  warranto,  with  a  view  to 
his  being  afterwards  restored  to  his  office,  from  which  he  had  been  il- 
legally removed.  We  are  to  see  that  judges  and  functionaries  vested 
with  judicial  authority  do  not  exceed  their  jurisdiction.  The  chancel- 
lor has  authority  to  remove  a  judge  of  a  county  court  only  on  the 
imphed  condition  prescribed  by  the  principle  of  eternal  justice,  that  he 
hears  the  party  accused ;  he  cannot  legally  act  upon  such  an  occasion 
without  some  evidence  being  adduced  to  support  the  charges ;  and  he 
has  no  authority  to  remove  for  matters  unconnected  with  inability  or 
misbehavior  in  the  office  of  county  court  judge.  Where  the  party  com- 
plained against  has  had  a  fair  opportunity  of  being  heard  ;  where  the 
charges,  if  true,  amount  to  inability  or  misbehavior,  and  where  evidence 
has  been  given  in  support  of  them,  we  think  we  cannot  inquire  into  the 
amount  of  evidence  or  the  balance  of  evidence,  the  chancellor,  acting 
within  his  jurisdiction,  being  the  constituted  judge  upon  this  subject."  ^ 

§  886.  Denying  the  Privilege  of  Cross-Examination.  —  The 

plaintiff,  a  member  of  the  New  York  Stock  Exchange,  an  uuincorpo- 

1  Ex  parte  Kaaishay,  18  Ad.  &  El.  (x.  s.)  172,  189. 

718 


CORPORATE    PROCEEDINGS    TO    EXPEL.       [1  Thomp.   Corp.    §   887. 

rated  voluntary  association,  having  been  charged  by  a  sub-committee 
of  investigation,  after  taking  voluminous  testimony,  with  being  guilty  of 
improper  practices,  —  the  governing  committee  of  the  Exchange,  who 
were  empowered  by  its  constitution  to  expel  members  adjudged  to  have 
been  guilty  of  ob\dous  fraud,  pi'eferred  charges  against  him  based  upon 
the  testimony  thus  taken.  He  was  permitted  to  make  statements  and 
explanations  before  the  investigating  committee,  and  to  cross-examine 
the  witnesses  produced.  He  then  appeared  before  the  governing  com- 
mittee and  read  his  defense  at  great  length.  At  a  subsequent  meeting, 
which  took  place  in  his  absence,  two  accusing  witnesses  were  examined 
by  the  governing  committee.  The  accused  member  thereafter  applied 
to  have  these  witnesses  again  brought  before  the  committee,  to  the  end 
that  they  might  be  cross-examined  by  him,  which  application  the  com- 
mittee denied.  It  was  held  that  the  action  of  the  committee,  in  allow- 
ing witnesses  to  testify  without  giving  the  accused  an  opportunity  of 
cross-examination,  was  not  just  or  fair  to  him,  either  in  a  legal  or  an 
equitable  sense,  and  that  the  defendants  should  be  restrained,  pending 
the  action,  from  asserting  against  the  plaintiff  the  resolution  of  expul- 
sion which  they  had  passed  upon  him.^ 

§  887.  Right  to  an  Opportunity  to  he  Heard  on  an  Ec- 
clesiastical Appeal^  —  The  Court  of  Queen's  Bench  has  aflfirmed  in 
strong  language,  the  four  judges  being  unanimous  on  the  question,  the 
proposition  that,  on  an  appeal  to  the  Archbishop  of  Canterbur}^  from  a 
sentence  of  an  ecclesiastical  court,  revoking  the  license  of  a  curate,  the 
appellant  has  a  right  to  a  fresh  hearing,  to  the  opportunity  of  tendering 
evidence  in  his  own  behalf,  and  of  arguing  the  question  of  the  propriety 
of  the  sentence  which  has  been  passed  upon  him.  The  judges  concurred 
in  the  opinion  that  the  archbishop  might  regulate  the  mode  in  which 
the  proceeding  at  the  hearing  was  to  be  taken ;  but  they  held  that  he 
could  not,  if  so«requestcd  to  hear,  affirm  or  annul  the  revocation,  merely 
upon  the  statements  made  by  the  curate  in  his  petition  of  appeal,  and 
the  written  documents  referred  to  in  such  petition,  —  and  they  directed 
a  manrlamus  to  him,  "to  hear  the  said  ai)peal  and  decide  the  merits 
thereof."  Thus,  the  man  of  God  found  himself  obliged  to  bow  to  the 
men  of  the  law.  Lord  Campbell,  C.  J.,  said :  "  We  have  no  discretion. 
No  douljt  the  archT)ishop  acted  most  conscientiously,  and  with  a  sincere 
desire  to  promote  the  interests  of  the  church.  But  we  all  think  that  he 
has  taken  an  erroneous  view  of  the  law.  He  was  bound  to  hear  the  ap- 
pellant, and  he  has  not  heard  him.  It  is  one  of  the  first  principles  of 
justice,  that  no  man  shall  be  condemned  without  being  heard.     We  do 

1  Ilutchiuson  i?.  Lawrence,  07  IIow.  Tr.  (N.  Y.)  38. 

719 


1  Thomp.  Corp.  §  888.]     expulsion  of  members. 

not  say  whether  the  archbishop's  decision  was  right  or  wrong.  We 
say  only  that  he  has  not  heard  the  petitioner.  '  Qui  statuit  aliquid  parte 
inaudita  altera,  mquum  licit  statuerit,  cequus  hand  fuit.'  The  legisla- 
ture here  gives  an  appeal  from  the  bishop  to  the  archbishop :  that  im- 
plies that  the  appellant  is  entitled  to  an  opportunity  of  being  heard. 
The  appellant  here  has  not  been  heard.  In  his  petition  he  denies  almost 
ever3i;hing  charged  against  him,  specifically,  and  asks  the  archbishop  to 
appoint  a  time  and  place  at  which  he  may  be  heard  and  adduce  evidence 
in  his  behalf.  Without  any  communication  with  him,  his  judge  decides 
against  him.  There  was  not  a  hearmg.  The  appellant  should  have  had 
an  opportunity  of  arguing,  before  the  archbishop,  that  the  bishop's  de- 
cision was  not  correct  upon  the  facts."  The  other  judges  expressed 
the  same  opinion,  in  language  equally  strong.^  Where,  however,  in 
such  a  case,  the  appeal  is  in  writing,  and  it  is  answered  in  writing  by 
the  persons  appealed  against,  and  the  appellant  replies  in  writing  to 
that  answer,  and  makes  no  request  for  a  further  hearing,  it  will  be  pre- 
sumed that  the  appeal  has  been  sufficiently  heard.  ^ 

§888.  Expulsion  after  an  Acquittal  and  Without  a  Second 
Trial.  —  In  an  early  case  in  Pennsylvania,  it  was  provided  by  one  of 
the  by-laws  of  a  corporation  known  as  the  Guardians  of  the  Poor  of  the 
City  of  Philadelphia,  that  ' '  no  member  to  be  expelled  by  a  less  number 
than  two-thirds  of  the  members  present,  the  vote  to  be  by  ballot ;  pro- 
vided, however,  that  no  expulsion  shall  take  place  without  giving  the 
accused  person  notice  in  writing  to  attend  the  board,  and  answer  the 
charges  preferred  against  him,  a  copy  of  which  shall  be  transmitted  to 
him,  which  notice  must  be  at  least  six  days  before  the  time  appointed 
for  the  hearing."  A  number  of  charges,  some  of  which,  if  made  out, 
were  sufficient  to  authorize  an  expulsion,  were  preferred  against  a  mem- 
ber of  the  board.  He  was  furnished  with  a  copy  of  them,  and  was  fully 
heard  in  his  defense,  at  a  special  meeting  called  at  his  own  request. 
Thereupon,  a  resolution,  declaring  that  he  had  violated  his  duty  as  a 
guardian  of  the  poor,  was  adopted  by  a  less  number  than  two-thirds  of 
the  members  present.  This,  it  was  held,  amounted  to  an  acquittal,  under 
this  by-law ;  and  the  board  having  afterwards,  at  a  stated  meeting, 
passed  a  vote  of  expulsion  by  the  constitutional  majority,  but  without 
any  new  accusation  or  further  hearing,  — it  was  held  to  be  illegal,  and 
the  expelled  member  was  restored  by  mandamus.     "  There  was  no  new 

1  Reg.  u.  Archbishop  of  Canterbury,  On  the  question  of  notice  in  other 
1  El.  &  El.  545,  559.  special    cases,  see   Re   Hammersmith 

2  Rex  u.  Bishop  of  Ely,  5  T.  R.  475,  Rent-Charge,  i  Exch.  87;  Reg.  v. 
as  explained  in  Reg.  v.  Archbishop  of  Archbishop  of  Canterbury,  (5  El.  &  Bl. 
Canterbury,  1  El.  &  El.  545,  560,  561.  546. 

720 


CORPORATE   PROCEEDINGS   TO   EXPEL.      [1  Thomp.  Corp.  §  889. 

charge,"  said  Duncan,  J.,  "no  new  specification;  agreeable  to  the 
specifications  preferred  against  him,  no  hearing  of  the  cause  de  novo; 
no  new  defense,  nor  was  the  accused  called  in  to  make  one.  Thus  he 
was  twice  put  in  jeopard}'  for  the  same  offenses  ;  condemned  after  he  had 
been  acquitted.  It  is  very  evident  that  new  members  attended  and 
pronounced  sentence,  who  had  neither  heard  the  evidence  to  support 
the  charges,  nor  the  defense  of  the  accused,  and  whose  votes  produced 
a  conviction.  The  accused  was  not  apprised  that  he  was  again  to  be 
put  on  his  trial.  An  opportunity  might  have  been  taken  of  a  thin  meet- 
ing, when  his  friends  were  absent,  who  would,  perhaps,  have  been 
present  had  any  notice  been  given  of  an  intention  to  renew  the  inquiry. 
His  enemies  might  have  been  notified,  and  attended  with  aU  their  force, 
while  his  friends  remained  in  total  ignorance  of  so  extraordinary  and 
unprecedented  a  procedure.  .  .  .  Fairness  and  justice,  due  to  all 
men,  would  have  required,  if  he  had  been  legally  subject  to  a  future 
trial,  that,  as  he  been  acquitted  of  every  violation  of  duty,  at  an 
assembly  to  which  aU  the  members  of  the  corporation  had  been  sum- 
moned, and  a  reconsideration  was  to  take  place,  that  all  should  have 
had  an  opportunity  of  attending  and  of  voting. ' '  ^ 

§  889.  Expulsion  after  Fii-st  Trial  Which  is  a  Nullity.  — But 

where  the  accused  has  been  expelled  by  a  judicature  of  a  society,  but 
under  such  circumstances  as  to  make  the  expulsion  a  nulHty,  as  where 
they  proceeded  against  him  without  notice,  without  a  formal  complaint, 
without  a  trial,  and  in  his  absence,  and  when  advised  of  the  fact  that 
it  was  a  nullity,  they  annulled  the  proceeding  and  restored  him  to  mem- 
bership,— it  was  held  that  the  first  expulsion  did  not  stand  in  the  way 
of  a  second  trial  and  expulsion  for  the  same  offense.  The  court,  speak- 
ing through  Lyon,  J.,  reasoned  thus:  "  Should  a  magistrate,  on  being 
told  that  a  person  had  committed  an  assault  and  battery,  enter  in  his 
docket  a  judgment  convicting  such  person  of  that  offense,  and  imposing 
a  fine  upon  him  therefor,  without  formal  complaint,  process,  arrest,  ap- 
pearance or  trial,  such  judgment  would  be  a  nuUity,  and  would  con- 
stitute no  bar  to  a  regular  prosecution  for  the  offense.  The  same 
principle  applies  here.  The  first  void  proceeding  against  the  relator  is  no 
bar  to  a  subseciuent  regular  proceeding  for  the  same  offense. ' '  The  court 
summarized  what  would  be  necessary  to  support  the  second  conviction 
in  such  a  case,  thus:  "  If  it  appears  from  the  relation  that  the  relator 
was  duly  notified  of  the  charge  preferred  against  him,  and  had  a  fair 
trial  before  the  board  of  directors  ;  if  the  testimony  tended  to  prove  the 
charge ;    if  the  former  proceeding  against  him  for  the  same  offense  is  a 

'  Cora.  V.  Guardians  of  the  Poor,  G  Serg.  &  R.  (Pa.)  409,  475. 

46  721 


1  Thomp.  Corp.  §  891.]     expulsion  of  members. 

nullit}' ;  and  if  the  rule  or  by-law  under  which  he  was  prosecuted,  con- 
victed and  suspended  from  membership,  is  a  valid  regulation  of  the 
chamber, —  then  the  relation  fails  to  show  that  the  relator  is  entitled  to 
be  reinstated."  ^ 

§  890.  When  Second  Notice  not  Necessary. — Where  a  com- 
plaint had  been  made  against  a  county  court  judge,  to  the  chancellor  of 
the  Duchy  of  Lancaster  by  whom  the  judge  had  been  appointed,  and 
who,  under  a  statute,  possessed  the  power  of  removing  him,  and  the 
complaint  had  been  heard  at  a  place  appointed,  and  the  judge  had  ap- 
peared personally  by  counsel,  and  had  had  an  opportunity  to  make  his 
defense,  and  did  make  a  defense  by  affidavits,  it  was  held  that  he  was 
not  entitled  to  a  second  notice  before  the  sentence  of  removal  was  passed 
upon  him.  The  fair  inference  which  the  court  drew  from  the  affidavits 
was  that  the  inquiry  was  known  to  all  parties  to  be  finally  closed,  and 
that  the  chancellor  only  took  time  to  deliberately  review  the  evidence, 
and  to  consider  of  his  judgment. ^ 

§  891.  Incidents  of    the    Notice    and   Its   Service.  —  If  the 

rules  of  the  society  require  notice  for  a  given  number  of  days,  a 
notice  for  a  less  number  will  not  support  the  sentence,  —  as  where 
the  rules  required  fourteen  days'  notice  and  the  notice  was  posted 
on  the  first  of  November,  for  a  trial  to  be  held  on  the  fourteenth 
of  November.^  In  the  absence  of  any  agreement  by  the  mem- 
ber, or  of  any  provision  in  the  charter  or  by-laws,  for  a  different 
mode  of  service,  the  notice  should  be  served  personally^  or,  if 
that  can  be  dispensed  with,  then  in  such  other  mode  as  will  be 
most  likely  to  effect  its  object.*  Where  there  is  no  statute  pro- 
hibiting the  business  meetings  of  a  society  from  being  held  on 
Sunday,  a  notice  served  on  Sunday,  warning  the  accused  mem- 
ber to  attend  a  trial  appointed  for  the  succeeding  Sunday,  is  a 
good  notice  ;  for  the  rule  of  the  common  law  which  makes  Sun- 
day (lies  lion  in  respect  of  judicial  proceedings  does  not  apply, 
and  he  cannot  complain  that  he  is  cited  and  tried  in  conformity 
with  rules  by  which  he  has  agreed  to  abide. ^ 

1  State  V.   Milwaukee  Chamber  of  *  Wachtel  v.  Noah    Widows'    &c. 
Commerce,  47  Wis.  670,  CS2.                        Society,  84  N.  Y.  28,   31;  s.  c.  38   Am. 

2  Ex  parte  Rarashay,  18  Ad.  &  El.      Rep.  478. 

(n.  s.)  172.  ^  People  v.  Young  Men's  &c.  So- 

•'  Labouchere   v.  Earl  of  Wharn-      ciety,  65  Barb.  (N.  Y.^  357.     At  com- 

cliffe,  13  Ch.  Div.  346,  356.  mou  law,  judicial  proceedings   only, 
722 


CORPORATE  PROCEEDINGS  TO  EXPEL.   [1  Thomp.  Corp.  §  893. 

§  892.  Effect  of  Change  of   Residence   in   Connection  with 
By-Law  Requiring  Members  to   Notify  their  Residence  to  the 

Society.  —  One  of  the  by-laws  of  a  benevolent  society  provided  for 
giving  written  notice  to  any  member  in  arrears  six  months  for  dues, 
calling  his  attention  to  the  fact  that  he  would  be  stricken  from  the  roll, 
in  case  he  did  not  pay  his  dues.  Another  by-law  imposed  a  fine  for  an 
omission,  by  a  member,  to  give  notice  to  the  association  of  a  change  of 
residence.  At  the  time  of  joining,  plaintiff's  intestate  gave  notice  of 
his  then  place  of  residence ;  he  subsequently  changed  his  residence,  but 
did  not  give  notice  of  the  change.  Because  of  failure  to  pay  his  dues, 
ke  was  stricken  from  the  rolls.  No  notice  was  given  to  him  of  an  inten- 
tion to  strike  him  from  the  rolls,  as  provided  by  the  by-laws.  After- 
wards the  member  died,  and  an  action  was  brought  by  his  administra- 
trix to  recover  the  sum  provided  by  the  defendant's  by-laws  to  be  paid 
on  the  death  of  a  member.  It  was  held  that  the  plaintiff  was  entitled 
to  recover ;  that  the  omission  of  the  deceased  to  give  notice  of  change  of 
residence  was  no  excuse  for  a  failure  to  give  him  the  prescribed  notice. ' 
The  court  said:  "  There  is  nothing  to  show  that  the  object  of  the  in- 
formation as  to  residence  was  to  enable  the  defendant  to  serve  its  notice 
at  that  place,  or  that  the  deceased  agreed  that  they  might  leave  it  at  his 
house.  There  are  many  other  reasons  why  it  would  be  well  for  siich  an 
association  to  know  the  residence  of  its  members ;  but  however  that 
may  be,  the  defendant,  by  another  by-law,  defined  the  penalty  for 
neglect  in  giving  notice  of  a  change  of  residence.  It  declares  that,  for 
such  omission,  the  member  in  default  shall  incur  a  fine  of  twenty-five  cents. 
It  would  lead  to  a  most  unjust  result,  if  there  should  be  added  a  for- 
feiture of  the  whole  benefit  to  which  his  representatives  are,  in  case  of 
his  death,  entitled.  Such  consequence  is  not  declared,  and  cannot  be 
implied  for  any  legal  construction. ' '  ^ 

§  893.  Of  the  Corporate  Tribunal  and  its  Constitution.  — 

As  already  seen  with  reference  to  corporations  and  to  proceed- 
ings for  the  amotion  of  officers,-^  where  the  trial  takes  place  be- 
fore the  corporation  in  its  constituent  character,  or  before  a 
numerous  tribunal,  in  the  absence  of  a  valid  regulation  otherwise 

were  prohibited  on  Sunday.     Hence,  ^  Waclitel    v.  Noah    Widows'    &c. 

jadicial    proceedings    on   Sunday  are  Soc,  84N.  Y.  28;  s.  c.  38  Am.  Rep.  478. 

void,  at  common  law.    But  all  other  2  Wachtel    v.    Noah    Widows'  &c. 

business  transactions  are  valid,  except  Soc,  84  N.  Y.  28,  30;  s.  c.  38  Am.  Rep. 

so  far  as  prohibited  by  statute.   Emott,  478. 

J.,  in  Merritt  r,  Earle,  81  Barb.  (N.  Y.)  3  Ante,  §  725  et  seq. 

38,  41. 

723 


1  Thomp.  Corp.  §  893.]     expulsion  of  members. 

prescribing,  all  the  members  of  the  corporation,  or  the  tribunal, 
must  be  notified  to  attend  the  meeting  at  which  the  trial  is  to  be 
had.^  It  is  therefore  a  good  objection  to  the  validity  of  the  sus- 
pension, that  a  single  member  was  not  summoned  and  did  not  at- 
tend.- It  is  not  necessary  that  all  the  members  of  the  judicial  body 
which  hears  the  accusation  should  be  legales  homines,  as  in  the  case 
of  a  jm'y.  It  is  not  a  good  objection  to  a  resolution  of  expulsion 
that  one  of  them  was  related  to  a  party  to  the  controversy,  nor 
that  he  had  become  familiar  with  the  matter  to  b.e  investigated, 
through  conversations  with  the  members  or  otherwise  ;  since  the 
rules  of  the  common  and  statute  law  relating  to  judicial  proceed- 
ings have  but  a  limited  application  to  voluntary  societies.^  It 
has  been  held  that,  while  the  body  in  its  constituent  capacity 
can  not  delegate  the  power  of  expelling  a  member  to  the  board 
of  directors,  unless  the  power  is  conferred  by  charter  or  statute,* 
yet  such  power  may  be  well  exercised  by  the  directors  where 
there  is  a  statute  reposing  it  in  them.^     But  this  should,  it  seems, 


^  Rex  V.  Town  of  Liverpool,  2  Burr. 
723,  731 ;  Com.  v.  Guardians  of  the 
Poor,  6  Serg.  &  E.  (Pa.)  4G9,  475; 
Loubat  V.  Le  Roy,  15  Abb.  N.  C.  (N. 
Y.)  14;  Smyth  v.  Darley,  2  H.  L.  Cas. 
789,  See  also  People  v.  Batchelor, 
22  N.  L.  128. 

2  Loubat  V.  LeRoy,  15  Abb.  N.  C. 
(N.  Y.)  14.  In  the  same  case,  Van 
Vorst,  J.,  at  special  term  of  the  Su- 
preme Court,  rendered  a  very  long 
opinion,  in  which  he  held  that  when 
the  constitution  of  a  voluntary  asso- 
ciation provides  that  expulsion  or 
suspension  must  be  by  a  two-thirds 
vote  of  its  governing  committee,  the 
provision  is  satisfied  by  a  two-third 
vote  of  a  qxiorum  as  it  existed  at  the 
time  of  the  vote,  although  several  of 
its  members  were  not  present.  From 
this  decision  an  appeal  was  taken  to 
the  general  term.  In  rendering  an 
opinion  reversing  the  decision  of  the 
special  term,  Danivjl,  J.,  held,  amongst 
other  things,  that  as  the  governing 
committee  was  to  consist  of  twenty- 
four  members  it  would  take  sixteen 
724 


affirmative  votes  to  make  the  required 
two-thirds,  and  this  although  there 
were  four  vacancies  on  the  commit- 
tee. Davis,  P.  J.,  concurred  in  the 
reversal  for  other  reasons,  and  did 
not  express  himself  on  this  point. 
Brady,  J.,  concurred  in  the  result. 
40  Hun  (N.  Y.),  646.  And  it  has 
been  said  in  a  case  where  a  mem- 
ber was  tried  and  acquitted  for  want 
of  a  rulable  two-thirds  vote  against 
him,  that  "a  decent  respect  for  the 
members  who  had  voted  for  his  ac- 
quittal, as  well  as  a  regard  to 
impartial  justice,  required  a  general 
summons  "  to  another  meeting  to  re- 
consider the  matter,  even  if  a  recon- 
sideration could  be  lawfully  had 
except  on  his  motion  or  petition. 
Com.  v.  Guardians  of  the  Poor,  6 
Serg.  &  R.  (Pa.)  469,  475. 

3  Loubat  v.  Le  Roy,  supra. 

4  State  V.  Chamber  of  Commerce,  20 
Wis.  63,  73;  Hassler  v.  Philadelphia &c. 
Assoc,  14  Phila.  (Pa.)  233.  Ante,  §  803. 

5  State  v.  Milwaukee  Chamber  of 
Commerce,  47  Wis.  670,  G86. 


CORPORATE  PROCEEDINGS  TO  EXPEL.   [1  Thomp.  Corp.  §  893. 

be  confined  to  business  corporations,  in  which  the  directors  are 
merely  a  committee  of  members  elected  for  the  transaction  of 
the  corporate  business.  It  is  plain  that  in  many  corporations 
members  may  be  expelled  without  a  trial  before  the  whole  cor- 
poration, but  upon  a  trial  before  some  judicatory  to  which  cog- 
nizance of  offenses  by  members  is  committed.  This  will  be  seen 
especially  in  the  case  of  religious  corporations^  —  the  well  set- 
tled doctrine  in  respect  of  such  corporations  being,  that  where 
the  judicatory  appointed  in  accordance  with  the  laws  and  usages 
of  the  corporation  have  acted  upon  a  case  within  their  jurisdic- 
tion, the  judicial  courts  will  not  interfere. ^  The  same  rule  ap- 
plies in  the  case  of  social  clubs,  as  seen  from  several  instances  in 
this  chapter,  and  also  in  the  case  of  mei'chanC's  exchanges.^  Thus, 
in  a  case  in  New  York,  which  has  been  frequently  cited,  a  member 
of  an  incorporated  body  of  merchants,  organized,  among  other 
things,  "to  inculcate  just  and  equitable  principles  in  trade," 
was  expelled,  in  pursuance  of  a  by-law,  by  the  board  of  man- 
agers, for  obtaining  goods  of  a  person  not  a  member  of  the 
corporation  under  false  pretenses;  and  it  was  held  that  he 
was  rightly  expelled.^  It  is  not  a  good  objection  in  a  col- 
lateral attack,  that  two  of  the  directors,  by  whom  the  mem- 
ber was  tried,  were  not  citizens  of  the  United  States,  or 
that  two  of  them  were  prejudiced  and  not  impartial  triers.* 
Where  the  society  has  no  rules  prescribing  by  what  judi- 
catory or  by  what  vote  an  accused  member  may  be  tried 
and  expelled,  the  rule  is,  that  he  may  be  tried  upon  notice 
by  the  society  at  large,  and  expelled  by  the  vote  of  a  ma- 
jority of  all  the  members  of  the  society.^  Where  the  rules 
of  the  society  require  a  two-thirds  vote  of  the  members  present, 
in  order  to  an  expulsion,  this  means  a  two-thirds  vote  of  the 
visible  quorum,  that  is,  two-thirds  of  all  present,  including  those 
who  do  not  vote.     Those  who  do  not  vote   may,  therefore,  by 

1  Watson  V.  Jones,  13  Wall.  (U.  S.)  121  111.  412;  s.  c.  13  North  East.  Rep. 
679;  State  v.  Hebrew  Conjiregation,  30  187;  11  West.  Eep.  38;  2  Rail.  &  Corp. 
La.  An.  205;  s.  c.  33  Am.  Rtp.  217.  L.  .  J89. 

2  Pitcher  v.  Cliicago  Board  of  ^  Inness  v.  Wylie,  1  Car.  &  K.  257, 
Trade,  121  111.  412.  per    Lord  Denman  C.   J.;    White    v. 

3  People  V.  New  York  Commercial  Brownell,  2  Daly  (N.  Y.),329,  369, per 
Asso.,  18  Abb.  Pr.  (N.  Y  )  271.  Daly,  J. 

*  Pitcher  V.  Chicago  Board  of  Trade, 

725 


1  ThoiDp.  Corp.  §  804:.]     expulsion  of  members. 

their  silence,  turn  the  scale  iu  f.ivor  of  the  accused.  Thus, 
where  there  were  present  at  the  meeting  117  members,  and  77 
voted  for  exi)ulsion  and  38  against  expulsion,  and  2  did  not  vote 
at  all,  it  was  held  that  the  resolution  of  oxpulsion  had  not  been 
adopted  by  the  requisite  two-thirds  majority.^  It  should  be 
added  that  the  return  to  a  mandamus  to  restore  the  expelled 
member  will  be  fatally  defective,  where  it  shows  that  he  was 
tried  by  a  select  body  less  than  the  whole  number  of  corporators, 
and  does  not  show  the  source  from  which  the  select  body  derived 
their  power  or  jurisdiction.^  From  what  has  already  been  said, 
that  a  conviction  upon  a  trial  by  a  jury  under  an  indictment  is  not 
necessary  to  warrant  an  expulsion  for  an  infamous  offense,^  it 
follows  that  the  mere  fact  that  the  charge  against  the  member  is 
undergoing  an  investigation  in  a  judicial  tribunal,  does  not  oust 
the  corporate  judicatory  of  their  jurisdiction  to  try  him  upon  the 
question  of  his  expulsion;  since,  although  he  maybe  acquitted  in 
the  judicial  court,  he  may  be  expelled  by  the  corporate  judi- 
catory.* From  the  same  consideration,  it  also  follows  that  the 
constitutional  guaranty  of  the  right  of  trial  by  jury  does  not  ap- 
ply to  proceedings  taken  by  a  corporation  for  the  removal  of  a 
member  for  offenses  against  the  corporation.^ 

§  894.  Illustrations  :  Expulsion  by  a  Two-Third  Vote.  —  Ar- 
ticles of  partnership  provided  that  it  should  be  lawful  for  the  holders  of 
two-thirds  or  more  of  the  partnership  shares,  for  the  time  being,  to  ex- 
pel any  partner,  by  giving  him  notice  thereof,  under  their  hands,  in  the 
form  thereby  prescribed ;  and  that,  immediately  after  giving  such  no- 
tice, a  notice  of  the  dissolution  as  to  the  expelled  partner  should  be 
signed  by  the  partners  and  published,  with  power  to  any  other  of  the 
expelling  partners  to  sign  the  name  of  the  expelled  partner.  It  was 
provided  that  if  a  partner  became  bankrupt,  insolvent  or  was  expelled, 
his  interest  should  cease  as  to  profit  and  loss,  as  if  he  had  died  on  the 

1  Labouchere  ».  Earlof  Wharncliffe,  Association,  18  Abb.  Pr.  (N.  Y.)  271. 
13  Ch.  Div.  346,  353.  Manner  of  appoiutment  of  committee 

2  Green  u.  African  Methodist  Epis-  of  investigation:  appointment  by 
copal  Society,  1  Serg.  &  R.  (Pa.)  254.  second  vice-president  and  subsequent 

3.4nie,  §859.  appointments  by  ttie  first  vice-presi- 

*  Hurst  V.  New  York  Produce  Ex-  deut,  in  the  place  of  members  decliu- 
change,  100  N.  Y.  605,  Mem.;  s.  c.  in  ing  to  act,  upheld  as  valid:  People  v. 
full  1  Cent.  Rep.  206.  St.  George's  Society,  28  Mich.  261. 

*  People  V.  New  York   Commercial 

7 -if) 


CORPORATE    PROCEEDINGS    TO   EXPEL.      [1  Thomp.  Corp.   §  894. 

day  of  such  bankruptcy,  insolvency,  or  expulsion ;  and  that  the  amount 
of  his  share  should  be  ascertained  and  payment  secured,  by  the  same 
arrangement  as  would  have  been  applicable  in  case  of  his  decease.  It 
was  also  provided  that  the  shares  of  retired,  deceased,  bankrupt,  insolvent 
or  expelled  partners  should  be  disposed  of  in  such  way,  either  to  or  be- 
tween some  or  all  of  the  continuing  partners,  or  by  the  admission  of  a  new 
partner  or  new  partners,  as  the  holders  of  a  majority  of  the  shares  should 
determine.  The  articles  provided  that,  in  the  case  of  making  certain 
arrangements,  there  should  previously  be  a  meeting  of  the  partners  in 
committee  ;  but  did  not  express  that  any  such  meeting  should  be  neces- 
sary previous  to  the  exercise  of  the  power  to  expel.  The  article  also 
provided  for  the  adjustment  of  all  the  partnership  accounts,  within  sixty 
days  after  the  thirtieth  of  June  in  each  year,  when  an  inventory  of  all 
the  stock,  debts,  etc.,  should  be  made,  with  proper  allowances,  so  as  to 
ascertain  the  partnership  property,  profit  and  loss,  and  the  shares  of 
the  respective  partners,  which  shares  were  to  be  carried  to  their  respect- 
ive accounts ;  and  it  was  provided  that  the  share  of  any  partner  who 
might  wish  to  retire,  if  his  retirement  were  consented  to  by  the  majority 
of  the  others,  was  to  be  taken  by  the  continuing  partners,  at  the 
amount  at  which  the  same  stood  at  the  time  for  making  the  yearly  rest 
or  statement  next  preceding;  and  that  the  surviving  partners  were, 
also,  to  take  the  shares  of  a  deceased  partner  at  the  amount  at  which 
the  same  stood  at  such  next  preceding  yearly  rest  or  settlement.  It 
was  held  that  the  power  of  expulsion  by  a  partner  might  be  exercised 
by  two-thirds  of  the  partners,  loithout  any  previous  meeting  of  the  part- 
ners in  committee  upon  the  question,  and  without  any  cause  being  as- 
signed for  such  expulsion ;  but  that  the  power  must  be  exercised  tvith 
good  faith,  and  not  against  the  truth  and  honor  of  the  contract ;  but 
that  the  power  was  not  properly  exercised  at  the  exclusive  instance  of 
one  partner,  and  in  consequence  of  his  representations  to  the  other 
partners,  made  without  the  knowledge  and  behind  the  back  of  the  part- 
ner who  was  to  be  expelled,  and  without  giving  to  such  partner  the  op- 
portunity of  stating  his  case  and  of  removing  any  misunderstanding  on 
the  part  of  his  copartners.^  In  giving  his  judgment  on  this  case,  the 
Vice-Chancellor  (Sir  W.  Page  Wood,  afterward  Lord  Hatherley)  said: 
"  I  have  said  before  that  I  hold  with  the  defendants,  that  they  were 
competent  to  give  a  notice  to  dissolve,  without  assigning  any  reason ; 
that  they  were  competent  to  exercise  that  power,  without  holding  any 
meeting  with  their  copartners ;  but  then  the  power  must  be  exercised 
bona  fide.  Good  faith  is  unquestionably  of  the  essence  of  all  contracts. 
Sir  Fitzroy  Kelly  has  said  that  I  could  not  introduce  any   new  words 

1  Blisset  V.  Daniel,  10  Hare,  493. 

727 


1  Thomp.  Corp.  §  895.]     expulsion  of  members. 

iuto  this  contract.  The  court  does  not  do  so,  but  the  court  pronounces 
in  every  contract,  and,  if  there  can  be  any  difference,  more  especially  in 
every  contract  of  partnership,  a  basis  of  good  faith,  upon  which  all  the 
stipulations  contained  in  the  deed  must  rest.  This  power  would  never 
be  allowed  to  be  exercised,  by  this  court,  in  a  manner  against  what  I 
ma}^  call  the  truth  and  honor  of  these  articles,  borrowing  an  expression 
which  has  been  applied  to  another  description  of  contract.  It  is  quite 
clear  that  this  power  was  never  intended  to  be  exercised  by  any  two- 
thirds  of  the  partners  merely  and  solely  for  their  own  exclusive  benefit. 
If  cause  be  shown,  of  course  it  removes  all  difficulty  with  reference  to 
fraud,  using  that  word  according  to  the  sense  in  which  the  court  uses 
it ;  but  if  cause  be  not  shown  and  proved,  then  it  must  be  very  clearly 
made  out  that  the  exercise  of  the  power  has  been  in  good  faith. "  "^  _  _  _  _ 
Where  the  rules  of  a  club  require  the  vote  in  regard  to  the  expulsion  of 
a  member  to  consist  of  two-thirds  of  those  present,  and  there  were  pres- 
ent at  the  meeting  117  members,  two  of  whom  did  not  vote,  and  the 
vote  stood  77  for  expulsion  and  38  against  it,  — it  was  held  that  the  res- 
olution of  expulsion  had  not  been  adopted  by  two-thirds  of  those  pres- 
ent, 77  not  being  two-thirds  of  117.  In  giving  his  judgment  to  this  ef- 
fect, Jessel,  M.  R. ,  said:  "  When  a  resolution  is  put  to  a  meeting,  the 
persons  present  may  take  one  of  three  courses.  They  may  vote  for  or 
against  it ;  or  not  wishing  to  express  a  positive  opinion  on  the  question, 
refrain  from  voting  at  all.  This  being  so,  those  who  do  not  vote  may, 
by  not  doing  so,  turn  the  scale  in  favor  of  the  accused  member  of  the 
club.  It  was,  therefore,  the  duty  of  the  secretarj^^,  or  scrutineer,  to  as- 
certain, fi^rst,  how  many  persons  were  present  when  the  question  was 
put,  and,  secondly,  how  many  of  those  persons  had  voted  for  the  reso- 
lution ;  but  no  such  course  has  been  adopted  in  this  instance.  It  ap- 
pears to  me,  then,  that  this  also  is  a  fatal  objection."  ^ 

§  895.  Jurisdiction  of  Standing  Committee  of  Brokers' 
Board. —  Where  the  constitution  and  by-laws  of  a  voluntary 
society,  called  "The  Open  Board  of  Brokers,"  provided  for  a 
standing  committee,  who  were  to  take  cognizance  of  and  exercise 
jurisdiction  over  all  claims  and  matters  in  difference  between  mem- 
bers, and  whose  decision  was  to  be  binding  upon  them, —  it  was 
held  that  this  committee  was  the  proper  tribunal  to  investigate 
and  decide  whether  a  member  w'as  or  was  not  in  defuuit  upon  a 
contract,  within  the  meaning  of  a  by-law  which  made  such  a  de- 
fault a  ground  for  suspension.     It  was  further  said:      "  When  a 

1  Ibid.  522.  «  Laboucliere  v.  Earl  of  Wharucliffe,  13  Ch.  Div.  34G,  354. 

728 


CORPORATE   PROCEEDINGS   TO   EXPEL.      [1  TllOmp.  Coip.   §  896. 

claim,  therefore,  is  iiitide  by  one  member  upon  another,  and  he 
brings  the  matter  in  difference  before  this  arbitration  committee, 
and  they,  after  having  notified  the  other,  and  afforded  him  the  op- 
portunity of  being  heard,  investigate  the  claim,  and  decide  that  the 
other  party  is  in  default, —  that  is  .  .  .  a 'due  investigation,' 
within  the  meaning  of  the  law.  It  never  could  have  been  the 
design  of  the  by-law  that  the  committee  on  membership  are  also 
to  sit  in  deliberation  upon  the  matter,  and  investigate  it  over 
again,  before  they  are  authorized  to  report  to  the  president  that 
the  member  is  in  default.  It  is  due  iuvestigation  on  their  part, 
when  they  inquire  and  ascertain  that  the  arbitration  committee, 
whose  decision  is  binding  and  subject  to  review,  have  decided,  in 
a  matter  legitimately  before  them,  that  a  member  is  in  default. 
A  second  investigation  would  be  superfluous  and  was  not  . 
contemplated  by  the  by-law."  ^ 

§  896.  Illustration. —  A  claim  was  made  by  a  fii'm  of  brokers,  who 
were  members  of  a  voluntary  association  called  the  "  Open  Board  of 
Brokers,"  upon  another  member,  charging  him  with  default  upon  a  con- 
tract which  he  had  made  with  them.  He  denied  the  vaUdity  of  their 
claim,  and  they  cited  him  to  appear  before  the  arbitration  committee  of 
the  board,  to  have  the  matter  in  dispute  adjusted  under  the  rules  of  the 
society.  This  he  decHned  to  do,  protesting  against  the  jurisdiction  of 
the  committee.  They,  thereupon,  heard  e\idence,  and  found  that  he  was 
in  default  upon  the  contract.  The  prosecuting  member  then  made 
known  to  the  committee  on  membership  the  decision  of  the  committee  on 
arbitration,  and  this  latter  committee,  upon  due  investigation,  reported 
to  the  president  of  the  board  that  the  piaiiitiff  was  in  default  upon  his 
contract  in  question,  upon  which  the  president  declared  him  suspended 
from  his  pri\ileges  as  a  member  of  the  board.  The  plaintiff  appealed 
from  tliis  act  of  the  president  to  the  executive  committee,  as  he  had  a 
right  to  do  under  the  by-laws,  but  before  any  decision  upon  his  appeal, 
he  brought  an  action  to  restrain  the  president  and  members  of  the  board, 
by  injunction,  from  interfering  with  him,  "  in  the  full  and  free  exercise 
and  enjoyment  of  all  his  rights,  privileges  and  franchises,"  as  a  mem- 
ber of  the  body.  Having  thus  appealed  to  the  judicial  courts,  he  re- 
fused to  prosecute  his  appeal  before  the  executive  committee,  and  pro- 
tested against  the  committee  taking  any  action  in  the  matter.     On  this 

1  White  V.  Browuell,  4  Abb.  Pr.  (n.  s.)  (N.  Y.)  1G2,  200;  s.  c.  2  Daly  (N. 
Y.)  320. 

729 


1  Thoiiip.  Corp.  §  897.]     expulsion  of  members. 

state  of  facts,  it  was  held  that  he  was  not  entitled  to  an  injunction  to  re- 
strain the  society  from  interfering  with  his  rights  as  a  member,  i 

§  S97.  Of  the  Trial  and  the  Evidence.  —  The  obligation  to 
proceed  upon  inquiry,  stated  in  a  preceding  section, ^  implies 
that  no  formal  suspension  or  expulsion  can  take  place  without 
the  bearing  of  evidence  in  support  of  the  accusation.^  But  it  is 
not  necessary  that  the  evidence  should  be  of  such  a  character  as 
would  be  necessary  to  its  admission  in  the  judicial  courts :  it  is 
sufficient  if  it  be  of  that  character  on  which  men  ordinarily  act 
in  their  private  affairs,  so  that  nothing  takes  place  which  violates 
the  principle  of  natural  justice  already  stated.  Unless  the  rules 
of  the  society  otherwise  provide,  the  witnesses  need  not  be  under 
oath.*  The  evidence  may,  it  seems,  be  taken  before  one  mem- 
ber of  the  court  by  a  stenographer  in  the  form  of  a  deposition, 
and  read  before  the  whole  court,  at  the  trial,  provided  the  ac- 
cused have  a  fair  opportunity  of  presenting  his  defense.^  The 
facts  on  which  the  committee  which  constitutes  the  judicial  body 
acts,  may  be  collected  by  a  sub-committee,  and  afterwards  re- 
ported to  the  full  committee,  witji  whom  the  final  decision  rests.^ 
Nor  is  it  necessary  that  the  accused  should  have  notice  of  the 
time  of  the  presentation  of  this  report  to  the  full  committee,  pro- 
vided that  he  is  afforded  a  fair  opportunity  of  being  heard  before 
the  full  committee  in  his  defense.'  One  case  has  condemned  an 
expulsion  which  took  place  upon  the  testimony  of  a  witness  who 
would  have  been  incompetent  to  testify  according  to  the  rules  of 
evidence  which  obtain  in  the  judicial  courts  ;  but  its  authority  is 
doubtful,  as  the  expulsion  also  took  place  in  the  absence  of  the 
accused  and  without  notice  to  him,^ — which  was  a  more  conclu- 

1  White  V.  Brownell,  4  Abb.  Pr.  (n.  172.  It  is  hence  no  objection  that  a 
s.)  (N.  Y.)  162;  aflSrming  s.  c.  3  Id.  witness  was  not  properly  sxoorn: 
318.  Pitcher  v.  Chicago  Board  of  Trade,  121 

2  Ante,  §  881.  111.    412;    13  Northeast.  Rep.  187;  11 

3  See  in  illustration  of  this,  the  case  West.  Rep.  38 ;  2  R.  &  Corp.  L.  J.  89. 
of  Labouchere  v.  Earl  of  Wharncliffe,  ^  People  v.  Board  of  Police  Com- 
13  Ch.  Div.  346,  350,  where  the  rules  missioners,  20  Hun  (N.  Y.),  402. 

of  the  club  required  the  committee  to  <'  Loubat   v.  Leroy,  15  Abb.  N.  C. 

proceed  after  "  inquiry,"  aud  the  ob-  (N.  Y.)  1.     S.  P.  Pitcher  v.  Chicago 

servations  of  Jessel,  M.  R.,  thereon.  Board  of  Trade,  supra. 

*  People  V.  New  York  Commercial  '  Ibid. 

Association,  18  Abb.  Pr.  (N.  Y.)  271;  ^  Washington  &c.  Soc.  v.  Bacber,  20 

Ex  parte  Ramshay,  18  Ad.  &  El.  (n.  s.)  Pa.  St.  426. 
730 


COKPORATE  PROCEEDINGS  TO  EXPEL.   [1  Thomp.  Corp.  §  899. 

sive  ground  in  support  of  the  decision  of  the  court.  And  finally, 
it  should  be  said  that  in  all  proceedings  for  the  expulsion  of 
members  of  such  an  organization,  the  provisions  of  the  constitu- 
tion relating  thereto  must  be  strictly  followed  out,  otherwise  the 
expelled  member  will  be  entitled  to  relief  in  the  judicial  courts.^ 

§  898.  Necessitj'  of  a  Sentence  of  Expulsion.  —  Except  in 
those  cases,  chiefly  in  mutual  benefit  societies,  which  proceed  on  a 
principle  analogous  to  mutual  insurance,  where  the  non-payment 
of  dues  after  notice,  ipso  factOy  works  a  forfeiture  of  member- 
ship,^  the  trial  of  the  charges  against  the  member  is  nugatory, 
except  as  an  acquittal,  unless  it  results  in  a  formal  sentence  of 
expulsion.  It  is  not  meant,  by  this  statement,  to  convey  the 
idea  that  any  particular  form  of  sentence  is  required  by  the  law. 
The  idea  is  that  there  must  be  an  actual  expulsion,  which  must 
take  place  in  form  of  a  corporate  act^  declaring  the  member  to 
be  expelled.^ 

§  899.  Right  of  Appeal.  — Where,  by  the  laws  governing  the 
society,  a  right  of  appeal  exists  from  the  judicatory  passing  the 
sentence  of  suspension  to  a  higher  judicial  body,  or  to  the  society 
at  large,  it  will  be  a  good  ground  of  reinstatement  that  this  right 
has  been  denied  to  the  accused.  And  where  a  right  of  appeal 
was  given  by  the  constitution  of  the  society,  it  was  held  that  he 
was  entitled  to  be  reinstated,  because  this  right  had  been  denied 
him,  although  there  was  a  by-law  providing  that  the  decision  of 
the  committee  by  which  he  had  been  suspended  should  be  final. 
The  reason  was  that  where  there  is  a  by-law  conflicting  with  the 
constitution  of  the  society,  the  constitution  and  not  the  by-law, 
must  prevail,  and  further,  that  the  member  ought  not  to  lose  his 
right  of  membership  on  a  question  of  doubtful  construction,  es- 
pecially as  property  rights  were  involved.*  It  has  been  held, 
but  upon  grounds  which  are  certainly  not  obvious,  that  the  pro- 
testing member  of  a  mercantile  exchange  is  entitled  to  an  appeal 

1  Loubat  V.  Leroy,  15  Abb.  N.   C.  Com.  v.    German    Society,  15  Pa.  St. 
(N.  Y.)  1,  45  note.  251 ;  ante,  §  817. 

2  Ante,%  881.  *  Powell  v.  Abbott,  9  "Week.  Notes 

3  Cora.  V.   Pennsylvania  Beneficial  Cas.  231  (Philadelphia  Court  of  Corn- 
Institution,   2   Serg.  &   R.   (Pa.)  141;  mon  Pleas). 

731 


1  Thomp.  Corp.  §  904.]     expulsion  or  members. 

from  its  board  of  arbitrators  to  its  board  of  appeals,  on  the  mere 
question  of  jurisdiction,  without  submitting  the  whole  merits  of 
the  controversy  to  the  board  of  appeals,  as  he  was  required  by 
the  board  to  do,  in  order  to  have  his  appeal  allowed. ^ 


Article  III.     Judicial  Proceedings  to  Beinstate. 


Section 

904.  Mandamus  to  restore  member. 

905.  Mandamus  to  compel  corporation 

to  admit  a  member. 

906.  The  return. 

907.  Practice  under  the  writ. 

908.  Visitorial  powers    exercised    by 

the  courts. 

909.  Eemedy  by  injunction. 

910.  Injunction    in  case  of  unincor- 

porated societies. 

911.  Injunction  in  case  of  religious 

societies. 

912.  Member  must  first  exhaust  his 

remedy  within  the  society. 

913.  Injunction  not    granted    to    re- 

strain proceedings  before  cor- 
porate judicatories. 

914.  Principles  on  which  courts  pro- 

ceed. 

915.  Further  of  this  subject. 

916.  Contract  to    exercise    judgment 

bona  fide. 

917.  Another  statement  of  the  princi- 

ple :  corporation  not  permitted 
to  exercise  trust  corruptly. 

918.  Courts  do  not  sit  as  courts  of  ap- 

peal from  decisions  of  com- 
mittee or  club  in  such  cases. 


Section 

919.  Not  sufficient  that  the  decision 

contrary  to  reason. 

920.  Regularity    of  suspension    pre- 

sumed    until     contrary     ap- 
pears. 

921.  Effect  of  acquiescence. 

922.  Jurisdiction    of  corporate  com- 

mittee not  ousted  by  fact  of 
judicial  investigation. 

923.  Doctrine  that  courts  will  not  in- 

terfere except  where  property 
rights  are  involved. 

924.  Courts  will  not  enforce  decisions 

of  judicatories  of  unincorpo- 
rated societies. 

925.  Suspension    of    a    lodge,    when 

void  and  wlien  voidable. 

926.  Action  for  damages  for    the  ex- 

pulsion. 

927.  Action  for  damages  against  re- 

ligious corporation. 

928.  Criminal    information    for    dis- 

franchisement       of        mem- 
bers. 

929.  Articles  of  the  peace  by  one  part- 

ner against  another. 

930.  Action  against    judge    for  con- 

demning without  notice. 


§  904.  Mandamus  to  Restore  Member. —  Ever  since  the  de- 
cision of  the  Court  of  King's  Bench  in  Bagg's  Case,^  and 
possibly  long  before,  the  writ  of  mandamus  has  been  the  usual 
and  undoubted  remedy  to  restore  an  officer  of  a  corporation  who 
has  been  unlawfully  amoved,^  or  a  member  of  a  corpo- 
ration    who     has     been    unlawfully    suspended,    expelled    or 


1  Savannah    Cotton    Exchange    v. 
State,  54  Ga.  668. 
732 


2  11  Co.  Rep.  93,  99  (anno  1616). 
8  Ante,  §  829. 


JUDICIAL   PROCEEDINGS   TO   REINSTATE.      [1  Thomp.  Coi'p.  §  904:. 


otherwise  disfranchised.^  As  already  seen,^  by  the  principles  of 
the  common  law  of  England,  the  writ  of  mandamus  extends  only 
to  the  vindication  of  rights  of  a  public  nature ;  but  as  there 
pointed  out,  it  is  used  in  the  United  States  to  vindicate  rights  in 
private  corporations.  Accordingly,  we  shall  hereafter  see  that  it 
is  constantly  used  to  compel  tlie  directors  or  managers  of  such 
corporations  to  accord  to  their  stockholders  the  privilege  of  in- 
specting the  corporate  bool's,  at  reasonable  times  and  under  reason- 
able conditions.^  So,  mandamus  lies  to  restore  a  subscriber  to 
the  capital  stock  of  a  joint-stock  corporation^  who  has  been  struck 
from  the  subscription  list  without  notice;  *  to  compel  an  incor- 
porated j^?*e  company  to  readmit  a  member  who  has  been  unlaw- 
fully excluded  from  membership  ;  ^  to  restore  a  member  of  an 
incorporated  merchants'  exchange^  or  of  an  incorporated  benevo- 
lent ^  social,^  scientific  society.^    According  to  a  recent  case  in  Cali- 


1  Res  V.  Mayor  &c.  of  Doncaster, 
Sayer,  37 ;  Rex  v.  Mayor  &c.  Doucaster 
(a  different  case),  2  Ld.  Raym.  1566; 
Prohurst's  Case,Carthew,  1G8;  Delacy 
V.  Neuse  River  Nav.  Co.,  1  Hawks  (N. 
C),  274;  People  v.  Fire  Department, 
31  Mich.  458;  Savannah  Cotton  Ex- 
change V.  State,  54  Ga.  668;  Fuller 
V.  Trustees,  6  Coun.  532;  People  v. 
Medical  Society,  32  N.  Y.  187,  192; 
People  V.  Medical  Society,  24 
Barb.  fN.  Y.)  572;  Com.  v.  St. 
Patrick's  Benevolent  Society,  2 
Biun.  (Pa.)  441;  s.  c.  4  Am.  Dec. 
453;  Green  v.  African  Methodist 
Episcopal  Society,  1  Serg.  &.  R. 
(Pa.)  254;  Com.  v.  Pike  Beneficial  So- 
ciety, 8  Watts  &  S.  (Pa.)  247;  Com.  v. 
German  Society,  15  Pa.  St.  251;  Black 
&  White  Smith's  Society  v.  Van  Dyke, 
2  Whart.  (Pa.)  309,  312;  s.  c.  30  Am. 
Dec.  263;  P<;ople  v.  St.  Franciscus 
Benevolent  Society,  24  How.  Pr.  (N. 
Y.)  216;  Sleeper  v.  Franklin  Ly- 
ceum, 7  R.  I.  523;  Sibley  w.  Carteret 
Club,  40  N.  J.  L.  295.  In  Otto  v.  Tai- 
lors' &c.  Uuiou,  75  Cal.  308,  313,  the 
remedy  by  mandamus,  called  in  the 
code  of  procedure  of  that  State  "  man- 
date,"  was  held  proper  to  restore  a 


member  of  a  voluntary  unincorporated 
association  who  had  been  expelled 
without  a  proper  trial;  but  this  de- 
cision is  quite  out  of  line  with  the 
judicial  authorities. 

2  Ante,  §  829. 

3  Post,  Ch.  87. 

*  Delacy  v.  Meuse  River  Nav.  Co., 

1  Hawks  (N.  C),  274. 

*  People  V.  Fire  Department,  31 
Mich.  458. 

6  Savannah  Cotton  Exchange  v.  The 
State,  54  Ga.  668. 

'  People  V.  St.  Franciscus  Benevo- 
lent Soc,  24  How.  Pr.  (N.  Y.)  216; 
Cora.   V.  St.  Patrick  Benevolent  Soc, 

2  Biun.  (Pa.)  441;  s.  c.  4  Am.  Dec.  453; 
Green  v.  African  Methodist  Episco- 
pal Soc,  1  Serg.  &  R.  (Pa.)  254.  See 
also  Com.  v.  German  Soc,  15  Pa.  St. 
251;  Society  &c.  v.  Commonwealth,  52 
Pa.  St.  125;  Black  &  White  Smiths' 
Soc.  V.  Vandyke,  2  Whart,  (Pa.)  309; 
s.  c.  30  Am.  Dec.  263;  Com.  v.  Pike 
Beneficial  Soc,  8  Watts.  &  S.  (Pa.)  247. 

8  Sibley  v.  Carteret  Club,  40  N.  J. 
L.  295. 

3  People  V.  Medical  Society,  24 
Barb.  (N.  Y.)  570;  People  tj.  Medical 
Society,  32  N.  Y.  187. 

733 


1  Thomp.  Corp.  §  905.]     expulsion  of  members. 

fornia,  "  courts  will  interfere  [by  "  'mandale'''\  for  the  purpose 
of  protecting  property  rights  of  members  of  unincorporated  asso- 
ciations, in  all  proper  cases,  and  when  they  take  jurisdiction,  will 
follow  and  force,  so  far  as  applicable,  the  rules  applying  to  in- 
corporate bodies  of  the  same  character."  ^ 

§  905.  Mandamus  to  Compel  Corporation  to  Admit  a  Mem- 
ber. —  As  already  pointed  out,^  the  writ  of  mandamus  was  used 
at  common  law  to  compel  a  corporation  io  swear  in  an  officer  who 
had  been  duly  elected  or  appointed  to  a  corporate  office.  On 
analogous  principles,  if  the  charter  of  a  corporation  is  such  that 
a  person  possessing  a  given  qualification  has  a  rigid  to  become  a 
member  of  it,  he  may  have  a  mandamus  to  compel  the  corpora- 
tion to  admit  him  in  ease  they  refuse.  Thus,  where  a  licensed 
physician,  having  the  qualifications  which,  under  a  statute  of  New 
York,  entitled  him  to  become  a  member  of  a  certain  medical  so- 
ciety, was  refused  membership,  on  the  alleged  ground  that  he 
had  at  some  time  been  guilty  of  acts  of  empiricism,  by  advertis- 
ing in  the  public  journals,  etc.,  —  it  was  held  that  the  code  of 
medical  ethics,  adopted  by  the  society,  applied  to  members  only; 
that  it  could  have  no  application  to  one  who  had  not  been  a  party 
to  it,  and  consequently,  that  the  society  should  be  compelled  by 
mandamus  to  admit  the  relator.^  Speaking  upon  this  question, 
Porter,  J.,  used  the  following  language  :  "  When  a  party,  having 
a  clear  presumptive  title,  applies  to  be  admitted  to  the  exercise 
of  a  corporate  franchise,  the  application  should  not  be  denied, 
unless  the  right  of  immediate  expulsion  be  plain  and  unquestioned. 
The  general  policy  of  the  law  is  opposed  to  sharp  and  summary 
judgments,  where  the  party  whose  rights  are  in  jeopardy  has  no 
opportunity  to  be  heard  in  his  own  defense."  *  On  the  other 
hand,  it  has  been  held  that  the  jurisdiction  of  a  representative 
body,  composed  of  members  selected  by,  and  delegated  to  it  by 
other  bodies,  to  judge  of  the  qualification  and  election  of  its 
members,  is  a  power  necessarily  incident  to  bodies  of  such  com- 

1  Otto    V.   Tailors'    &c.   Union,    75      187.     Compare  People  v.  Medical  So- 
Cal.    308,     313,     opinion     by    Searls,      ciety,  24  Barb.  (N.  Y.)  570. 

C.  J.  •*  People   V.  Medical   Soc,  32  N.  Y. 

2  Ante,  §  829.  187,  190;  citing  Bagg's  Case,   11  Co. 

3  People  V.  Med.    Society,  32  N.  Y.      Rep.  Dii. 

734 


JUDICIAL   PROCEEDINGS    TO    REINSTATE.       [1  Thomp.  Corp.   §  906. 

position.  In  most  instances,  the  investigation  must  be  summary 
in  its  proceedings,  and  in  the  absence  of  statutory  provisions,  or 
regulations  by  by-laws,  is  discretionary  in  the  mode  of  procedure. 
Thus,  the  Medical  Society  of  New  Jersey,  incorporated  by  act  of 
the  legislature,  was  composed  of  delegates  chosen  by  and  from 
each  of  the  district  or  county  societies,  instituted  by  its  authority. 
In  the  county  of  H.,  two  separate  organizations  were  maintained, 
each  claiming  to  be  District  Medical  Society  of  the  county  of  H. 
Two  sets  of  delegates,  chosen  by  their  organizations,  appeared 
and  claimed  admission  as  members  of  the  State  Society.  It  was 
held  that  it  was  competent  for  the  State  Society,  in  determining 
the  election  of  its  members,  to  ascertain  and  decide  which  of  the 
organizations  was  the  district  society,  and  that  the  facts  might  be 
ascertained  through  the  medium  of  a  committee.^ 

§  906.  The  Return. —  What  has  been  said  in  a  former  chap- 
ter concerning  the  use  of  the  writ  of  mandamus  to  restore  an 
officer  who  has  been  unlawfully  amoved,^  may  be  usefully  read 
in  connection  with  what  is  said  in  this  chapter  on  the  same 
subject;  and  perhaps  the  use  of  this  writ  in  both  con- 
nections might  better  have  been  treated  together.  As  there 
pointed  out,  by  the  ancient  common  law,  the  rule  in  re- 
spect of  the  return  to  the  writ  of  mandamus  was  the  same  as 
in  the  case  of  a  sheriff's  retnrn ;  it  could  not  be  contradicted,  and, 
if  it  were  false,  the  only  remedy  of  the  relator  lay  in  an  action 
for  damages  for  a  false  return.^  This  fact  of  the  conclusiveness 
of  the  return  led  the  conrts  to  great  strictness  in  requiring  the 
return  to  set  out  all  the  facts  on  which  the  respondents  justified 
their  action,  and  this  rule  has  been  continued,  with  little  deviation, 
to  the  present  time,  even  in  those  courts  where,  as  now  in  En- 
gland,  the  ancient   rule  is    abolished,   and   the  return  may  be 

1  State  V.   Medical  Society  &c.,  38  jection.     State    v.    Sibley,    25  Minn. 

N.  J.   L.  377.     A  merely  iuadvertent  387. 

omission  to  sign  the  by-laws  and  con-  2  ^^^c^  §  829,  et  seq. 

stitution   adopted    by  a  corporation,  3  Bass's  Case,  11  Co.  Rep.  93,  99. 

will  not  invalidate  a  raembership  that  This  rule   continued  in  Pennsylvania 

has  been  asserted  by  a  party  claiming  down   to  the  time  of  the  decision  of 

it,  and  distinctly  recognized  and  ac-  Green  v.  African  Methodist  Episcopal 

quiesced   in  by  the  corporation,  for  a  Society,    1    Serg.  &  li.  (Pa.)  254,  and 

long  period  of  time,  without  any  ob-  perhaps  later. 

735 


1  Thomp.  Corp.  §  906.]     expulsion  of  members. 

traversed  in  the  same  proceeding.  "  It  is  certainly  true,"  said 
Lord  Mansfield,  **  that,  where  an  amotion  is  concerned,  the  re- 
turn must  set  out  all  the  necessary  facts  precisely,  to  show  that 
the  person  is  removed  in  a  legal  and  proper  manner,  and  for  a 
legal  and  proper  cause.  It  is  not  sufficient  to  set  out  conclusions 
only;  they  must  set  the  facts  themselves  out  precisely,  that  the 
court  may  be  able  to  judge  of  the  matter.  And  so  it  is  also,  as 
to  the  cause  of  amotion.  This  must  be  set  out  in  the  same  man- 
ner, that  the  court  may  judge  of  it."  ^  Although,  as  already 
pointed  out,^  this  rule  was  changed  by  statute  in  the  reign  of 
Queen  Anne, —  this  doctrine,  that  the  return  must  set  forth  dis- 
tinctly the  fact  and  also  the  cause  of  the  amotion,  suspension, 
expulsion,  or  other  disfranchisement,  of  the  relator,  is  reiter- 
ated in  several  modern  cases. ^  The  rule  still  obtains  under 
the  modern  practice,  to  the  extent  that  the  return  to  such  a 
mandamus  must  distinctly  set  forth  all  the  facts  authorizing 
the  amotion,  in  order  that  the  court  may  judge  of  its  suffi- 
ciency, both  as  to  the  cause  and  the  form  of  the  proceed- 
ings. Thus,  where  the  charter  of  a  corporation  provided 
that,  on  the  conviction  of  a  member  upon  certain  charges 
"on  the  deposition  of  two  or  more  credible  witnesses "  he 
should  be  expelled,  the  return  to  a  mandamus  to  restore  such 
member  was  held  insufficient  for  not  stating  that  at  least  two 
witnesses  were  heard  in  support  of  the  charge,  and  that  the  same 
was  either  proved  or  confessed.*  In  an  old  case  where  the  man- 
damus was  sought  to  restore  the  relator  to  the  office  of  capital 
burgess,  from  which  he  had  been  amoved,  tlie  return  was  that,  as 
a  chamberlain  of  the  borough,  he  obstinately  and  voluntarily  re- 
fused to  obey  several  orders  and  laws  made  for  the  good  of  the 
borough,  contrary  to  the  duties  of  his  office.     This  was  held  in- 

1  Eex  V.  Town  of  Liverpool,  2  Burr.      C.  J.,  in  a  case  decided  in  the  year 
723,  731;  s.  c.  2  Esp.  324.  1815,     "Those    who  make    a  return 

2  Ante,  §  833.  to  a  mandamus,   have  this  great  ad- 
2  Green  v.  African  Methodist  Epis-      vantage  that  their  proceedings  cannot 

copal  Society,  1  Serg.  &  II.  (Pa.)  254;  be    contradicted  in    the  proceedings 

Cora.  V,  German  Society,  15  Pa.  St.  on  the  mandamus,  although  if    it  be 

251,255;  Sleeper  w.  Franklin  Lyceum,  false  they  are  liable  to  an    action." 

7  R.   I.  523.    The  ancient    rule  con-  Green  v.  Mrican  Methodist  Episcopal 

tinued    in   Pennsylvania    long    after  Soc,  1  Serg.  &  11.  (Pa.)  254. 
it  had  been  abolished  in    England.  <  Cora.  v.  German  Soc.   15,  Pa.  St. 

Thus    it    was      said    by     Tilghman,  251. 
736 


JUDICIAL   PROCEEDINGS    TO   REINSTATE.      [1  Thomp.  Corp.    §  908. 

sufficient,  as  the  several  orders  and  la\c-s  should  have  been  set 
forth  specifically. 1  In  another  case  it  was  held  that  a  general 
charge,  in  such  a  return,  of  neglect  and  omission  of  duty  in  the 
officer  who  had  been  removed  from  his  office  was  insufficient. ^ 

§  907.  Practice  under  the  Writ.  —  What  has  already  been 
said  under  this  head  in  the  preceding  chapter,'  may  be  usefully 
referred  to  here;  and  it  should  be  borne  in  mind  that  questions 
of  i)ractice  are  to  be  referred  to  rules  which  obtain  in  each  local 
jurisdiction.  It  has  been  held,  in  respect  of  the  use  of  the  writ 
of  mandamus  in  this  connection,  that,  in  order  to  enable  the  cor- 
poration to  set  out  specifically  in  its  return  the  ground  of  its 
action,  the  writ  may  be  ordered  to  issue  in  the  alternative,  com- 
manding the  corporation  either  to  restore  the  applicant  to  his 
rights  of  membership,  or  to  show  good  cause  to  the  contrary;  * 
and  this  is  believed  to  be  the  usual  practice. 

§   90S.  Visitorial  Powers  Exercised  by  the  Courts.  —  It  is 

said  in  Wisconsin,  by  Mr.  Justice  Lyon,  speaking  for  the  court : 
"  The  visitorial  or  superintending  power  of  the  State  over  corpo- 
rations, created  by  the  legislature,  will  always  be  exercised,  in 
proper  cases,  through  the  medium  of  the  courts  of  the  State, 
to  keep  those  corporations  within  the  limits  of  their  lawful  pow- 
ers, and  to  correct  and  punish  abuses  of  their  franchises.  To 
this  end,  the  courts  will  issue  writs  of  quo  loarranto,  mandamus, 
or  injunction,  as  the  exigencies  of  the  particular  case  may 
require;  will  inquire  into  the  grievance  complained  of,  and,  if 
the  same  is  found  to  exist,  will  apply  such  remedy  as  the  law 
prescribes.  Every  corporation  of  the  State,  whether  public  or 
private,  civil  or  municipal,  is  subject  to  its  superintending  con- 
trol, although  in  its  exercise,  different  rules  may  be  applied  to 
different  classes  of  corporations."  ^ 

1  Rex  17.  Mayor  &c.  of  Doncaster,  2  Commerce,    47    Wis.    671,   679.     The 
Ld.  Raym.  15()C.  court  referred  to  State  v.  Chamber  of 

2  Rex  V.  Mayor  &c.   of  Doncaster,  Commerce,  20  Wis.  63,  and  Dickenson 
Sayer,  37.  v.  Chamber  of  Commerce,  29  Wis.  45, 

3  Ante,  §§  839,  840.  as  instances  of  the  exercise  of    this 

*  Sleeper  v.  Franklin  Lyceum,  7  R.      jurisdiction  in    the   case  of   members 
!•  623.  expelled    or  threatened    with    expul- 

*  State   V.  Milwaukee   Chamber  of      sion.    The  court  also  took  occasion 

47  737 


1  Thomp.  Corp.  §  909.]     expulsion  of  members. 

§  909.  Remedy  by  Injunction. —  Where  the  rule  in  respect 
of  injunction,  which  denies  a  resort  to  this  remedy  where  the 
coini)laiuaut  has  an  adequate  remedy  at  Imv,  has  not  been  modi- 
lied  by  statute  or  by  judicial  decisions,  it  logically  follows  that 
as  an  officer  or  member  of  a  corporation  who  has  been  unlaw- 
fully removed,  suspended,  expelled,  or  otherwise  disfranchised, 
has  a  remedy  by  mandamus  to  effect  his  restoration,  that  is,  a 
remedy  at  law,  he  cannot  resort  to  the  equitable  remedy  by  in- 
junction. But  the  strictness  of  this  rule  is  considerably  broken 
into  in  several  American  jurisdictions,  either  by  force  of  statute 
or  by  the  course  of  judicial  decisions,  so  that  now  it  frequently 
happens  that  relief  by  injunction  is  awarded,  even  when  applied 
for  by  an  officer  or  a  member  of  a  corporation.^  In  one  Ameri- 
can jurisdiction  the  remedy  by  injunction  has  been  denied,  on 
the  doubtful  ground  that  an  injunction  does  not  issue  to  undo 
what  has  been  done,  but  only  to  avert  threatened  injuries,  and 
that  it  therefore  will  not  issue  to  restore  a  member  of  a  cor- 
poration who  has  been  expelled,  —  proceeding  upon  the  view  that 
the  remedy  of  the  complainant,  if  any,  is  at  law.^  In  Pennsyl- 
vania a  remedy  by  injunction  is  accorded,  on  the  ground  that, 
"  a  writ  of  mandamus  would  not  secure  to  the  plaintiff  the  pro- 
tection which  he  seeks.     The  object  of   that  writ   would  be  to 

to  deny  the  doctrine  of  People  v.  cases,  in  whicli  tlie  respective  corn- 
Board  of  Trade,  80  111.  134,  where  the  plainants  sought  to  restrain  the  board 
Supreme  Court  of  Illinois  substantially  from  expelling  them,  or  to  compel  it 
decided  that  the  power  of  the  Chicago  to  restore  them  after  expulsion;  yet 
Board  of  Trade  to  enact  by-laws  for  the  doctrine  of  the  People  v.  Board  of 
its  own  government  was  unlimited,  Trade,  80  111.  134,  is  referred  to  hypo- 
and  that  the  court  would  not  interfere  thetically  in  the  opinions  of  the  court, 
with  any  by-law  thus  enacted,  or  re-  and  no  mention  whatever  is  made  of 
vise  any  proceeding  thereunder.  The  that  case.  Whether  that  learned  and 
court  said:  "The  case  seems  in  con-  able  court  adhere  to  that  doctrine  or 
liict  with  earlier  decisions  of  that  not,  we  are  unable,  as  at  present 
court,  and  we  are  not  aware  that  the  advised,  to  adopt  it  as  the  law  of  this 
court  has  re-asserted  any  such  doc-  court." 

trine,  although  it  has  since  considered  ^  Dickenson  v.  Chamber  of  Corn- 
several  cases  involving  the  legality  of  merce,  29  Wis.  45.  See  also  Tipton 
the  proceedings  of  the  same  Board  of  Fire  Co.  v.  Barnheisel,  92  Ind.  88. 
Trade.  See  Fisher  v.  Chicago  Board  ^  Baxter  v.  Chicago  Board  of  Trade, 
of  Trade,  80  111.  84;  Sturges  v.  83  111.146;  Sturges  i?.  Chicago  Board 
Same,  86  111.  441;  Baxters.  Same,  of  Trade,  86  111.  441;  Pitcher  v. 
83111.146.  True,  these  were  equity  Chicago  Board  of  Trade,  121111.412. 
738 


JUDICIAL    PROCEEDINGS    TO    REINSTATE.       [1  Thomp.  Corp.    §   910. 

restore  him  to  his  rights  as  a  member,  if  he  had  been  improp- 
erly suspended.     In  the  meanwhile  there  might  be  a  threatened 
sacrifice  of  his  property,  as  complained  of  by  him."  ^     This  was 
well  said ;   and  in  considering  whether  the  remedy  at  law  is  in 
such  a  case  adequate,  it  should  be  remembered  that  a  prelimin- 
ary injunction  operates  as  an  immediate  restoration  of  the  com- 
plainant to  his  rights  of   membership,   which   restoration  con- 
tinues 2?enc?en^e  lite;   whereas,  if  he  is  driven  to  a  mandamus,  he 
is  not  restored  until  the  final  judgment,  which  may  not  take 
place  until  years  have  elapsed,  in  an  appellate  court  of  last  re- 
sort.    In  the  meantime,  if  the  corporation  from  which  he  has 
been  expelled  is  a  chamber  of  commerce,  merchants'  exchange, 
brokers'  board,  or  other  like  society,  he  is  deprived,  pending  the 
litigation,  of  the  privilege  of  trading  on  its  floor  as   a  member, 
which,  as  is  well  known,  is  in  many  cases  a   privilege    of  great 
value  —  indeed  indispensable  to  some  merchants  and   brokers. 
Nor  does  the  view  of  the  Illinois  court  seem  to  be  sound,  in  so 
far  as  it  proceeds  upon  the  ground  that  it  is  not  the  office  of  an 
injunction  to  undo  what  has  already  been  done.     For  the  theory 
of  the  law  is  that  if  the  member  has  been  unlawfully  suspended 
or  removed,  the  sentence  of  suspension  or  expulsion  is  void,  and 
he  is  still  a  member.    In  such  a  case,  the  true  office  of  the  injunc- 
tion is  to  restrain  the  corporation,  its  officers,  agents  and  servants, 
from  iuterfeiino;  in  the  future  with   his  rights  as  a  member.''' 

§  910.  Injunction  in  Case  of  Unincorporated  Socie- 
ties. —  In  certain  subordinate  courts  of  New  York,  the  an- 
cient distinction  is  taken  that,  while  mandamus  is  the  proper 
remedy  where  the  party  aggrieved  seeks  a  restoration  to  mem- 
ber-hip in  a  corporation,^  yet  wiiere  the  society  is  not  incor- 
porated, the  remedy  is  by  suit,  that  is,  by  an  action  for  an  order 
of  restoration,  tantamount  to  a  proceeding  by  injunction.^     And 

1  Powell  V.  Abbott,  9  Week.  Notes  member  Tvho  had  been  suspended  for 
Cas.  (Pa.)  2.51  (Philadelphia  Court  of  the  non-payment  of  a  fine  i  legally  im- 
Coinmon  Pleas).  posed,     Aibers     v.     Merchants     Ex- 

2  Upon  this  ground  the  St.  Louis  change,  March,  1800,  not  yet  reported. 
Court  of  Appeals  afllrraed  a  decree  ^  People  v.  New  York  Benevolent 
against  the  Chamber  of  Commerce  of  Society,  3  Ilun  (N.  Y.),  3G1. 

St.   Louis  and  its  directors,  in  a  pro-  ^  Fritz  u.  Muck,  C2   How.  Pr.    (N. 

ceediug  by  injunction  instituted  by  a      Y.)  09. 


1  Thomp.  Corp.  §  911.]     expulsion  of  members. 

this  brings  us  to  the  statement  that  the  usual  relief,  where  mem- 
bers of  unincorjoorated  clubs  or  other  societies  are  unlawfully 
suspended  or  expelled,  is  by  an  injunction  in  a  court  of  equity.^ 
In  Pennsylvania,  injunctions  are  granted  to  restore  members  who 
have  been  illegidly  expelled  from  voluntary  associations,  because 
chancery  jurisdiction  to  control  unincorporated  societies  or  asso- 
ciations has  been  created  in  that  State  by  statute. ^ 

§  911.    Injunction    in    Case    of      Religious     Societies. — It 

should  also  be  observed  that,  in  the  case  of  religions  societies, 
where  a  church  or  other  religious  congregation  breaks  into 
factions,  owing  to  differences  of  doctrine  or  other  causes,  and 
there  is  a  struggle  between  the  factions  for  the  possession  of  the 
church  edifice  or  other  temporalities,  the  usual  and  regular 
remedy  is  in  a  court  of  equity,  whose  procedure  alone  is  suffi- 
ciently flexible  to  deal  with  such  an  extraordinary  matter.^ 
The  wrongful  and  violent  seizure  of  the  edifice  and  property  be- 
longing to  a  church  of  a  congregational  form  of  government, 
by  a  minority  of  the  members,  contrary  to  the  wishes  of  the 
majority,  the  deposition  of  the  officers  of  the  church  and  the 
trustees  who  hold  the  property,  and  the  retention  and  use 
thereof  by  the  minority  to  the  exclusion  of  the  majoiity,  furnish 
good  grounds  for  equitable  relief.*     In  such  a  case  a  court  of 

1  Fishery.  Keane,  11  Ch.  Div.  353;  their  power  illegally,  then  the  court 

Labouchere  v.  Earl  of  Wharncliffe,  13  has  jurisdiction  to  interfere." 
Ch.  Div.  346;  Dawkins  «.   Antrobus,  ^  Pennsylvania  Act  of    June    16th, 

17  Ch.  Div.  615;  Lambert  v.  Addison,  1836;  Leech  v.  Harris,  2Brewst.  (Pa.) 

46  L.  T.  (N.  s.)  20,  24;  Leech  u.  Har-  671,  576. 

ris,  2  Brewst.  (Pa.)    571,  576  (juris-  ^  Bouldin  v.    Alexander,   15  Wall, 

diction  created  by  statute).    In  Daw-  (U.  S.)  131;  Bates  v.  Houston,  66  Ga. 

kins  17.  Antrobus,  s?<75ra,  the  propriety  198;  Brunnenmeyer  v.  Buhre,    32  111, 

of  the  remedy  by  injunction  in  such  183;  Eoshi's  Appeal,  69  Pa.  St.  462; 

cases    is    conceded.     In    Lambert  v.  Kerr  v.  Trego,  47  Pa.    St.   295;  Lu- 

Addison,  swpra,  Kay,  J.,  said:  "The  theran  Evangelical  Church  u.  Gristgau, 

jurisdiction  of  the  court  in  cases  of  34  Wis.  328,  336;  Gable  v.   Miller,  10 

this  kind  is  undoubted,  and   I  think  Paige     (N.  Y.),     627.    But  see    Lu- 

the  limit  of  that  jurisdiction  has  been  theran  Church w.Maschop,  10  N.  J.  Eq. 

carefully  defined.     If    the  committee  67;     Baptist    Church     v.     Witherell, 

of  a  club  having  the  power  to  expel  a  3  Paige    (N.  Y.),    296,  (overruled,    it 

member,  exercise  their  power  in  good  seems,  by  Gable  v.  M  Her,  supra). 
faith   and   legally,  the  court    has   no  *  Bates  u.  Houston,  66  Ga.  198;  s.c. 

power  to   interfere  by   an   injunction  9  Am.  Corp.  Cas.  47.     See  also  Bouldin 

to  restrain    them.    If    they    exercise  v.  Alexander,  15  Wall.  (U.  S.)  131. 
740 


JUDICIAL  PROCEEDINGS   TO   REINSTATE.      [1  Thomp.  Coi'p.   §  912. 

equity  will  determine,  upon  the  proofs,  who  are  the  trustees  of 
the  church,  entitled  to  the  possession  of  its  temporalities. ^  The 
trustees  are  those  who  have  been  regularly  constituted  such  :  per- 
sons elected  by  a  portion  of  the  congregation  at  a  meeting  other 
than  a  regular  meeting  are  not  such  trustees.  Where  a  person 
conveys  land  in  fee  to  trustees  for  the  use  of  such  a  religious 
society,  the  trustees  named  in  the  deed  are  not  removable  at  the 
will  of  the  members  of  the  society,  and  without  cause  shown. ^ 
Acquiescence  of  the  society  or  club  in  the  resolution  of  expul- 
sion passed  by  its  governing  committee,  affords  no  reason,  it  has 
been  said,  for  the  approval  of  the  proceeding,  or  for  the  accept- 
ance of  the  result  by  a  judicial  court  when  appealed  to  by  the 
expelled  member.  Nor  is  he  to  suffer  disadvantage  because  his 
fellow  members  do  not  call  a  special  meeting  to  reconsider  the 
resolution  of  expulsion.  He  was  not  bound  to  ask  for  such  a 
meeting.^  Where  the  society  is  a,  partneiship,  so  that  the  ex- 
l^elled  member  has,  in  the  strict  sense,  property  rights  therein,  he 
is  entitled  to  the  protection  of  a  court  of  equity  in  respect  of 
those  rights.  If  he  is  expelled  from  the  society,  it  is  witliin  the 
power  of  such  a  court  to  inquire  into  the  reasonableiiess  and  pro- 
priety of  the  action  of  the  association,  and  to  grant  appropriate 
relief  in  the  premises.* 

§  912.  Member  must  first  Exhaust  his  Remedy  Within  the 
Society. —  Courts  of  equity  uniformly  deny  their  relief,  in  the 
cases  spoken  of  in  the  preceding  section,  unless  the  complaining 
member  has  first  exhausted  his  remedies  within  the  society.^ 
Thus,  if  an  appeal  is  given  from  the  judicatory  which  has  pass- 
ed the  sentence  of  suspension  or  expulsion,  either  to  a  higher 
judicatory  or  to  the  association  at  large,  he  cannot  appeal  to 
a  court  of  equity  until  he  has  prosecuted  such  appeal,  unless  it 
has  been  denied  him  ;  ^  or  unless,  by  evasions,  intentional  delays, 

1  Bouldin  v.  Alexander,  15  Wall.  Y.)  92;  White  v.  Brownell,  2  Daly 
(U.  S.)  131.  (N.  Y.),  329,  per  Daly,  J. ;  s.c.i.  Abb. 

2  Bouldin  v.  Alexander,  swpm.  Pr.  (n.  s.)  (N.  Y.)  162. 

3  Loubat  V.  Leroy,  15  Abb.  N.  C.  e  Carleii  v.  Drury,  1  Ves.  &  B.  154; 
(N,  Y.)  1,  41.  White  v.  Brownell,  4  Abb.  Pr.  (n.  s.) 

<  Olery  v.    Brown,    51     How.    Pr.      (N.  Y.)  1G2,  199;  s.  c.  2  Daly  (N.  Y.), 

(N.  Y.)  92.  329;  Lafond  v.  Deems,  81  N.  Y.  507; 

*  Olery  v.  Brown,  51  How.  Pr.  (N.      Loubat  v.  Leroy,  40  Hun  fN.  Y.),  546, 

741 


1  Thomp.  Corp.  §  913.]     expulsion  of  members. 

or  other  unjust  procedure,  he  is  deprived  of  the  benefit  of  any 
further  remedy  given  him  by  the  constitution  and  by-hiws  of  the 
society.^   He  must,  it  seems,  first  petition  the  governing  body  to 
reconsider  its  action,  and  to  reinstate  him  before  he  can  ap[)eal 
to  the  judicial  courts.^     If  tlie  society   is  a  subordinate  lodge  of 
a  benevolent  organization,  and  the  suspended  member  fails  to 
take  an  appeal  to  the  grand  lodge,  which  the  laws  of  the  order 
give  him,  the  validity  of  his  sus[)ension  cannot  be  collaterally  in- 
quired into  in  the  judicial  courts.^     So,  if  he  die  during  the  sus- 
pension under  such  circumstances,  his  benefit  certificate  being  for- 
feited by  the  suspension,  the  beneficiary  cannot  sustain  an  action 
thereon.*     So,  a  contest  between  two  factions  of  a  subordinate 
lodge,  touching  the  property  of  the  lodge  and  the  use  of  the  name 
of  the  lodge,   cannot  be  determined  by  the  judicial  courts,  on  a 
bill  in  equity  or  otherwise,  until  the  complaining  parties  have  ex- 
hausted their  remedy  by  appealing  to  the  grand  lodge. ^     But 
where  the   laws  of  the    society  provide  for  no  tribunal  to  pass 
upon  the  question  of  the  liability  of  the  society  to  a  member, 
he  may  appeal  directly  to  the  judicial  courts.® 

§  913.  Injunction  not  Granted  to  Restrain  Proceedings  be- 
fore Corporate  Judicatory. —  It  follows  from  what  has  been  said  that 
a  court  of  equity  will  not  restrain  such  a  bocl}^, — here  the  New  York  Pro- 
duce Exchange, —  or  its  managers  and  committees,  from  proveedlng  with 
the  investigation  of  a  complaint  against  a  member  of  a  nature  to  be  within 
their  jurisdiction,  in  advance  of  any  action  of  theirs  violating  the  rights 
of  the  accused  member,  and  merely  because  he  apprehends  that  they 
will  act  oppressively,  or  are  intending  to  force  him  to  arbitrate  a  con- 
troversy on  which  he  desires  the  judgment  of  a  court,  or  to  suspend  or 
expel  him  without  cause.  The  presumption  is  that  they  will  proceed 
reasonably  and  justly.  Upon  this  question  it  is  said  :  "  It  matters  not 
whether   this  court  or  any  other  court  is  of  the  opinion  that  the  eom- 

549;  s.  c.  15  Abb.  N.  C.  (N.  Y.)  1,  42;  -  Loubat  v.  Leroy,  40  Hun  (N.  Y.), 

Karcher  u.  Supreme  Lodge,  137  Mass.  546;  s.  c.  15  Abb.  N.   C.  (N.  Y.)  1,  42. 

368.  ^  Karcher    v.   Supreme  Lodge,  137 

1  White  V.  Brownell,  4  Abb.  Pr.  (n.  Mass.  3G8. 

s.)  (N.  Y.),  162,  199;  s.  c.  2  Daly  (N.  ^  Ibid. 

Y.),  329.    Circumstances  where  an  ap-  ^  Chamberlain  v.  Lincoln,  129  Mass. 

peal    was    not    required:    Loubat    v.  70. 

Leroy,  40  Hun  (N.  Y.),  546;  s.  c.  15  ^  Dolan  u.  Court  Good  Samaritan, 

Abb.  N.  C.  (N.  Y.)  1,  42.  128  Mass.  437. 
742 


JUDICIAL    PROCEEDINGS    TO    REINSTATE.       [1  Thomp.  Corp.    §   913. 

plaint  was  well  or  ill  founded.  It  may  have  been  entirely  trivial  and 
causeless,  but  it  was  one  which  Cathcart  [the  accusing  member]  could 
make,  and  which  the  complaint  committee  and  the  board  of  managers 
had  the  right  to  entertain  and  examine.  It  cannot  be  assumed  that 
they  would  make  an  unjust,  arbitrarj^  or  wrong  decision.  The  presump- 
tion is  that  the  board  of  managers,  composed  of  impartial  men,  ac- 
quainted with  business  practices  and  the  standards  of  commercial 
honor,  would  decide  the  question  fairly  and  dismiss  the  complaint  if  it 
was  made  from  improper  motives  and  without  sufficient  cause. ' '  ^  When, 
therefore,  the  committee  had  the  power  of  expulsion  "in  case  the  con- 
duct of  auy  member,  either  in  or  out  of  the  club  house,  shall,  in  the 
opinion  of  the  committee,  be  injurious  to  the  character  and  interests  of  the 
club,  the  committee  shall  be  empowered  to  recommend  such  member  to 
resign,"  etc.,  it  was  held  by  the  same  eminent  equity  judge,  that  the 
question  for  decision  was  not  whether  the  conduct  of  the  member  was 
realy  injurious,  bat  whether  it  was  injurious  in  the  opinion  of  the  com- 
mittee ;  for  "  then  all  that  the  court  requires  is  that  the  committee 
should  form  their  opinion  in  a  bona  fide  way.  There  is  no  power  in 
this  court  to  control  the  judgment  or  opinion  of  the  committee."  2 
Another  statement  of  the  rule  was  made  by  Brett,  L.  J. ,  in  a  more  re- 
cent case  involving  the  question.  He  said:  "The  only  question 
which  a  court  can  properly  consider  is  whether  the  members  of  the  club, 
under  such  circumstances,  have  acted  ultra  vires  or  not,  and  it  seems  to 
me  the  only  questions  which  the  court  can  properly  entertain  for  that 
purpose  are,  whether  anytliing  has  been  done  which  is  contrary  to  nat- 
ural justice,  although  it  is  within  the  rules  of  a  club, —  in  other  words, 
whether  the  rules  of  the  club  are  contrary  to  natural  justice  ;  secondly, 
whether  a  person  who  has  not  condoned  the  departure  from  them  has 
acted  contrary  to  the  rules  of  the  club,  and  thirdly,  whether  the  decis- 
ion of  the  club  has  been  come  to  bona  fide  or  not.  Unless  one  of  these 
charges  can  be  made  out  by  those  who  come  before  the  court,  the  court 
has  no  power  to  interfere  with  what  has  been  done."  ^  It  has  been  rea- 
soned in  the  same  strain,  that  the  judicial  courts  are  no  places  to  review 
routine  questions  as  to  the  regularity  of  a  committee  appointed  to  investi- 
gate charges  against  an  expelled  member.  The  relator  having  been  before 
a  committee  claiming  to  be  regular,  and  not  shown  to  be  otherwise,  should 
have  made  his  formal  objections  there  ;  and  it  will  be  presumed  that, 
if  the  proceedings  before  the  committee  were  notaccordiug  to  the  usages 

1  Hurst  u.  New  York  Produce  Ex-  2  Richardson-Gardner?;.  Freraantle, 

change,  100  N.  Y.   G05,  mem  ;  s.  c.  in  24  L.  T.  (n.  s.)  81. 
full,  I  Cent.  Rep.  260,  opinion  by  Earl,  »  Duwkins  v.  Antrobus,  17  Ch.  Div. 

J-  615,  630. 

743 


1  Thomp.  Corp.  §  913.]     expulsion  of  members. 

of  the  society,  they  would  uot  have  been  sauctioned  by  the  society.^ 
In  Wisconsin,  it  has  been  regarded  as  doubtful,  to  say  the  least,  whether 
in  such  a  case  the  court  will  look  into  the  testimony  for  such  a  purpose, 
though  the  question  was  uot  decided.'-  In  like  manner,  it  has  been 
said  by  an  eminent  American  judge:  "  Voluntary  bodies  of  this  kind 
will  be  held  to  the  fair  and  honest  administration  of  the  rules  which  are 
in  force  when  any  proceeding  is  instituted  against  a  member ;  but 
where  the  member  is  expelled  in  conformity  with  the  rules,  and  proceed- 
ings are  regular  and  in  good  faith,  it  is  final,  and  no  judicial  tribunal 
can  interfere."^  "  We  have  to  consider,"  said  Cotton,  L.  J.,  "first, 
whether  the  action  of  the  committee  and  of  the  general  board  was  au- 
thorized by  any  rule,  that  is  to  say,  whether  it  was  within  the  terms  of 
the  rule,  and  whether  it  was  regular  ;  and,  secondly,  if  these  questions 
are  answered  adversely  to  the  appellant,  whether  it  has  been  made  out 
to  the  court  that  the  proceedings  were  not  in  the  hona  fide,  honest  exer- 
cise of  the  powers  given  by  the  rule,  but  maliciously  and  fraudulently. ' '  * 
In  a  case  in  New  York,  the  court  reason  that,  in  the  case  of  an  unin- 
corporated mining  stock  board,  not  a  joint-stock  company  within  the 
statutes  of  the  State,  but  to  be  regarded  as  a  mere  voluntary  associa- 
tion, a  membership  cannot  be  regarded  as  a  franchise ;  and  that,  this 
being  so,  in  order  to  enable  a  member  threatened  with  suspension  to 
appeal  to  equity  for  an  injunction,  he  must  show  that  the  proceedings 
of  the  board,  or  of  the  quorum  of  the  board  of  which  he  complains,  were 
fraudulent  or  corrupt,  or  the  result  of  a,fraudident  conspiracy  to  deprive 
him  of  his  rights  in  the  board.  ^  It  is  believed  that  there  is  no  sub- 
stantial difference  —  at  least  in  the  conception  of  American  courts  — 
between  the  case  where  the  remedy  is  sought  in  equity  by  an  injunction, 
and  the  case  where  it  sought  at  law  by  a  mayidamus,  in  respect  of  the 
principles  upon  which  relief  is  accorded  or  denied  ;  though  the  judicial 
expressions  of  the  principle  differ  somewhat.  It  is  said  in  Pennsylvania, 
in  a  proceeding  by  mandamus,  that  "  the  courts  entertain  a  jurisdiction 
to  preserve  these  tribunals  [meaning  corporations  or  the  judicatories  of 
corporations]  in  the  line  of  order,  and  to  correct  abuses  ;  but  they  do  not 
inquire  into  the  merits  of  what  has  passed  in  rem  judicatam,  in  a  regu- 
lar course  of  proceedings."  ^ 

1  People    V.    St.    George's  Society,  ^  Rorke  v.  Russell,  2  Lans.  (N.  Y.) 
28  Mich.  2G1.  244,  lugraliara,  J.,  dissentiug. 

2  State  V.  Milwaukee   Chamber  of  ^  Com.  v.  German  See,  15  Pa.  St. 
Commerce,  47  Wis.  670,  682.  251,  255;  Com.  v.  Pike  Beneficial  See, 

3  White  V.  Brownell,  2  Daly  (N.  Y.),  8  Watts  &  S.  (Pa.)  247,  260.     See  also 
329,  359,  per  Daly,  J.  Black  &  White  Smiths'  Soc.  v.  Van 

4  Dawkins  v.  Antrobus,  17  Ch.  Div.  Dyke,  2  Whart.  (Pa.)  309;  s.  c.  30  Am. 
615,  633.  Dec.  263.     Leech  v.  Harris,   2  Brews. 


744 


(Pa.)  571. 


JUDICIAL   PROCEEDINGS   TO   REINSTATE.      [1  Thomp.  Corp.   §  914. 

§  914.  Principles  on  which  Courts  Proceed.  —  Courts  of 
equity  entertain  a  jurisdiction  in  the  case  of  voluntary  unincor- 
porated societies,  to  hold  such  societies  or  their  judicatories,  in 
dealing  with  their  members,  within  the  lines  of  their  constitu- 
tions, by-laws  or  other  regulations,  and  to  see  that  they  exercise 
their  powers  fairlt/  and  in  good  faith  ;  but  they  do  not  inquire 
into  the  merits  of  what  has  passed  in  rem  judicata7n^  in  the  reg- 
ular course  of  their  proceedings.^  It  is  but  another  statement  of 
this  principle  to  say  that  courts  of  equity  do  not  sit  as  courts  of 
ajopeal  from  such  societies  or  their  judicatories  in  such  cases. ^ 
Nor  will  they  interfere  with  their  decisions  on  the  mere  ground 
that  they  are  deemed  unreasonable J^  On  the  other  hand,  the 
courts  will  not  interfere  to  enforce  the  decrees  of  the  judicato- 
ries of  self-constituted  societies,*  even  where  property  rights 
are  involved.^     Courts  of  law  have  frequently  applied  the  same 


1  Leech  v.  Harris,  2  Brewst.  (Pa.) 
571,  676;  Cora.  v.  Pike  Beneficial  So- 
ciety, 8  Watts  &  S.  247;  Black  &  Wliite 
Smiths'  Society  v.  Vandyke,  2  Whart. 
(Pa.)309 ;  s.  c.  30.  Am. Dec.  263 ;  Society 
for  tlie  Visitation  of  the  Sick  v.  Com., 
52  Pa.  St.  125 ;  Rorke  v.  Russell,  2  Lans. 
(N.  Y.)  244;  Powell  v,  Abbott,  9 
Week.  Notes  of  Cas.  (Pa.)  231  (Phil- 
adelphia Court  of  Common  Pleas) ; 
Hutchinson  v.  Lawrence,  67  How.  Pr. 
(N.  Y.)  30,  41;  Richardson-Gardner  v. 
Fremantle,  24  L.  T.  (n.  s.)  81 ;  Hop- 
kiuson  V.  Marquis  of  Exeter,  L.  R.  5 
Eq.  63;  Burtu.  Grand  Lodge,  44  Mich. 
208;  White  v.  Brownell,  2  Daly  (N. 
Y.),  229,  359;  Manby  v.  Gresham  Life 
Assurance  Society,  29  Beav.  439, 
445;  Blisset  v.  Daniel,  10  Hare,  493; 
Dawkinsv.  Antrobns,  17  Ch.  Div.  615. 
See  also  People  v.  New  York  Cotton 
Exchange,  8  llun  (N.  Y.),  216;  State 
V.  Milwaukee  Chamber  of  Commerce, 
47  Wis.  670,  082  (doubted  whether  the 
court  will  look  into  the  evidence  on 
which  the  society  acted).  In  Otto  v. 
Tailors'  &c.  Union,  75  Cal.  308,  314, 
which  was  a  proceeding  by  "man- 
date "  corresponding  to  mandamus,  it 
was  laid  down   that  courts   have  no 


right  to  interfere  with  the  decisions  of 
voluntary  societies  except  in  the  fol- 
lowing cases:  1.  If  the  decision  arrived 
at  was  contrary  to  natural  justice, 
such  as  the  member  not  having  an  op- 
portunity to  explain  his  conduct.  2. 
If  the  rules  of  the  society  have  not 
been  observed.  3.  If  the  action  of  the 
society  was  malicious  and  not  bona, 
fide.  These  conclusions  ai*e  well  sup- 
ported by  several  of  the  preceding 
cases.  The  same  principle  is  pursued 
by  courts  of  equity,  in  exercising  their 
visitorial  power  over  charitable  cor- 
porations. Thus,  Lord  Eldon  restored 
a  schoolmaster  who  had  been  removed 
by  a  corporation  through  what  was  an 
abuse  of  their  discretion,  if  not  a  cor- 
rupt exercise  of  it.  Dummer  v.  Cor- 
poration of  Chippenham,  14  Ves.  245, 
252,  253. 

2  Dawkins  v.  Antrobus,  17  Ch.  Div. 
615,  634. 

3  Ibid. 

■•  Lloyd  V.  Loaring,  6  Ves.  773. 

'^  Austin  V.  Searing,  16  N.  Y.  112. 
There  are  cases  wliich  go  to  the  length 
of  holding  that  the  judicial  courts  will 
not  interfere  under  any  circumstances. 
People  V.  Board  of  Trade,  80  111.  136 
745 


1  Thomp.  Corp.  §  916.]     expulsion  of  members. 

principle,  in  dealing  with  incorporated  societies.  If  a  member 
has  been  expelled  according  to  the  regular  course  of  the  pro- 
ceedings of  the  society,  as  laid  down  by  its  rules,  and  without  a 
deprivation  of  any  of  the  rights  stated  in  preceding  sections,  the 
courts  will  not,  in  a  proceeding  by  mandamus,  inquire  into  the 
merits  of  the  sentence  of  expulsion. ^  Tlie  same  principle  is 
applied  in  courts  of  law,  where  an  expelled  member  of  a  benev- 
olent society  brings  an  action  to  recover  allowances  granted  to 
disabled  members,^  or  where  the  member  has  died  during  the 
period  of  suspension,  and  the  beneficinry  named  in  his  benefit 
certificate  brings  an  action  thereon  against  the  society.^  On  the 
same  principle,  it  has  been  reasoned  that  the  judicial  courts  will 
not  review  the  routine  questions  which  may  arise  in  proceedings 
to  investigate  charges  against  a  member,  —  as,  for  instance,  the 
regularity  of  the  appointment  of  a  committee.* 

§  915.  Further  of  this  Subject. — In  such  proceedings,  the 
courts  condusivelf/  presume  that  the  member  knows  the  obliga- 
tions resulting  from  the  charter,^  the  by-laws,^  or  other  rules  of 
the  society.'  They  will  not,  therefore,  grant  equitable  relief  on 
the  ground  of  the  mistake  of  both  parties,  as  to  the  construction 
of  the  charter.^ 

§  916.  Contract    to   Exercise   Judgment  Bona  Fide.  —  The 

principle  of  all  these  decisions  is,  that  when  a  man  joins  a  club 
he  enters  into  a  contract  with  other  members  of  the  club,  to  be  gov- 
erned by  certain  existing  rules  of  the  club  and  by  rules  estabhshed  in  a 
certain  prescribed  manner ;  and  where  a  rule  of  the  club  exists,  allow- 
ino-  a  given  majority  of  the  members,  or  of  the  governing  board  of  the 
club,  to  expel  him  upon  a  conclusion  arrived  at  by  them  that  his  expul- 

(denied  in  State  v.  Milwaukee  Cliara-  ^  Karcher  v.   Supreme   Lodge,  137 

ber  of  Commerce,  47  Wis.  670) ;  State  Mass.  3G8. 

V.  Grand  Lodge,  8  Mo.  App.  148,  153.  ■*  People  v.  St.  George's  Society,  28 

But  the  weight  of    authority  is    as  Mich,  261. 

stated  in  the  text.  *  Chesapeake    &c.    Canal    Co.      v. 

1  Com.  V.  Pike  Beneficial  Society,  8  Dulany,  4  Cranch  C.  C.  (U.  S.)  85. 
Watts  &  S.  (Pa.)  247,  250;   Com.  v.  «  Palmyra  v.  Morton,  25  Mo.  593; 
German   Society,  15  Pa.  St.  251,  255  post,  §  941. 

(recotrnized).  '  Raggett  v.  Musgrave,    5  Car.   & 

2  Black  &  White  Smiths'  Society  v.      P.  556. 

Van  Dyke,  2  Whart.  (Pa.)  309;  s.  c.  ^  Chesapeake    &c.      Canal    Co.    v. 

30  Am.  Dec.  263.  Dulaney,  supra. 

746 


JUDICIAL    PKOCEEDINCS    TO    REIX8TATK.       [1  Thomp.  Coip.    §  916. 

sion  is  reqmred  by  the  interest  of  the  club,  this  amounts  to  nothing 
more  than  a  contract  with  him,  on  the  part  of  the  other  members  of  the 
club,  that  the  club  or  the  governmg  committee,  in  deciding  upon  the 
question  of  his  expulsion,  may  exercise  their  judgment  bona  fide;  and 
where  they  exercise  their  judgment  bona  fide,  a  court  of  justice  cannot 
interfere,  although  they  may  plainly  exercise  it  wronybj.  The  reason 
is  plain.  They,  by  their  contract,  have  appointed  a  certain  tribunal, 
whose  judgment  is  to  be  exercised  and  is  to  be  conclusive.  If  a  court 
of  justice  substitutes  in  the  place  of  the  judgment  of  this  tribunal  its 
own  judgment,  does  it  not  make  a  new  and  different  contract  for  the 
parties  from  the  one  which  they  have  made  for  themselves  ?  A  very  apt 
illustration  of  the  principle  is  found  in  a  case  decided  by  that  learned 
and  experienced  judge.  Sir  John  Romilly,  M.  R.,  in  1861.  A  bill  in 
equity  alleged  that  the  plaintiff  effected  a  life  policy  in  the  office  of  the 
defendant  company,  at  an  extra  premium,  and  that  by  the  prospectus, 
the  life  might,  from  time  to  time,  be  re-examined,  and  the  "society 
being  satisfied ' '  of  the  removal  of  the  cause  for  charging  the  extra 
premium  would  reduce  it.  The  directors  ha\'ing  bona  fide  exercised 
their  discretion,  refused  to  revise  the  premium.  It  was  held,  on  de- 
murrer to  a  bill,  that  the  court  could  not  interfere  in  favor  of  the  plaint- 
iff, although  the  assured  had  become  "  thoroughly  healthy  and  sound." 
The  Master  of  the  Rolls  said :  "If  the  defendants  have  erroneously 
exercised  their  judgment  in  this  case,  I  regret  that  the  plaintiff  can 
have  no  redress  ;  but  I  think  it  is  impossible  for  this  court  to  interfere 
with  the  judgment  of  the  directors,  bona  fide  exercised.  According  to 
the  contract  alleged,  the  society  contract  that  they  will,  in  a  certain 
event,  namely,  of  the  improvement  of  the  life  of  the  assured,  exercise 
their  judgment  bona  fide;  and  if  they  should  be  of  opinion  that  it  is 
proper,  they  will  reduce  the  premium  to  that  on  an  ordinary  life.  The 
plaintiff  says,  that  he  has  furnished  the  directors  with  e\'idence  that  the 
assured  is  now  in  perfect  health,  but  they  are  not  satisfied  of  the  fact. 
The  defendant's  case  is,  that  they  had,  bona  fide  exercised  their  judg- 
ment, and  are  of  opinion  that  the  plaintiff  has  not  fulfilled  the  condi- 
tion. Thus  the  plaintiff  says  he  has,  while  they  say  he  has  not.  It  is 
impossible  for  this  court  to  hold  that  the  directors  have  exercised  their 
judgment  en-oneously,  and  to  exercise  it  in  their  place.  The  contract 
being  that  the  directors  will,  bona  fide,  do  what  is  right  between  the 
insurer  and  the  shareholders,  it  is  clear  this  court  cannot  interfere  ;  if  it 
did  it  would  be  making  a  new  contract  for  the  parties^  and  subjecting 
them  to  stipulations  which  they  never  entered  into,  and  never  intended 
to  enter  into."  ^ 

^  Manby  v.  Gresham  Life  Ass.  Soc,  29  Beav.  439,  445. 

747 


1  Thomp.  Corp.  §  918.]     expulsion  or  members. 

§  917.  Another  Statement  of  the  Principle  :  Corporation 
not  Permitted  to  Exercise  Trust  Corruptly.  —  The  principle 
may  be  stated  in  another  form,  which  will  bring  it  into  line  with 
another  class  of  cases,  namely,  those  cases  in  which  courts  of 
chancery  exercise  their  power  over  corporations  which  are  charged 
with  the  administration  of  charitable  and  other  trusts.  Here,  the 
principle  is  that  the  court  will  not  interfere  with  the  discretion  oi 
the  corporation  in  respect  of  the  management  of  the  trust,  ex- 
cept in  so  far  as  to  prevent  them  from  acting  corruptly  in  its 
execution.  This  was  well  stated  by  LordEldon,  in  a  case  where 
a  school-master  had  brought  a  bill  in  equity  against  a  corpora- 
tion, to  which  had  been  committed  the  management  of  a  school 
and  the  nomination  and  rejection  of  a  school-master.  Lord  El- 
don  said :  "  This  is  the  case  of  a  corporation,  not  called  upon  to 
give  any  account  of  corporation  property  or  revenue,  as  such, 
but  happening,  in  their  corporate  capacity,  to  be  trustees  for  a 
charitable  purpose,  entrusted  in  that  corporate  capacity  with 
the  management  of  certain  property,  clothed  with  a  trust  for  the 
maintenance  of  a  school-master,  and  for  this  purpose  I  repre- 
sent the  case  thus  :  that  the  corporation  have  the  power  of  nom- 
inating the  master,  and  of  dismissing  him,  at  their  will  and 
pleasure.  A  corporation,  as  an  individual,  with  such  a  power 
over  an  estate,  devoted  to  charitable  purposes,  would  in  this 
court  be  compelled  to  exercise  that  power,  not  according  to  the 
discretion  of  this  court,  but  not  corruptly.  A  trustee  of  either 
descri[)tion,  a  corporation,  or  an  individual,  cannot  be  permitted 
to  act  corruptly  in  the  execution  of  the  trust."  ^ 

§  918.  Courts  do  not  Sit  as  Courts  of  Appeal  from  Decisions 
of  Committee  or  Club  in  Such  Cases.  —  Whether  the  most  limited 
view  embraced  in  the  first  of  the  three  foregoing  paragraphs,  or  the  most 
extensive,  embraced  hi  the  second  of  the  same,  or  the  middle  view  em- 
braced in  the  third,  be  adopted,  it  is  equally  apparent  that  courts  do  not, 
in  such  cases,  sit  as  courts  of  appeal  to  revise  the  action  of  the  majority 
of  the  club  or  of  the  governing  body,  in  expelUng  the  complaining  mem- 
ber. They  will  not  substitute  their  discretion  for  the  discretion  exer- 
cised by  the  club  or  its  governing  body.  They  will  not  reverse  the 
decision  of  the  club  or  of  its  governing  body,  although  they  may  believe 

1  Dummer  v.  Corporation  of  Chippenham,  14  Ves.  245,  252. 
748 


JUDICIAL   PROCEEDINGS    TO    REINSTATE.       [1  Thomp.  Coi'p.    §  919. 

it  to  be  unjust,  in  the  sense  that  the}^  under  the  same  circumstances, 
would  not  have  come  to  the  same  conclusion.  They  will  treat  it  much 
as  the  Court  of  Bang's  Bench  has  been  in  the  habit  of  treating  the  de- 
cisions of  inferior  magistrates  in  summary  proceedings,  though  exercis- 
ing, it  is  confessed,  a  somewhat  larger  jurisdiction.  They  will  inquire 
first,  whether  the  expulsion  was  within  the  jurisdiction  of  the  club  or  of 
the  governing  body,  — that  is,  whether  it  was  intra  vires  —  whether  it 
was  authorized  by  any  rule  of  the  club  which  was  binding  upon  all  the 
members.  Passing  this  jurisdictional  inquiry,  they  will,  it  seems,  in- 
quire into  the  reasonableness  of  the  rule  in  much  the  same  manner  as  a 
court  will  inquire  into  the  reasonableness  of  an  appeal  by  a  corporation  ; 
but  they  will  not  hold  it  to  be  unreasonable,  unless  it  is  contrary  to  the 
laws  of  the  land,  or  plainly  violative  of  natural  justice.  Beyond  this, 
there  remains  but  one  further  inquiry,  namely,  whether  under  the  cir- 
cumstances of  the  particular  case,  the  majority  of  the  governing  body 
which  voted  for  the  expulsion  acted  reasonably  and  in  good  faith,  or 
whether  they  acted  unreasonably  and  capriciously,  corruptly,  oppress- 
ively or  maliciously.  And  when  the  word  reasonable  is  here  used,  it  is 
not  used  in  the  sense  that  permits  the  court  to  substitute  its  reason  for 
the  reason  of  the  mc-mbers  of  the  club,  but  it  is  used  in  a  sense  so  re- 
strictive that  the  court  will  not  relieve  the  expelled  member  unless  the 
occurrences  on  which  his  expulsion  took  place  were  such  that  no  man 
could  pronounce  them  reasonable.  "  We  are  not,"  said  Cotton,  L.  J., 
"  here  to  sit  as  a  coui't  of  appeal  from  the  decision  of  the  committee  of 
the  general  meeting.  We  are  not  here  to  say  whether  we  should  have 
am  ved  at  such  a  conclusion  or  not ;  and  the  question  whether  the  decis- 
ion was  erroneous  or  not  can  only  be  taken  into  consideration  in  deter- 
mining whether  that  decision  is  so  absurd  or  evidently  wrong  as  to  afford 
evidence  that  the  action  was  not  bonaJHe^  but  was  malicious  or  capri- 
cious, or  proceeding  from  something  other  than  a  fair  and  honest  exer- 
cise of  the  powers  given  by  the  rule."  ^ 

§  919.  Not  Sufficient  that  the  Decision  was  Contrary  to 
Reason.  —  "  The  court,"  said  Brett,  L.  J.,  m  the  same  case,  "has  no 
right,  in  my  opinion,  to  consider  whether  what  was  done  was  right  or 
not,  or,  even  as  a  substantive  question,  whether  what  was  decided  Avas 
reasonable  or  not.  The  only  question  is,  whether  it  was  done  bonajide. 
Now,  it  is  true  that  an  element,  in  considering  whether  a  matter  has 
been  done  in  good  faith,  is  the  question  whether  what  has  been  done  is 
really  beyond  all  reason.  If  that  were  so,  it  would  be  evidence  of  want 
of  good  faith ;  but  even  where  that  exists,  it  is  not  a  necessary  conclusion 

1  Dawkins  v.  Antrobus,  17  Ch.  Div.  615,  634. 

749 


1  Thomp.  Corp.  §  920.]     expulsion  of  members. 

that  there  has  been  want  of  good  faith,  for,  even  after  having  come  to  the 
conchision  that  a  decision  was  wholly  unreasonable,  one  might  be  con- 
vinced aliunde  that  nevertheless  there  was  no  malice  —  that  what  was 
done  was  done  in  good  faith.  Therefore  the  mere  proof  that  it  was  con- 
trar}^  to  reason  is  no  sufficient  ground  for  the  interference  of  the  court. 
It  is  like  the  case  of  a  malicious  prosecution,  where,  if  there  is  a  want 
of  reasonable  and  probable  cause,  that  is  evidence  to  go  to  the  jury  to 
support  the  other  necessary  allegation  that  there  was  malice  in  fact ; 
but  then  the  jury  are  told,  '  even  though  there  was  a  want  of  reasonable 
and  probable  cause,  you  must  consider  and  decide  for  yourselves 
whether,  besides  that,  there  was  malice  in  fact.'  Unless  they  find  there 
was  also  malice  in  fact  in  such  cases,  the  propositions  necessary  for  them 
to  affirm  are  not  made  out.  So,  in  this  case,  I  wish  to  repeat,  even 
though  one  were  of  opinion  that  the  decision  was  wholly  beyond  reason, 
yet  in  such  a  case  as  this,  considering  the  circumstances  which  are  in 
evidence,  and  the  persons  against  whom  the  charge  is  made,  and  the 
absolute  absence  of  indirect  motive  —  even  if  I  thought  the  decisions 
were  absolutely  unreasonable  —  I  should  have  declined  to  find  the  de- 
cision was  contrary  to  good  faith,  and  should  therefore  have  been  of 
opinion,  even  though  the  decision  were  unreasonable,  that  there  was  no 
ground  for  the  interference  of  the  court. ' '  ^  The  observations  of  that 
■very  able  judge,  Jessel,  M.  R.,  whose  decision  was  appealed  from  and 
affirmed  in  the  same  case,  ought  not  to  be  overlooked.  "  I  am  not," 
said  he,  "  able  to  say  that  I  ought  to  impute  to  these  gentlemen  legal 
malice.  I  do  not  think  it  impossible  that  reasonable  men  could  come  to 
the  conclusion,  on  some  grounds  not  known  to  me,  that  the  mere  writ- 
ing of  that  letter  and  the  direction  of  it  to  Gen.  Stephenson,  was  in 
itself  an  act  which  was  injurious  to  the  character  and  interests  of  the 
club.  That  being  so,  I  am  compelled  by  the  exigencies  of  the  case  to 
act  entirely  on  the  opinion  of  the  committee.  I  do  not  feel  that  it  would 
•be  right  to  say  that  the  committee  were  so  unreasonable  as  to  act  entirely 
without  reasonable  and  probable  cause,  or  so  corruptly  biased  and  un- 
fair as  to  knowingly  state  that  to  be  their  opinion  which  was  not  their 
opinion,  fairly  arrived  at  so  far  as  their  light  and  information  enabled 
them  to  arrive  at  an  opinion  adverse  to  Colonel  Dawkins."  ^ 

§  920.  Regularity  of  Suspension  Presumed  until  the  Con- 
trary Appears.  —  Another  rule  which  has  been  applied  in  these 
cases  is  that,  where  the  power  of  suspension  is  vested  in  a  certain 
tribunal  or  authority,  as  in  the  subordinate  lodge,  and  is  exer- 
cised by  such  tribunal  or  authority,  the  regularity  of  its  exercise 

1  Dawkins  v.  Antrobus,  17  Ch.  Div.  615,  630.  ^  j^jj^.  g24. 

750 


JUDICIAL    PROCEEDINGS    TO    REINSTATE.      [1  ThoiUp.  Corp.   §  922. 

will  be  presumed  until  the  contrary  appear,  and  the  contrary 
must  be  made  to  appear  by  showing  that  the  suspension  was  con- 
trary to  the  constitution  and  laws  of  the  order,  which  can  only 
be  shown  by  putting  the  constitution  and  laws  of  the  order  in 
evidence.^ 

§  921.  Effect  of  Acquiescence On  the  one  hand,  the  mem- 
ber must  first  exhaust  his  remedy  within  the  corporation  or 
societ}^'^  and  on  the  other,  he  must  not  wait  too  long,  before 
he  applies  to  the  courts.  On  principles  of  frequent  appli- 
cation in  courts  of  equity  in  dealing  with  corporations,  he  may 
lose  by  laches  and  acquiescence,  his  claim  upon  a  court  of  equity 
for  relief.  Thus,  it  has  been  held  that  one  who  for  nineteen 
years  has  acquiesced  in  his  expulsion  from  the  membership  of  a 
corporation  for  non-payment  of  corporate  dues,  will  not  be  rein- 
stated by  the  court. ^  But,  on  the  other  hand,  it  has  been  held, 
in  an  action  brought  against  a  suspended  member  by  a  corporate 
lodge  of  Odd  Fellows,  for  arrears  due  by  him,  where  it  ap- 
peared that  such  member,  on  his  admission  to  the  lodge,  had 
signed  the  constitution  and  by-laws,  and  therebj'-  agreed  to  sup- 
port the  same,  and  to  pay  all  legal  demands  against  him,  so  long 
as  he  should  contiime  a  member  of  the  lodge,  —  that  by  the  fact 
of  suspension  the  defendant  did  not  cease  to  be  a  member;  and 
that,  while  a  member  he  continued  liable  by  law,  and  by  his  ex- 
press undertaking,  to  pay  the  contributions  which  the  by-laws 
required.* 

§  922.  Jurisdiction  of  Corporate  Committee  not  Ousted  by 
Fact  of  Judicial  Investigation.  — The  jurisdiction  of  the  com- 
plaint committee  or  board  of  managers  of  the  New  York  Produce 
Exchange  over  a  complaint  against  a  member,  is  not  ousted  by 
the  fact  that  the  case  is  also  under  judicial  investigation;  since 
cases  may  arise  in  which  the  committees  would  be  justified  in 
fining  a  member  charged  with  "  conduct  inconsistent  with  just 
and  equitable  principles  of  trade,  or  other  misconduct,"  when  a 

1  Karchor  v.  Supreme  Lodge,  137  ^  Bostwick  v.  Detroit  Fire  Dcpart- 
Mass.  3G8.                                                         ment,  49  Mich.  513. 

2  Ante,  §  912.  ♦  Palmetto    Lodge    v.    Ilubbell,    2 

Strobh.L.  (S.  C.)  457. 

751 


1  Thomp.  Corp.  §  924.]     expulsion  of  members. 

court  of  justice  would  not  adjudge  that  he  had  incurred  a  legal 
liability.^ 

§  923.  Doctrine  that  Courts  will  not  Interfere  Except 
where  Property  Rights  are  Involved. —  Cases  are  found  which 
go  so  far  as  to  hold  that,  in  the  cases  of  religious,  charitable  and 
social  organizations  the  judicial  court  will  not  interfere,  in  a  case 
of  expulsion  of  members,  to  reinstate  them,  and  will  not  exer- 
cise jurisdiction  to  decide  questions  relating  to  the  rights  of  mem- 
bership, except  where  pecuniary  interests  are  mvolved.  Upon 
these  questions  the  Supreme  Courtoflllinoishas  said  :  "  Churches, 
Masonic  bodies,  Odd  Fellows  and  temperance  lodges  are  organized 
under  a  statutory  charter;  but  we  presume  no  one  would  imagine 
that  a  court  could  take  cognizance  of  cases,  so  as  in  either  of  these 
organizations  to  compel  them  to  restore  to  membership  a  person 
suspended  or  expelled  from  the  privileges  of  the  organization. 
They  being  organized  by  voluntary  association,  and  not  for  the 
transaction  of  business,  but  for  the  purpose  of  inculcating  their 
precepts  and  truths,  not  for  pecuniary  gain,  but  for  the  advance- 
ment of  morals  and  for  the  improvement  of  their  members,  they 
are  left  to  adopt  their  own  constitutions,  by-laws  and  regulations 
for  admitting,  suspending  or  expelling  their  members."  ^  Where 
the  expulsion  has  taken  place,  in  conformity  with  the  rules  of 
the  particular  society,  the  expelled  members  are  deemed  to  have 
assented  to  it,  and  to  have  subjected  themselves  to  the  application 
of  the  maxim  volenti    nonfit  injuria.^ 

§  924.  Courts  will  not  Enforce  Decisions  of  Judicatories  of 
Unincorporated  Societies. —  The  courts  of  justice  will  not,  it  has 
been  held,  enforce  the  decrees  of  the  self-constituted  judicatories 
of  such  voluntary  associations  as  the  Freemasons  and  Odd  Fel- 
lows, where  no  rights  of  property  are  involved.*  The  only  ex- 
ception to  the  rule  that  courts  will  not  enforce  decrees 
of  tribunals  selected  by  the  purely  voluntary  act  of  the 
contending    parties,  is    said  to  exist  in    the    case   of    submis- 

1  Ilurst  V.  New  York  Produce   Ex-  3  state  v.  Grand  Lodge,  8  Mo.  App. 
change,    100  N.  Y.  605,  mem.;  s.  c.  in      148,  153,  opinion  by  Bakewell,  J. 

full,  1  Cent.  Rep.  2G0.  ^  j^loyd    v.   Loariu'j:,   6   Ves.    773; 

2  Peoples.  Board  of  Trade,  80  111.      Austin  i?.  Searing,  IG  N.  Y.  112. 
134,  opinion  by  Walker,  J. 

752 


JUDICIAL  PROCEEDINGS   TO   REINSTATE.      [1  Tliomp.  Corp.  §  924. 

sions  to  arbitrators,  which  submissions  and  proceedings  before 
the   arbitrators,    as   well  as  their  award,  are  matters  which  are 
carefully  guarded  by   the   law.     Thus,  upon  a  bill  filed  by  three 
persons  on  behalf  of  themselves  and  all  other  members  of  a  cer- 
tain lodge  of  Freemasons  except  the  defendant,  for  a  discovery 
and  injunction  to  compel  the  delivering  up  of  the  paraphernalia 
of  the  lodge, —  Lord  Eldon  in  passing  upon  a  demurrer  for  want 
of  parties,  is  reported  to  have  said  :   "  That  this  court  will  hold 
jurisdiction  to  have  a  chattel  delivered  up,  I  have  no  doubt;  but 
I  am  alarmed  at  the  notion,  that  these  voluntary  societies  are  to 
be  permitted  to  state   all  their  laws,  forms,  and   constitutions, 
upon  the  record,  and  then  to  tell  the  court,  they  are  individuals. 
Then  what  sort  of  a  partnership  is  this ;  for  it  is  now  admitted  to 
be  a  partnership?     The    bill   states,  that  they  subsist  under  a 
charter,  granted  by  persons  who  are  now   dead;  and  therefore, 
if  this  charter  cannot   be   produced,  the  society  is  gone.     Upon 
principles  of  policy,  the  courts  of  this  country  do  not  sit  to  de- 
termine upon  charters  granted  by  persons  who  have  not  the  pre- 
rogative to  grant  charters.     I  desire  my  ground  to  be  understood 
distinctly.     I  do  not  think,    the  court  ought  to  permit  persons, 
who  can  only  sue  as  partners,  to  sue  in  a  corporate  character; 
and  that  is  the  effect  of  this  bill."     Further  on  he  said:   "  I  had 
great   doubt,    whether   a  voluntary  association  for  the  best  pur- 
pose is  to  meet  without  the  authority  of  a  corporation,  and  make 
laws  and   statutes,  which   have  no  authority,  and  then  call  upon 
this  court  to  administer  all  the  moral  justice  that  may  arise  up- 
on the  disputes  among  these,  in  a  sense  unauthorized  bodies.     It 
is  singular  that  this  court  should   sit  upon  the  concerns  of  an  as- 
sociation, which  in   law  has  no  existence  ;  and  in  that  case,  that 
this  court  should  be  ancillary  to  their  agreement  as  to  their  toasts," 
etc.i     In  an  unreported  case  of  this  kind,2  Lord  Thurlow  is   re- 
ported to  have  said  that  he  would  convince  the  parties  that  they 
had  no  laws  or  constitution.^     Jn  like   manner,  where  the  treas- 
urer of  a  lodge  of  the  Independent  Order  of  Odd  Fellows  brought 
an  action  to  recover  personal  property,  which  had  been  coiifis- 

1  Lloyd  V.  Loaring,  6  Ves.  773,  777,  3  Cullen  v.   Duke  of   Queensberry, 
778.  sometiine.s  called  the  case  of  the   La- 

2  Referred  to  by  Lord  Eldon  in  6  dies  Coterie, referred  to  by  Lord  Eldon, 

Ves.  777.  as  stated  iu  the  text. 

48  753 


1  Thomp.  Corp.  §  934.]     expulsion  of  members. 

cated  from  iiiiother  lodge  of  the  same  name  by  the  grand  lodge 
because  of  some  alleged  contumacious  conduct  of  the  latter  lodge, 
the  New  York  court  held  that  the  judicial  tribunals  did  not  sit  to 
enforce  the  decrees  of  the  judicatories  of  those  voluntary  associa- 
tions, and  therefore  that  the  action  did  not  lie.  In  so  holding, 
Selden,  J.,  said  :  *'  The  effect  of  some  of  the  provisions  of  these 
constitutions  is  to  create  a  tribunal  having  power  to  adjudicate 
upon  the  rights  of  property  of  all  the  members  of  the  subordi- 
nate lodges,  and  to  transfer  the  property  to  others;  the  members 
of  this  tribunal  being  liable  to  constant  fluctuations,  and  not  sub- 
ject in  any  case  to  the  selection  and  control  of  the  parties  upon 
whose  rights  they  sit  in  judgment.  To  create  a  judicial  tribunal 
is  one  of  the  functions  of  the  sovereign  power ;  and  although 
parties  may  always  make  such  tribunal  for  themselves,  in  a 
specific  case,  by  submission  to  arbitration,  yet  the  power  is  guard- 
ed by  the  most  cautious  rules.  A  contract  that  the  parties  will 
submit,  confers  no  power  upon  the  arbitrators;  and  even  where 
there  is  an  actual  submission,  it  may  be  revoked  at  any  time. 
The  law  allows  the  party  up  to  the  last  moment  to  ascertain 
whether  there  is  not  some  covert  bias  or  prejudice  on  the  part 
of  the  arbitrator  chosen.  It  would  hardly  accord  with  this  scru- 
pulous care  to  secure  fairness,  in  such  cases,  that  parties  should 
be  held  legally  bound  by  the  sort  of  engagement  that  exists  here, 
by  which  the  most  extensive  judicial  powers  are  conferred  upon 
bodies  of  men  whose  individual  members  are  subject  to  continual 
fluctuations."  ^  In  the  same  case.  Brown,  J.,  also  said:  "  The 
by-laws  and  regulations  of  these  voluntary  associations  may  all 
be  very  well  in  their  place  and  sphere,  and  may  command  gen- 
erally the  obedience  and  submission  of  those  upon  whom  they 
are  designed  to  act ;  they  cannot,  however,  have  the  force  of  law, 
nor  impair  or  affect  the  rights  of  property,  against  the  will  of  its 
real  owners.  So  long  as  the  members  of  these  bodies  yield  their 
assent  or  concurrence,  it  is  all  very  well  ;  the  law  interposes  no 
obstacle  or  objection.  But  when  orders  and  decrees,  of  the 
character  of  those  referred  to,  are  resisted,  and  the  owners  of 
property  refuse  to  be  deprived  of  it,  then  it  will  be  found  that 
property  has  rights,  and  the  courts  of   justice  have  duties,  of 

1  Austin  V.  Searing,  IG  N.  Y.  112,  123,  s.  c.  69  Am.  Dec.  665. 
754 


JUDICIAL    PROCEEDINGS    TO    REINSTATE.       [1  Thomp.   Corp.    §    925. 

which  the  plaintiff  in  this  action  seems  to  have  an  indifferent 
conception.  The  courts  of  justice  cannot  be  called  upon  to  aid  in 
enforcing  decrees  of  these  self-created  judicatories.  The  confis- 
cation and  forfeiture  of  property  is  an  act  of  sovereign  power; 
and  the  aid  of  this  or  any  other  court  will  not  be  rendered  to  en- 
force such  proceedings,  or  to  recognize  legal  or  supposed  legal 
rights  founded  upon  them."  ^ 

§  925.  Suspension  of  a  Lodge,  When  Void  and  When  Void- 
able.—  The  principle  upon  which  the  validity  of  the  suspension  of  a 
lodge  of  a  benevolent  order,  by  a  superior  judicatory,  is  to  be  tested, 
has  been  held  the  same  as  that  which  governs  the  validity  of  a  judgment 
of  the  judicial  courts.  If  the  court  has  jurisdiction  of  the  subject  mat- 
ter and  of  the  parties,  its  judgment,  however  erroneous  in  law  and  upon 
the  fact,  concludes  the  parties,  unless  appealed  from,  and  pronounces  the 
law  of  the  case.  It  is  therefore  binding,  not  only  upon  the  court  itself, 
but  upon  every  other  court,  so  far  as  it  settles  the  rights  in  controversy 
between  the  particular  parties.  But  if  jurisdiction  over  the  subject- 
matter  and  over  the  person  is  wanting,  the  judgment  is  a  mere  nullity. 
Being  a  nulUty,  there  is  no  obKgation  to  appeal  from  it.  It  is  void  in 
all  courts  and  in  all  places.  Applying  these  principles,  it  was  held  that 
the  suspension  of  a  subordinate  lodge  of  an  association  called  the 
Knights  of  Honor,  by  an  official  of  the  gi-and  lodge  called  the  supreme 
reporter,  was  not  merely  irregular,  but  was  a  nulhty.  Caldwell,  J., 
said:  "The  constitution  and  by-laws  then  in  force  conferred  no  juris- 
diction upon  the  supreme  reporter  to  suspend  subordinate  lodges  in 
any  case,  or  for  any  offense  ;  and  his  mandate  suspending  Harrisburgh 
lodge  had  no  more  effect,  inside  or  outside  the  order,  than  if  it  had 
been  made  by  one  who  did  not  belong  to  the  order.  Moreover,  it  was 
made  without  giving  the  lodge  an  opportunity  to  be  heard,  and  for  an 
alleged  ground  that  had  no  existence  in  fact.  If  the  supreme  reporter 
had  been  vested  with  jurisdiction  to  try  and  suspend  lodges,  and  he 
had  given  Harrisburgh  lodge  due  notice  of  the  proceedings,  the  fact 
that  he  en-ed  in  judgment,  in  the  application  of  the  law  of  the  case,  or 
in  his  finding  of  fact,  would  have  been  a  mere  irregularity,  which  might 
have  been  corrected  on  appeal,  or  in  such  a  mode  as  the  constitution 
provided ;  but    until  his    judgment  was    reversed   by  the  appropriate 

^  P)id.  124.  Solden,  J.,  also  placed  constitution  of  tlie  grand  lodge  of 
his  judgment  upon  anotlier  grouml,  Nortlieru  New  York,  as  set  forth  in  tlie 
namely,  that  it  hud  not  been  ghowu  complaint,  by  which  lodge  the  con- 
that  the  defendants  had  ever  assented  flscation  of  their  property  had  been 
to  be   bound  by  the  provisions   of  the  attempted. 

755 


1  Thomp.  Corp.  §  926.]     expulsion  of  members. 

supervisory  power,  it  would  be  conclusive  on  the  parties,  and  not  sub- 
ject to  collateral  attack  in  any  tribunal.  This  is  nothing  more  than  the 
application  to  the  decrees  of  these  organizations  affecting  their  members, 
of  the  familiar  principles  that  obtain  in  relation  to  the  vaUdity  and  effect 
of  judicial  determinations  of  controversies  between  citizens  in  the 
courts.  .  .  .  None  of  the  prerequisites  here  laid  down  as  necessary 
to  the  validity  and  conclusiveness  of  the  decrees  of  one  of  these  tri- 
bunals exists  in  the  case  at  bar.  By  the  laws  of  the  order  in  force  at 
the  time  of  this  transaction,  neither  Harrisbiirgh  lodge  nor  Hall  (the  de- 
ceased member)  consented  that  the  supreme  reporter  should  have  juris- 
diction to  try  and  suspend  lodges,  with  or  without  notice.  The  action 
of  the  supreme  reporter  in  suspending  Harrisburgh  lodge,  was  not  taken 
according  to  the  laws  of  the  organization  ;  it  was  not  a  question  which 
that  officer  had  authority  to  decide,  and  it  was,  moreover,  taken  with- 
out notice.  It  was  not  merely  an  erroneous  proceeding  on  the  part  of 
that  officer,  but  a  usurpation  which  cannot  affect  the  legal  rights  or 
change  the  legal  status  of  any  one."  ^ 

§  926.  Action  for  Damages  for  the  Expulsion. — Authority 
is  found  in  an  English  case,  for  the  proposition  that  no  action 
for  damages  will  lie  against  the  committee  of  the  society  which 
decrees  the  unlawful  expulsion.  A  genius  for  refinement  has 
discovered  a  reason  for  this  conclusion  in  the  consideration  that, 
the  act  of  expulsion  being  void,  the  plaintiff  has  sustained  no  in- 
jury; since,  notwithstanding  the  expulsion,  he  is  still  a  member.^ 
If  this  holding  is  to  be  accepted  as  the  law,  it  results  that  the 
expelled  member  must  either  resort  to  the  expensive  remedies 
above  pointed  out,  or  else  he  must  attempt  to  assert  his  rights 
in  the  society  b>/  force,  and,  if  he  is  forcibly  ejected,  bring  an 
action  for  the  assault.  The  former  course  entails  delay,  ex- 
pense and  vexation;  the  latter  entails  danger  and  annoyance, 
and  a  rule  ought  not  to  be  adopted  which  will  drive  the  member 
to  it,  since  it  tends  to  breaches  of  the  peace,  and  should  hence 
be  regarded  as  opposed  to  public  policy.  One  case  is  found 
where  the  expelled  member  took  the  latter  course,  endeavored  to 
enter  the  society's  room,    but  was  kept  out   by  a   policeman. 

1  Hall  V.  Supreme  Lodge,  24  Fed.  White,  2  Ld.  Raym.  938,  but  that  de- 
Bep.  450,  453,  per  Caldwell,  J.  cisioa  is  placed  upon  several  reasons, 

2  Wood    V.    Woad,    9   Exch.    190.  some  of  which  go  to  show  that  the 
Some  support  for  this  conclusion  is  judges  did  not  desire  to  do  justice, 
found   in   the   old   case   of   Ashley   v. 

756 


JUDICIAL    PROCEEDINGS    TO    REINSTATE.       [1  Thomp.  Corp.    §  926. 

He,  thereupon,  brought  an  action  against  the  defendants,  who 
had  stationed  the  policeman  therefor  the  purpose,  and  recovered 
a  verdict  of  forty  pounds,  which  Lord  Denman  refused  to  set 
aside.^  American  decisions  may  be  found  which  sustain  this 
view,  and  support  actions  for  damages  by  the  expelled  member, 
without  his  previously  resorting  to  force  to  assert  his  rights  of 
membership. 2  So,  it  has  been  held  that  a  member  of  a  trades- 
union,  unlawfully  expelled  therefrom,  may  maintain  an  action 
for  the  damages  which  he  has  thereby  sustained,  and,  on  the 
question  of  such  damages,  may  prove  a  rule  of  the  union  that  no 
member  shall  permit  himself  to  be  employed  with  an  expelled 
member,  and  may  also  prove  the  fact  that  a  "  blacklist  "  con- 
taining the  names  of  expelled  members,  was  kept  posted  in  the 
office  of  the  union.  It  was  further  held  that  he  might  prove,  as 
bearino"on  the  amount  of  his  damages,  that,  after  his  expulsion, 
he  had  been  discharged  from  employment  and  informed  that  he 
was  not  wanted,  but  that  the  men  belonging  to  the  union  were 
the  ones  to  be  employed.  It  was  also  held  competent  for  him  to 
prove  what  his  earnings  were,  while  a  member  of  the  union,  and 
how  much  they  had  been  diminished  in  consequence  of  his  ex- 
pulsion ;  and  further  that  he  might  show  his  inability  to  obtain 
continuous  employment  after  his  expulsion,  for  the  purpose  of 
showing  the  extent  of  his  damages.^  But  where  the  expulsion  is 
within  the  powers   of  the  corporation  or  society,  which  powers 

1  Inness  v.  Wylie,  1  Car.  &  K.  257.  the  doorway    passive  and  not  move 

A  humorous  turn  is  given  to  this  case  at  all." 

by  the  manuer  in  which  Lord  Denman  ^  Ludowiski  v.  Benevolent  Society, 

directed    the   jury    on    the    question  29  Mo.  App.  337,  where  it  was  held  that 

whether  the  policeman  had  committed  the  expelled  member  was   entitled  to 

an  assault  upon  the  plaintiff,  or  was  recover  at  least  nominal  damages,  and 

merely  passive:    "If  the    policeman  where  a  judgment  of  $5  was  affirmed, 

was  entirely  passive,  like  a  door  or  wall  In  Washington  Beneficial   Society  v. 

put  to  prevent  the  plaintiff  from  enter-  Bacher,  20  Pa.   St.   425,   it  was   held 

ing    the  room,  and  simply  obstructing  that  a  member  of  a  mutual  benefit  so- 

the  entrance  of  the  plaintiff,  no  assault  ciety,   expelled    without    the    notice 

lias  been    committed  on  the  plaintiff,  prescribed  by  the  constitution  and  by- 

and  your  verdict  will  be  for  the   de-  laws,  might  recover  damages   to  the 

fendant.    The   question    is,    did    the  extent  of  the  injury, 
policeman  take  any  active   measures  ^  Merscheim    v.    Musical    Mutual 

to   prevent  the   plaintiff   from  enter-  Protective   Union,  8   N.  Y.  Supp.  702. 

ing   the   room,  or    did    he    stand    in  s.  c.  20  N.  Y.  St.  Kep.  235. 

757 


1  Thomp.  Corp.  §  927.]     expulsion  of  members. 

are  exercised  in  good  faith,  under  principles  already  explained, 
the  expelled  member  must,  of  course,  submit  to  whatever  dam- 
ages the  expulsion  entails  under  those  rules,  which  are  in  the  na- 
ture of  a  contract  by  which  the  members  agree  to  abide.  Thus, 
where  a  member  of  the  New  York  Stock  Exchange  was  expelled 
for  insolvency  caused  by  doing  business  recklessly,  and  his  seat 
was  sold  by  the  Exchange,  as  provided  by  its  constitution  and  by- 
laws,—  it  was  held  that  he  could  not  recover  the  proceeds  of  the 
sale  from  the  exchange. ^ 

§  927.  Action  for  Damages  against  Religious  Corpora- 
tions. —  An  action  for  damages  will  not  lie  against  a  religious 
corporation  on  the  ground  that  the  church  represented  by  it  has 
expelled  the  plaintitf  from  membership.  The  corporation  has 
no  control  over  and  is  not  responsible  for  the  action  of  the 
church  body.^  In  delivering  the  opinion  of  the  court  upon  this 
question,  Cooley,  J.,  said:  *'  Connected  with  tlie  corporation 
the  statute  contemplates  that  there  will  be  a  church,  though  pos- 
sibly this  may  not  be  essential.  In  this  case  there  is  one.  The 
church  has  its  members,  who  are  supposed  to  hold  certain  beliefs 
and  subscribe  some  covenant  with  each  other,  if  such  is  the 
usage  of  the  denomination  to  which  the  church  is  attached. 
The  church  is  not  incorporated,  and  has  nothing  whatever  to  do 
with  the  temporalities.  It  does  not  control  the  property  or  the 
trustees;  it  can  receive  nobody  into  the  society  and  can  expel 
nobody  from  it.  On  the  other  hand,  the  corporation  has  noth- 
ing to  do  with  the  church  except  as  it  provides  for  the  church 


1  Belton  V.  Hatch,  109  N.  Y.  593.  Miller  v.  Gable,  2  Den.  (N.  Y.)  492; 

2  Hardin -y.  Trustees,  51  Mich.  137;  Ferraria  v.  Vasconcellos,  31  111.  25; 
s.  c.  12  Am.  L.  Reg.  288.  Tliedistinc-  Calkins  v.  Clieney,  92  HI.  463;  Keyser 
tion  between  a  cliurch  and  a  church  v.  Stausifer,  6  Oliio,  3G3;  Shannon??, 
corporation,  is  explained  in  the  follow-  Frost,  3  B.  Mon.  (Ky.)  253;  German 
ingcases:  Baptist  Church t?.  Witherell,  &c.  Cong.  v.  Pressler,  17  La.  An.  127; 
3  Paige  (N.  Y.),  29G;  s.  c.  24  American  O'Hara  v.  Stack,  90  Pa.  St.  477;  Sohier 
Decisions,  223;  Lawyer  v.  Chipperley,  v.  Trinity  Church,  109  Mass.  1 ;  Wal- 
7  Paige  (N.  Y.),  281;  Robertson  rath  v.  Campbell,  28  Mich.  111.  See 
V.  Bullions,  11  N.  Y.  243;  Bellport  also  Hale  ??.  Everett,  53  N.  H.  9;  Case 
u.Tooker,  29  Barb.  (N.Y.)  256;  s.c.  21  of  St.  Mary's  Church,  7  Serg.  &  R. 
N.   Y.  2(57;    Burrell  v.    Associate  Re-  (Pa.)  517. 

formed  Cliurch,  44  Barb.  (N.  Y.)  282; 

758 


JUDICIAL   PEOCEEDINGS   TO   REINSTATE.      [1  Thomp.  Corp.  §  928. 

wants.  It  cannot  alter  the  church  faith  or  covenant,  it  cannot 
receive  members,  it  cannot  expel  members,  it  cannot  prevent  the 
church  receiving  or  expelling  whomsoever  that  body  shall  see  fit 
to  receive  or  expel.  This  concise  statement  is  amply  sufficient  to 
show  that  this  suit  has  no  foundation.  The  corporation  is  sued 
for  a  tort  which  it  neither  committed  nor  had  the  power  to  pre- 
vent, and  which  has  occurred  in  a  proceeding  where  the  interfer- 
ence of  the  corporation  would  have  been  an  impertinence.  But 
it  is  said  that  the  church  is  an  integral  part  of  the  corporation; 
or  rather  that  it  is  the  corporation  in  a  spiritual  capacity.  Its 
being  an  integral  part  of  the  corporation  proves  nothing;  coun- 
ties, towns  and  school  districts  are  integral  parts  of  the  State, 
but  the  State  is  not  for  that  reason  liable  for  their  torts.  And, 
as  to  spiritual  capacity,  the  corporation  has  none  ;  it  is  given 
capacity  in  respect  to  temporalities  only.  If  the  corporation  had 
assumed  to  expel  this  plaintiff  from  the  church,  she  might  treat 
its  action  with  contempt.  But  as  she  makes  no  complaint  of 
wrongful  corporate  action,  we  must  assume  that  the  corporation 
has  never  invaded  her  rights.  If  the  church  has  done  so,  the 
church  alone  is  culprit."  ^ 

§  928.  Criminal  Information  for  Disfranchisement  of 
Members.  —  Cases  are  found  in  the  English  books  where  the  King's 
Bench  has  granted  criminal  information  against  magistrates,  who  have 
exercised  a  discretionary  authority  with  corrupt  motives,  as  for  instance 
in  refusing  license  to  publicans  ;  ^  and  it  was  said  by  Lord  Mansfield, 
that  where  magistrates  proceed  from  corrupt  motives  in  order  to  serve 
election  purposes,  such  an  information  might  be  granted. ^  At  the  same 
time  it  was  held  that  the  court  would  not  grant  such  an  information 
against  the  magistrates  of  a  borough,  for  having  disfranchised  persons 
entitled  to  their  freedom,  although  it  was  sworn  that  they  had  done  it  to 
serve  election  purposes,  where  the  defendants  denied  that  motive,  and 
swore  that  they  thought  there  was  a  legal  ground  for  the  disfranchise- 
ment, and  where  the  ground  on   which  the  disfranchisement  went  had 

1  Hardin  V.  Trustees,  51  Mich.  137;  lis,  3  Burr.  1318;  Rex  v.  Young,  1 
a,  c.  12  Am.  L.  Reg.  288;  s.  c.  47  Am.      Burr.  556. 

Kep.  556.  ^  Rex    v.    Davie,    Doug.   567,   568, 

2  Ilex  u.  Hann,  3  Burr.  1716;  Rex  whereuuder  the  circumstauces  such  au 
w.  Williams,  3  Burr.  1317;  Rex  «.  Bay-      information     was    denied.     Compare 

Rex.  V.  Athay,  2  Burr.  653. 

759 


1  Thomp.  Corp.  §  939.]     expulsion  of  members. 

not  been  decided.  Lord  Mansfield  said:  "There  is  great  tenderness 
in  granting  informations  in  matters  of  election.  How  many  instances 
do  we  recollect  of  mayors  acting  as  returning  officers  after  there  has 
been  judgment  of  ouster  against  the  mayor  under  whom  they  derive 
their  title,  as  at  Wiggan,  Marlow,  Carmarthen,  etc.?  Yet  no  informa- 
tion has  ever  been  granted  in  such  a  case.  For  the  civil  injury,  when  a 
corporator  has  been  improperly  removed,  there  is  a  specific  remedy  by 
a  mandamus,  and  an  action  for  a  false  return.  Where  a  person,  not 
entitled,  intrudes,  he  maj^  be  removed  by  an  information  in  the  nature 
of  quo  warranto,  and  fined  for  his  usm-pation.  If  you  would  proceed 
criminally,  prefer  an  indictment.  That  is  more  proper  for  a  precedent. 
But  how  is  the  corruption  proved?  For  the  appUcation,  the  belief  of 
corrupt  motives  is  sworn  to,  but  the  defendants  positively  deny  the  mo- 
tives so  imputed  to  them.  The  former  restorations  did  not  go  upon  the 
merits.  The  question  whether  non-residence  is  a  cause  for  disfranchis- 
ing a  capital  burgess  (which  was  the  ground  of  the  amotions  complained 
of),  has  never  yet  been  tried.  It  is  now  clear  that  all  the  capital 
burgesses  are  of  the  council,  yet,  on  the  returns  to  the  different 
mandamuses,  that  was  disputed,  and  the  contrary  maintained  on  the 
part  of  the  prosecutors ;  though  they,  being  possessed  of  the  charter, 
knew  it  to  be  so."  Buller  J.,  also  said :  "  When  corporators  combine, 
and  corruptly  prostitute  their  offices  to  election  purposes,  I  agree  that 
such  a  case  is  a  proper  subject  for  an  information.  But  the  corruption 
should  be  made  out.  The  defendants  here  positively  deny  the  particu- 
lars of  the  charge,  and  the  question  concerning  non-residence  has  never 
yet  been  decided.  The  defendants  swear  they  believe  it  to  be  a  solid 
ground  of  amotion ;  that  they  have  used  every  means  to  bring  it  to  a 
determination,  but  hitherto  without  success.  As  that  point  is  yet  unde- 
termined, I  should  think  it  would  be  improper  to  suffer  an  information 
to  go. ' '  ^ 

§  929.  Articles  of  tlie  Peace  by  one  Partner  Against  An- 
other.  — Where  one  partner,  by  violence,  forces  his  copartner  out  of 
the  business  premises  of  the  firm,  and  threatens  such  partner  with  \ao- 
lence  and  danger  to  his  life,  if  the  latter  should  venture  again  to  enter 
and  use  the  premises,  and  it  is  necessary  for  such  copartner  to  enter 
and  use  the  premises  for  the  purpose  of  carrying  on  his  ordinary  busi- 
ness as  partner,  the  Court  of  Queen's  Bench  will  permit  the  latter  to 
exhibit  articles  of  the  peace  against  the  former.  ^ 

1  Rex  V.  Uavie,  Doug.  567.  ^  Reg  v.  Mallinson,  20  L.  J.  (M.  C.) 

33;  s.  c.  1  Eng.  L.  &  Eq.  289. 

760 


JUDICIAL   PROCEEDINGS   TO   REINSTATE.      [I  TllOmp.  Corp.   §  930. 

§  930.  Action  against  Jvidge  for  Condemning  without  No- 
tice. —  It  was  held  by  Lord  Ellenborough,  at  nisi  prius,  that  an  action 
on  the  case  may  be  maintained  against  a  judge  of  an  ecclesiastical 
court,  who  excommunicates  a  party  for  refusing  to  obey  an  order  which 
the  coui't  has  not  authority  to  make,  or  where  the  party  has  not  previ- 
ously been  served  with  a  citation  or  monition,  nor  had  due  notice  of  the 
order ;  and  further,  that  the 2J''ac^^ce  of  the  ecclesiastical  court  is  matter 
of  fact  to  be  proved  by  evidence,  and  left  to  the  jury.^ 

1  Beaureiu  v.  Scott,  3  Camp.  388. 

761 


1  Thorap.  Corp.  §  935.]       by-laws. 


CHAPTER  XYIII. 

BY-LAWS. 

Art.     I.  Nature  and  Interpretation,  §§93,5-950. 

II.  Power  to  Enact  and  Mode  of  Enacting,  §§955-1053. 
SUBDIV.  I.  At  Common  Law,  §§955-960. 
SUBDIV.  II.  Statutes  Vesting  Power  in  Corporation  or  Members,  §§962- 

976. 
SUBDIV.  III.  Statutes  Vesting  Power  in  the  Directors  or  Other  Officers, 
§§978-1008. 
Art.  III.  Requisites  and  Validity,  §§1010-1053. 

Article  I.  Nature  and  Interpretation. 

Section  Section 

935.  What  is  a  by-law.  Oii.  Not  noticed  judicially  but  must 

936.  Distinguished  from  a  resolution.  be  proved. 

937.  Distinguished  from  a  regulation.  945.  Waiver  of. 

938.  Municipal  ordinances.  946.  Not  retroactive. 

939.  To  wliat  extent  a  law.  947.  Where  enacted:  no    extra-terri- 

940.  May  operate  as  a  contract  among  torial  force. 

the  members.  948.  Interpretation  of  by-laws. 

941.  Members  charged  with  knowledge      949.  Actions  upon  by-laws. 

of  by-laws.  950.  Action  on  by  law  making  mem- 

942.  To  what  extent  binding  on  third  bers  liable  for  debts  of  corpo- 

persons.  ration. 

943.  Formalities  required  in  enacting. 

§  935.  What  is  a  By-Law. — A  by-law  is  a  rule  or  law  of  a 
corporation  for  its  governraeut,  or  for  the  government  of  its 
members  and  officers,  in  the  management  of  its  affairs.  It  is  a 
legislative  act  of  the  corporation,  so  to  speak,  and  in  enacting 
it,  the  solemnities  and  sanctions  imposed  by  the  charter  must  be 
observed. 1  It  is  said  that  the  term  "  by-laws  "  has  a  peculiar 
and  limited  signification,  and  that  it  is  used  to  designate  *'the 
orders  and  regulations  which  a  corporation,  as  one  of  its  legal 
incidents,  has  power  to  make,  and  which  is  usually  exercised  to 

1  Drake  v.   Hudson  River  R.  Co.,  7  Barb.  (N.  Y.)  508,  53S. 
762 


NATURE    AND    INTERPRETATION.       [1  Thomp.  Corp.    §  937. 

regulate  its  own  actions  and  concerns,  and  the  rights  and  duties 
of  its  members  among  themselves."  ^ 

§  936.  Distinguished  from  a  Resolution. —  It  is  distin- 
guished from  a  resolution,  which  is  directed  to  the  attainment  of 
a  particular  object  in  a  given  case.  A  resolution,  it  has  been 
said,  is  not  necessarily  a  by-law,  though  a  by-law  may  be  in  the 
form  of  a  resolution. ^  Where  the  governing  statute  prescribes 
that  a  corporation  shall  act  in  a  given  particular  through  a  by- 
law, it  cannot  act  through  a  mere  resolution  of  its  board  of 
directors  directed  against  a  particular  person, —  as  a  resolution 
forfeiting  the  shares  of  a  particular  member  for  the  non-payment 
of  an  assessment;  ^  or  directing  the  officers  of  a  corporation  to 
exclude  a  director  of  the  corporation  from  the  enjoyment  of  his 
rights.* 

§  937.  Distinguished  from  a  Regulation. —  Agiiin,  a  corpo- 
rate by-law  is  distinguished  from  those  rules  and  regulations 
which  a  corporation  may  establish  for  the  government  of  the 
public,  or  of  those  doing  business  with  it,  in  the  prosecution  of 
their  intercourse  or  business  with  it, —  of  which  pertinent  ex- 
amples are  afforded  by  the  regulations  of  common  carriers  in 
respect  of  the  conduct  of  passengers,  designed,  on  the  one  hand, 
to  maintain  the  rights  of  the  carrier,  and  on  the  other  hand,  to 
promote  the  safety  and  comfort  of  the  passenger.^  A  distinc- 
tion has  been  taken  between  a  by-law  and  a  regulation  of  a  cor- 
poration, to  the  effect  that  the  validity  of  the  former  is  a  judicial 
question,  while  the  latter  is  regarded  as  a  matter  in  pais,^  Thus, 
the  regulations  of  a  railroad  company  which  operate  upon  and 
affect  the  rights  of  its  passengers,  are  not,  it  has  been  said, 
properly  speaking,  by-laws  of  the  corporation ;  and  accordingly 

1  Com.  V.  Turner,  1  Cush.  (Mass.)  *  Instances  of  such  regulations  are 
493,  496.  See  also  Flint  v.  Pierce,  99  found  in  the  following,  among  many 
Mass.  G8,  70.  other  cases:  Harris  u.  Stevens,  31  Vt. 

2  Dralce  v.  Hudson  River  R.  Co.,  7  79;  Hadencamp  v.  Second  Avenue  R. 
Barb.  (N.  Y.)  508.  Co.,  1  Sweeny  (N.  Y.),  490;  Baltimore 

3  Budd  V.  Multnomah  St.  R.  Co.,  &c.  R.  Co.  v.  Wilkinson,  30  Md.  224. 
15  Ore.  413;  s.  c.  3  Am.  St.  Rep.  169,  <>  Comptonu.  Van  Volkeuburgh  &c. 
173,  R.  Co.,  34  N.J.  L.  134. 

<  People  V.   Throop,  12  Wend.  (N. 

Y.)  183. 

^  763 


1  Thomp.  Corp.  §  938.]       by-laws. 

their  validity  depends  upon  the  fact  of  their  being  reasonable^ 
and  their  reasonableness  depends  upon  particular  circumstances 
or  matters  in  pais,  and  is  therefore  a  question  for  a  jury. ^  The 
soundness  of  this  distinction  is  doubted.  It  is  believed  that  the 
only  sound  distinction  is  that  the  by-law  is  more  usually  estab- 
lished for  the  government  of  the  internal  affairs  of  the  corpo- 
ration, while  the  regulation  is  established  for  the  government  of 
those  concerned  with  it  in  its  business,  or  rather  for  the  govern- 
ment of  its  business  with  the  public.  In  either  case  the  sound 
rule  is  believed  to  be  that  the  reasonableness  of  the  rule  is  a 
question  for  the  court. ^ 

§  938.  Municipal  Ordinances.  —  The  word '*  ordinance  "  is 
generally  employed  to  denote  those  laws,  adopted  by  public  or 
municipal  corporations,  not  only  for  the  conduct  of  the  internal 
affairs  of  the  corporation,  but  also  for  the  regulation  of  its  citi- 
zens and  strangers  dwelling  within  its  gates,  in  respect  of  certain 
matters  of  police.  The  word  "  by-law  "  was  originally  synony- 
mous with  what  we  now  designate  as  an  ordinance.  The  word 
*'  by"  was  the  Scandinavian  word  for  town,  and  a  by-law  was 
hence  a  town  law.^  The  analogy  between  what  is  called  a  by- 
law and  a  town  ordinance  has  been  often  pointed  out.* 

1  State  V.  Overton,  24  N.  J.  L.  433,  dinances,  34  Am.  Dec.  627,  et  sequitur; 
440;  s.  G.  61  Am.  Dec.  671.  See  also  Dillon  Mun.  Corp.  (4th  ed.),  §  807, 
Morris  &c.  R.  Co.  v.  Ayres,  29  N.  J.  L.  et  seq.  Two  definitions  are  given  in  a 
393,  recent  work  of  great  value:  1.  A  law 

2  Post,  §  1022.  affecting  a  single  village  or  township; 

3  Scan.  Byr, — a  town  or  village;  a  rule  governing  the  inhabitants  of  a 
Anglo-Saxon  Bijlage,  a  private  law.  locality.  2.  A  rule  or  a  law  of  a  cor- 
Some  form  of  this  word  has  been  poration  for  its  own  government, 
used  to  designate  a  town  or  city  in  And.  Law  Diet.,  verb,  by-law.  This 
many  languages  of  Europe  and  Asia,  writer  also  adds:  "By-laws  are  the 
and  is  found  in  the  word  Balkh,  which  orders  and  regulations  which  a  cor- 
is  the  present  name  of  an  Oriental  city,  poration,  as  one  of  its  legal  incidents, 
and  in  the  corrupted  word  Cambalu  has  power  to  make,  and  which  is  usu- 
(Khan-balkh)  the  city  of  the  khan,  ally  exercised  to  regulate  its  own 
which  was  the  Tartar  name  of  Pekin  action  and  concerns  and  the  rights 
during  the  reigns  in  China  of  the  sue-  and  duties  of  its  members  among 
cessors  of  Gengis  Khan.  —  Vdmbenj.  themselves."     Ibid.  In  an  old  work,  a 

*  Kobinson  v.    Mayor,    1    Humph,  by-law  is  defined  to  be  "a  law  made 

(Tenn  )    156;  s.   c.   34  Am.  Dec.  625;  obiter,  or    by  the  by."     Terras  de   la 

Blanchard  v.   Bissell,  11   Oh.    St.    96.  Ley,    ed.    1721.     But    this    definition 

See  the  learned  note  on  municipal  or-  seems  to  be  a  mere  aberration. 
764 


NATURE    AND    INTERPRETATION.       [1  Thomp.  Corp.    §  940, 

§  939.  To  what  Extent  a  Law.  —  Although  a  by-law  is,  from 
its  nature,  applicable  to  the  particular  corporate  body,  yet  it  is 
still  in  a  certain  sense  a  law,  and  is  to  be  applied  in  the  govern- 
ment of  such  body  whenever  the  circumstances  arise  for  which 
it  was  intended  to  provide.^  If  made  in  conformity  with  the 
charter  or  governing  statute,  it  is  as  binding  upon  the  individual 
members  of  the  corporation  as  any  public  law  of  the  State, 
though  of  course  its  sanctions  may  be  different ;  ^  and  according 
to  views  of  some,  they  may  be  equally  binding  upon  third  persons 
acquainted  with  the  method  of  business  of  the  corporation ; ' 
though  this  is  doubtful. 

§  940.  May  Operate  as  a  Contract  among  the  Members.  — 

As  will  be  more  fully  shown  hereafter,  when  treating  of  the  reg- 
ulations of  mutual  benefit  societies,  a  corporate  by-law  may  also 
be  regarded  as  a  contract  among  the  members,  by  which  to  de- 
termine their  rights  inter  sese^  and  where  the  society  has  features 
resembling  those  of  a  life  insurance  company,  by  which  to  deter- 
mine the  rights  of  the  beneficiaries  named  in  its  benefit  certifi- 
cates. Speaking  with  reference  to  this  office  of  a  by-law,  it 
has  been  said:  "The  office  of  a  by-law  is  to  regulate  the  con- 
duct and  define  the  duties  of  the  members  towards  the  corpor- 
ation and  between  themselves.  So  far  as  its  provisions  are 
in  the  nature  of  a  contract,  the  parties  thereto  are  the  mem- 
bers of  the  association,  as  between  themselves;  or  the  corpor- 
ation upon  the  one  side,  and  its  individual  members  upon  the 
other."  * 


1  Gosling  V.  Veley,  7  Ad.  &  El.  (n.  456;  Union  Bank  v.  Guice,  2  La.  An. 
s.  I  40G,  451;  s.  c.  19  L.  J.  (Q.  B.)  135.  249;  Anacosta  Tribe  v.  Murbach,  13 
And  see  Hopkins  v.  Mayor,  4  Mees.  &  Md.  91;  Brick  Presbyterian  Church  v. 
W.  620,  640.  Mayor  &c.,  5  Cow.  (N.  Y.)  538;  McDer- 

2  Cummings  v.  Webster,  43  Me.  mott  v.  Board  of  Police,  5  Abb.  Pr. 
192;  Weatherly  w.  Medical  &c.  Society,  (N.  Y.)  422. 

76  Ala.  567;  Kent  w.  Quicksilver  Min-  ^  Cmmningg    ^     Webster,    43  Me. 

ingCo.,   78  N.   Y.    159,  179;  Came   v.  192,197.      How  far  binding  on  the  di- 

Brigham,  39  Me.  35;  German  &c.  Con-  rectors:      Samuel    v.    HoUiday,     Mc- 

gregation    v.    Pressler,     17    La.   An.  Cahon   (Kan.),  224;  Woolw.    (U.  S.) 

127;     Harrington    v.    Workingmen's  400. 

Benevolent  Asso.,   70  Ga.   340;  Poult-  *  Flint  v.  Pierce,  99  Mass.  68;   s.  c. 

neyv.  Bacliman,  31  Hun  (N.  Y.),  49;  96  Am.  Dec.  691. 
Security  Loan  Asso.  v.  Lake,  69   Ala. 

765 


1  Thomp.  Corp.  §  942.]       by-laws. 

§  Oil.  Members  Charged  with  Knowledge  of  By-laws. —  All 

the  members  of  the  corporation  or  society  are  presumed  in  law  to 
have  notice  of  its  by-laws.  This  is. a  legal  pre  sumption  ^  conclu- 
sive in  its  nature  ;  and  accordingly,  direct  proof  of  such  notice  is 
not  required. 1  A  better  statement  of  this  rule  is  that,  when  a 
person  becomes  a  member  of  a  corporation  or  society,  he  as- 
sumes the  duty  of  knowing  the  internal  laws  of  that  society,  and 
agrees  to  be  governed  by  those  laws,  whether  he  knows  them  or 
not.  If,  therefore,  an  obligation  arises  against  him  under  those 
laws,  he  can  no  more  escape  that  obligation  on  the  plea  of 
ignorance,  than  he  can  be  heard  to  plead  ignorance  of  the  law  of 
the  land,  in  order  to  escape  a  civil  or  criminal  liability. ^ 

§  942.  To  what  Extent  Binding  on  Third  Persons.  —  There 
are  cases  to  the  effect  that  a  corporate  by-luw  is  binding  on  third 
persons  doing  business  with  the  corporation,  who  have  knowledge 
of  the  by-law.'  But  it  is  suggested  that  this  principle  can  oper- 
ate no  further  than  this:  Where  the  third  person  who  deals  with 
the  corporation  knows  of  its  course  of  business,  and  follows  a 
prescribed  regulation  which  it  has  enacted  for  the  conduct  of  its 
business,  it  will  be  presumed,  in  the  silence  of  his  contract  with 
the  corporation,  that  it  was  made  with  reference  to  such  known 
course  of  business,  exactly  as,  in  the  silence  of  a  contract,  a 
known  custom  may  be  presumed  to  enter  into  it  and  to  form  a 
part  of  it.  This  principle  is  also  operative  in  respect  of  those 
public  regulations  of  corporations  which  assume  public  duties  to 
be  performed  toward  the  members  of  the  public  distril)utively, 
such  as    incorporated  common  carriers.     In  these  cases,  as  al- 

1  Buffalo  V.  Webster,  10  Wend.  (N.  len,  106  Ind.  593;  Mitchell  v.  Lycom- 
Y.)  99;  Susquehanna  Ins.  Co.  ■?;.  Per-  ing  Mutual  Ins.  Co.,  51  Pa.  St.  402; 
rine,  7  Watts  &  S,  (Pa.)  348;  Palmyra  Siraeral  v.  Dubuque  &c.  Ins.  Co.,  18 
V.  Morton,  25  Mo.  593;  McLellan  Iowa,  319;  Cole  u.  Iowa  State  Mutual 
V.  Board  of  Pub.  Schools,  15  Mo.  Ins.  Co.,  18  Iowa  425.  For  a  view 
App.  362;  Cummings  v.  Webster,  that  the  by-laws  of  a  corporation  are 
43  Me.  192;  Arapahoe  Cattle  &c.  Co.  v.  evidence  against  its  officers,  although 
Stevens,  13  Colo.  634.  they  be  not  corporators,  see   Bank  v. 

2  As  enforcing  and  illustrating  this  WoUaston,  3  Harr.  (Del.)  90. 
principle,  see  Bauer  v.  Samson  Lodge,  ^  Cummings  v.  Webster,  43  Me.  192, 
102  Ind.  262;  s.  c.  13  Am.  &  P^ng.  Corp.  197.     Contra,  State  v.  Overton,  24  N. 
Cas.  618;  Presbyterian  &c.  Fund  v.  Al-  J.  L.  435,  440. 

766 


XATURE   AND    INTERPRETATION.       [1  Thomp.  Corp.  §  942. 

ready  suggested,^  the  incorporated  carrier  may  make  and  enforce 
as  against  the  members  of  the  public  who  deal  with  it,  reason- 
able regulations  and  those  regulations,  when  known  to  such 
third  persons  will  be  binding  upon  them.  For  example,  a 
regulation  of  a  railway  company  touching  the  carriage  of 
passengers,  when  known  to  a  passenger,  will  be  binding 
upon  him.  This  principle  may  also  operate  in  respect  of  the 
by-laws,  called  ordinances,  of  municipal  corporations,  which, 
within  the  incorporated  territory,  have  the  effect  of  laws  gov- 
erning all  persons  upon  whom  they  operate  by  their  terms, 
provided  they  are  valid  and  legal,  in  conformity  with  the  princi- 
ples hereafter  stated.  But  with  the  exception  of  these  cases,  it 
must  be  constantly  kept  in  mind  that  the  primary  conception  of 
a  by-law  of  a  private  corporation  is  that  it  is  a  mere  rule  for  the 
determination  of  the  rights  of  the  members  inter  sese,  and  for 
the  government  of  the  officers  of  the  corporation  in  conducting 
the  corporate  business ;  and  that  it  can  have  no  effect  as  a  law 
upon  other  persons,^  and  can  have  no  influence  upon  contracts 
between  the  corporation  and  other  parties,  except  as  above  stated.^ 
A  third  party  can  enforce  them  only  when  he  shows  some  priv- 
ity, —  as  where  he  has  advanced  money,  or  other  value,  upon  the 
credit  of  a  corporate  by-law,  or  the  like.*  Accordingly,  a  by- 
law of  a  bank,  that  all  payments  made  and  received  must  be  ex- 
amined at  the  time,  does  not  prevent  a  party  dealing  with  the 
bank  from  showing  afterwards  that  there  was  a  mistake  in  his  ac- 
count, or  deposits  and  receipts. ^  The  fact  that  the  by-laws  of  a 
corporation  express  an  individual  liability  of  members  for  com- 
pany debts,  and  that  each  member  subscribed  the  by-laws  merely 
to  become  a  member,  are  not  enough  to  sustain  an  action  l)y  a 
creditor  of  the  company  against  a  member  for  the  amount  due. 
He  must  at  least  show  that  he  gave  credit,  or  parted  with  value, 
on  the  faith  of  the  by-laws  having  been  so  drawn  up  and  signed 
by  the  members.'' 

1  Ante,  §  937.  ^  Flint  v.  Pierce,  supra. 

2  Meciianics'  &c.  Bank  v.  Smith,  19  ^  Mechanics  &c.  Bank   v.  Smith,  19 
Johns.  (N.  Y.)  115,  124;  Flint  v.  Pierce,      Johns.  (N.  Y.)  115,  124. 

99  Mass.  68;  s.  c.  9G  Am.  Dec.  691.  ®  Flint  v.  Pierce,  99  Mass.  68;  s.  c. 

"  Samuels  v.   Central  &c.  Ex.  Co.,      96  Am.  Dec.  691. 
McCahon  (Kan.),  214. 

767 


1  Thomp.  Corp.  §  945.]       by-laws. 

§  943.  Formalities  Required  in  Enacting.  —  If  the  char- 
ter prescribes  any  formality  to  be  observed  in  the  adoption  of 
by-laws,  of  course  it  must  be  observed.^  But  if  the  charter  is 
silent  as  to  the  formalities  to  be  observed,  a  by-law  may  bo 
adopted  by  ads  as  well  as  by  words;  by  the  uniform  course  of  pro- 
ceedings of  a  corporation,  as  well  as  by  an  express  vote  mani- 
fested in  writing?  It  has  been  said,  speaking  with  reference  to 
the  question  whether  a  certain  by-law  had  been  enacted,  "even  if 
there  was  no  record,  or  the  record  was  deficient,  we  consider  it 
settled  by  the  authorities  that  the  enactment  of  a  by-law  need 
not  necessarily  be  in  writing,  but  may  be  inferred  from  facts 
proved." ^ 

§  944.  Not  Noticed  Judicially  but  must  be  Proved. —  Like 
the  special  charters  of  corporations,  where  they  consist  of  pri- 
vate statutes,  the  by-laws  and  ordinances  of  such  bodies  are  not 
noticed  judicially,  but  must  be  proved  as  facts.* 

§  945.  Waiver  of. —  So  far  as  a  by-law  operates  as  a  regu- 
lation of  the  conduct  of  the  business  of  a  corporation  as  between 
itself  and  the  public,  it  may  be  waived  by  all  the  m,embers  so 
that  the  company  will  be  bound  by  the  doing  of  an  act,  contrary 
to  its  rules,  provided  it  has  received  the  assent  of  all  its  mem- 
bers.^ The  by-laws  of  a  mutual  insurance  company  are  in  the 
nature  of  a  contract  adopted  among  the  members.®  This  being 
their  character,  it  would  seem  to  follow,  on  principle,  that  the 
officers  of  such  a  company,  in  dealing  with  the  members,  have  no 
authority  to  waive  the  provisions  of  the  by-laws,  unless  express 
power  to  do  so  has  been  conferred  upon  them ;  because  the  by- 
laws are  private  statutes  by  which  the  members  have  agreed 
to    be   governed.^     Contrary    to  the  above,    it   has   been   held 

1  Dunston  v.  Imperial  Gaslight  Co.,  &  G.  (Md.)  324,  413;  Reuter  v.  Tele- 
3  Barn.  &  Ad.  125.  ^  graph  Co.,  6  El.  &  Bl.  341. 

^  Ibid.;  Fairfield  Turnpike  Co.  v.  '  ^  Haven  r.  New  Hampshire  Asylum, 
Thorp,  13  Conn.  175;  Langsdale  v.  13  N.  H.  532;  s,  c.  38  Am.  Dec.  512; 
Bonton,  12  Ind.  467.  Lucas  v.  San  Francisco,  7  Cal.  463,  474. 

SLockwoodu.  Mechanics  Nat.  Bank,  ^  Pennsylvania  Ins.  Co.  v.  Murphy, 

9  R.  I.  308,  335;  s.  c.  11  Am.  Rep*  253,      5  Minn.  36. 
267;    citing  Anjr.  &  A.  Corp.,  §§  238,  «  ^^^g^  §  94c. 

328;  Union  Bank  w.  Ridgely,    1  Harr.   »       '  Mulrey  v.  Shawmut  Mutual  Fire 
768 


NATURE    AND    INTERPRETATION.       [1  Thomp.  Coi'p.    §  946. 

that,  where  the  by-laws  and  conditions  of  a  mutual  insurance 
company  provided  that  all  general  or  local  agents  shall  be 
appointed  by  the  secretary,  and  furnished  with  a  certificate 
of  appointment  under  seal,  setting  forth  their  powers,  and  that 
no  insurance,  whether  original  or  continued,  shall  be  considered 
binding  unless  the  premium  shall  have  been  actually  paid  to  some 
duly  authorized  and  commissioned  agent, — such  by-laws  and 
conditions  are  solely  for  the  benefit  of  the  insurer,  and  may  be 
waived;  and  are  waived,  when  he  authorized  his  agent  to  deliver 
a  policy  and  receive  the  premium,  though  such  agent  has  not 
been  duly  authorized  and  commissioned,  as  provided  in  the  by- 
laws. Such  a  course  of  dealing,  adopted  between  the  insurer 
and  his  agent,  though  wholly  inconsistent  with  the  provisions  of 
the  policy,  cannot  be  set  up  by  the  insurer  to  defeat  a  recovery 
thereon.^  But  it  is  conceived  that  the  doctrine  of  waiver  has 
been  so  much  enlarged,  and  the  rules  respecting  the  powers  of 
agents  so  much  varied  by  the  courts,  when  dealing  with  contracts 
of  insurance^  that  this  subject  cannot  be  profitably  pursued,  for 
the  purpose  of  illustrating  the  extent  to  which  the  officers  of 
other  corporations  may  waive  the  provisions  of  their  by-laws 
when  dealing  with  third  persons. 

§  946.  Not  retroactive.  —  By-laws  cannot  be  made  to  operate 
retrospectively.^  It  has  been  said;  "A  by-law  or  regulation 
means  a  rule  ioY  future  action.  Ex  post  facto  laws  are  no  more 
lawful  for  corporations  than  for  States;  and  all  by-laws,  con- 
trary to  the  general  principles  of  the  common  law,  or  the  policy 
of  the  State,  are  void."  A  by-law,  therefore,  enacting  that 
from  and  after  a  given  day,  all  members  who  are  in  default  in 
the  payment  of  their  dues  shall  cease  absolutely  to  be  members, 

Ins.  Co.,  4  Allen  (Mass.),  116;  s.  c.  81  Chester  Fire  Ins.  Co.  v.  Earle,  33  Mich. 

Am.  Dec.  G89 ;  Murphy  v.  People's  Ins.  143,  150 ;  Clark  v.  New  England  Mutual 

Co.,   7   Allen  (Muss."),  239;  Evans  v.  Fire   Ins.  Co.,   6  Cush.   (Mass)  342; 

Tri-Mountainlns.  Co.,9Allen  (Mass.),  s.  c.  53  Am.  Dec.   44;  Union  Mutual 

329;  Hale  v.  Mechanics'  Mutual  Fire  Ins.  Co.  v.  Keyser,  32  N.  H.  313;  s.  c. 

Ins.  Co.,  6  Gray  (Mass.),  169;  s.  c.  G6  64  Am,  Dec.  44. 

Am.  Dec.  411;  Brewer  u.  Chelsea  &c.  i  Susquehanna  Mut.  Fire  Ins.  Co. 

Ins.  Co.,  14  Gray  (Mass.),   203,  209;  v.  Elkins,  124  Pa.  St.  484;  s.  c.  10  Am. 

Priest  V  Citizens'  &c.  Ins.  Co.,  3  Allen  St.  Rep.  608. 

CMass.),  602,  604;   Behler  v.  German  2  Howard  v.    Savannah,    T.    U.    P. 

&c.  Ins.  Co.,  68  Ind.  .".17,  3.->4;  West-  Charll.  (Ga.)  173. 

^9  769 


1  Thomp.  Corp.  §  948.]       by-laws. 

and  without  any  further  action  whatever  on  the  part  of  the  cor- 
poration or  its  board  of  trustees ;  that  the  failure  to  pay  all  dues 
remaining  unpaid  on  a  given  day  in  each  year  thereafter,  shall 
work  the  same  forfeiture  of  membership ;  and  that  in  each  case 
the  secretary  shall  drop  the  names  of  all  such  delinquent  persons 
from  the  rolls  of  members,  — has  been  held  void^  as  an  ex  post 
facto  law,  in  so  far  as  it  was  an  adjudication  upon  existing  de- 
faults. It  was  regarded  as  analogous  to  a  foreclosure  decree 
fixing  a  short  term  of  payment.  It  enforced  a  new  penalty  be- 
yond those  existing  at  the  time  of  default.^ 

§  947.  "Where    Enacted;  No  Extra-Territorial   Force. —  It 

has  been  held  that  a  corporation  cannot  enact  a  by-law,  or  any 
rule  or  resolution  for  its  government,  except  W27Az/j  tlie  State 
under  whose  laws  it  is  organized,  and  where  it  has  a  corporate 
existence. 2  But  this  can  only  mean  that  the  corporation  has  no 
such  power,  considered  as  mere  power.  It  does  not  mean  that 
the  by-laws  of  a  corporation  may  not,  in  like  manner  as  its  char- 
ter, have  force  in  a  foreign  State  or  country,  if  allowed  to  have 
force  there  by  the  comity  of  that  State  or  country. 

§  948.  Interpretation  of  By-laws.  — In  the  interpretation  of 
by-laws  the  same  principles  obtain  which  govern  in  the  interpre- 
tation of  statutes,  contracts  and  other  private  instruments.^  As 
in  the  case  of  statutes,  so  in  the  case  of  by-laws,  the  courts  will, 
in  construing  them  where  two  interpretations  are  possible,  one 
of  which  will  save  them  and  make  them  valid  and  the  other  of 
which  will  render  them  invalid,  so  interpret  them  as  to  make 
them  valid  ;  since  the  purpose  of  violating  the  law  of  the  land 
will  not  be  imputed  to  their  authors  except  where  necessary.* 
The  by-laws  of  a  corporation,  voluntary  association,  or  other 
private  society,  when  proved,  are  to  be  interpreted. 6y  t/ie  court, 
the  same  as  apubliclaw,anditis  error  to  submit  the  interpretation 
of  them  to  a  jury.     They  should  have  a  reasonable  construction.^ 

1  People    V.    Fire   Department,    31  30;   Re   Dunkerson,    4   Biss.    (U.   S.) 

Mich.  458,  465.  227. 

-  llitchell  «.  Vermont  Copper  Min-  ••  Poiilters'  Co.  v.  Phillips,  6   Bing. 

ing    Co.,  40    N.  Y.    Superior  Ct.  400;  New  Cas.  314;  Ilibernia   Fire  Engine 

antr,  §  (;;)4.  Co.  v.  Com  ,  93  Pa.  St.  2G4. 

"  State  V.  Conklin,  34  Wis.  1,  ^  Osceola  Tribe  v.  Rest,  15  Md. 
770 


NATURE    AND    INTERPRETATION.       [1  Thomp.  Coip.   §   949. 

A  court  will  not  construe  them  so  strictly  as  to  make  them  void, 
"  if  every  particular  reason  for  making  them  does  not  appear."  ^ 
But  where  they  establish  a  penalty  for  the  non-performance  of  a 
duty,  they  will  be  strictly  construed,  the  same  as  a  penal  statute ; 
and  if  their  validity  is  doubtful,  they  will  be  rather  so  construed 
as  to  make  them  void,  than  so  as  to  make  them  valid  for  the 
purpose  of  upholding  the  penalty  .^ 

§  949.  Actions  upon  By-Laws.  —  Actions  are  constantly 
brought  upon  by-laws  by  corporations  against  their  members, 
and,  in  the  case  of  municipal  corporations,  against  other  persons, 
to  enforce  penalties  therein  given.  On  the  other  hand,  actions 
may  be  brought  upon  a  by-law  by  a  member  against  the  corpo- 
ration, on  the  theory,  applicable  to  some  by-laws,  that  it  is  a 
contract  between  the  corporation  and  its  members.^  Altliough 
a  custom  of  a  particular  corporation,  especially  of  a  municipal 
corporation,  may  be  of  such  universality  within  the  corporation, 
that  courts  there  sitting  will  notice  it  judicially,  yet  tliey  will 
not  so  notice  a  corporate  by-law.*     It  must,  therefore,  he  pleaded. 


295;  Hi.scgins  v.  McCrea,  116  U.  S.  671; 
Boogher  v.  Maryland  Life  Ins.  Co.,  6 
Mo.  App.  592;  1  Thomp.  Trials,  §1057, 
et  seq. 

1  Vintner's  Co.  v.  Passey,  1  Bun. 
235. 

2  Mayor  of  Oxford  v.  Wildgoose,  3 
Lev.  2'.)i  (penalty  for  refusing  to  take 
tlie  ofTice  of  chamberlain  of  the  corpo- 
ration). As  to  the  construction  of 
by-laws  giving  penalties  for  refusing 
to  take  the  office  of  sheriff  under  the 
charter  of  London,  see  Rex  v.  Lar- 
wood,  Carth.  306;  City  of  London  v. 
Vanacker,  Carth.  480. 

3  Ante,  §940.  A  member  of  a  cor- 
poration whose  by-1  iws  are  subject  to 
amendm'^nt,  cannot  maintain  an  action 
a'^ainst  the  corporation  under  one  of 
the  by-luvs  wlii'-h  h:is  been  repealed 
by  an  amendment  during  his  mem- 
bership and  before  the  bringing  of  his 
action.  Schrick  v.  St.  Louis  Mut. 
House  Building  Co.,  34  Mo.  423. 


*  There  was  a  distinction  in  former 
times  in  regard  to  actions  on  customs, 
and  actions  upon  by-laws  of  corpora- 
tions. The  court  would  take  judicial 
notice  of  the  customs  of  London;  and 
therefore  where  an  action  was  founded 
on  a  custom  of  London,  it  was  not 
necessary  to  return  the  custom.  But 
it  seems  that  the  court  wou'd  not  take 
judicial  notice  oi  the  by-laws  of  Lon- 
don; and  accordingly  where  an  action 
was  founded  on  such  a  by-law,  it  was 
necessary  to  return  the  by-law.  This 
must  be  understood  to  refer  to  actions 
in  the  courts  of  the  city  of  London, 
possibly  in  the  Lord  Mayor's  court; 
and  the  expression  returning  the  by- 
law, had  reference  to  the  return  re- 
quired to  be  made  to  a  writ  of  habeas 
corpus  cum  causa,  sued  out  in  the 
King's  Bench,  to  remove  the  cause 
thither.     Watson  v.  Clerk,  Comb.  138. 


771 


1  Thorn  p.  Corp.  §  950,]       by-laws. 

Id  counting  upon  it  in  a  declaration,  complaint  or  petition,  the 
pleader  proceeds  in  the  same  way  Avhich  he  would  pursue  in  the 
case  where  any  other  private  instrument  was  the  foundation  of 
the  action.  He  may,  of  course,  set  out  the  instrument  in  his 
pleading,  in  liodc  verba,  or  he  may  state  it  in  substance  and  ac- 
cording to  its  legal  effect,  without  reciting  its  exact  language, 
and  introduce  the  by-law  itself  as   evidence  under  the  pleading.^ 

§  950.  Action  on  By-Law  Making  Members  Liable  for  Debts 
of  Corporation.  —  An  action  will  not  lie  by  a  creditor  of  a  cor- 
poration against  a  member  thereof,  for  a  debt  due  the  plaintiff 
by  the  corporation,  upon  a  by-law  making  the  members  liable 
for  the  debts  of  the  corporation,  unless  the  defendant  signed  the 
by-law,  or  unless  the  plaintiff  lent  his  money  upon  tiie  faith  of 
it. 2  A  corporation  cannot,  by  a  mere  by-law,  in  the  absence  of 
any  statutory  authority,  bind  its  non-assenting  stockholders  for 
the  payment  of  the  debts  of  the  corporation.^  Nor  can  a  bank 
make  its  stockholders  liable  for  its  bills  by  printing  a  notice 
thereon  that  they  are  so  liable.* 


1  Kehlenbeck  v.  Logeman,  10  Daly 
(N.  Y.),  447. 

2  Flint  V.  Pierce,  99  Mass.  68;  s.  c. 
96  Am.  Dec.  691.  The  court  say: 
"  The  right  of  any  third  party,  stranger 
to  the  association,  to  establish  a  legal 
claim  through  such  a  by-law,  must 
depend  upon  the  general  principles 
applicable  to  express  contracts,  as 
laid  down  in  Mellen  v.  Whipple,  1 
Gray  (Mass.),  317,  and  the  subsequent 
decisions  in  Field  v.  Crawford,  6  Id. 
lie,  and  Dow  v.  Clark,  7  Id.  198.  No 
action  can  be  maintained  by  such 
third  party,  unless  he  can  bring  his 
case  within  some  recognized  excep- 
tions to  that  general  rule.  A  pledge 
like  the  one  in  question,  if  made  for 
the  purpose  of  enabling  the  corpora- 
tion to  obtain  a  loan  upon  the  faith  of 
it,  and  used  for  that  purpose,  may 
perhaps  give  a  right  of  action  against 
the  subscribers  in  favor  of  a  party 
who    has    been    induced  to  advance 

772 


money  upon  its  credit.  This  seems  to 
be  implied  strongly  by  the  decision  in 
the  case  of  Trustees  of  Free  Schools 
in  Andover  v.  Flint,  13  Met.  (Mass.) 
539,  543;  inasmuch  as  the  plaintiff  in 
that  case  appears  to  have  failed  to  re- 
cover upon  a  similar  claim,  merely 
for  the  reason  that  the  defendant  had 
not  signed  the  by-law.  But  no  such 
facts  are  shown  to  exist  in  the  present 
case.  The  plaintiff  not  only  is  no 
party  to  the  contract  contained  in 
the  by-law,  but  he  fails  to  show  any 
privity  between  himself  and  the  de- 
fendant in  relation  to  the  subject 
matter,  or  to  the  consideration,  of  his 
demand." 

^  Reid  V.  Eatonton  Man.  Co.,  40 
Ga.  98 ;  s.  c.  2  Am.  Rep.  563 ;  Trustees 
V.  Flint,  13  Met.  (Mass.)  539;  Flint  v. 
Pierce,  99  Mass.  69;  s.e.  96  Am.  Dec. 
691. 

■•  Lowry  v.  Inman,  46  N.  Y.  119. 


POWER    AND    MODE    OF    ENACTIxNG.       [1  TllOmp.  Coi'p.    §   955. 


ARTICLE     II. 


Power  to  Enact  akd  Mode  of  Enacting. 
SUBDIVISION  I.    At  Common  Law. 


Sectiox 

955.  Inherent  power  to  make. 

956.  Must    be    made     by     the    cor- 

porators, not   by    the  direct- 
ors. 

957.  Charters  conferring  this   power 

on  the  directors. 


Section 

958.  What  quorum  of  a  select  body 

may  adopt. 

959.  Delegation    of  power  to    select 

body  does  not  necessarily  di- 
vest power  of    general  body. 

960.  Amendment  and  repeal  of  by-laws. 


§  955.  Inherent  Power  to  Make. —  By  the  principles  of  the 
common  law,  every  corporation  aggregate  possesses  the  inherent 
power  to   make   all   necessary  rules  and  regulations  for  its  gov- 
ernment and   operation,    although  such  power  may   not   be    ex- 
pressly conferred  in  its  charter,  in  the  statute  of  its  creation,  or 
in  any  other  statute.^     It  is  regarded  as  a  power  that  is  included 
in  the  izrant  of  the  capacity  of  being  a  corporation.     It  is  gener- 
ally said  to  be  "  an  incident  to  a  corporation."  ^     But  if  the  char- 
ter or  governing  statute  contains  an  express  grant  of  power  to 
enact  by-laws,  and  the  grant  is  by  its  terms  limited  to  specified 
cases  or  specified  purposes,  the  grant  will  operate  as  a  restriction 
upon  the  power  of  legislation  possessed  by  the  corporation  in  this 
respect,  and  will  exclude  all  other  objects  by  implication,  on  the 
principle  expressio  luiius  exclusio  alterius.^ 


1  Drake  v.  Hudson  River  R.  Co.,  7 
Barb.  (N.  Y.)  508;  Martin  v.  Nashville 
Building  Asso.,  2  Cold.  (Tenn.)  418; 
People  V.  Medical  Society,  24  Barb. 
(N.  Y.)  574. 

2  Rex  V.  Westwood,  2  Dow.  &  CI. 
21,  37  (House  of  Lords).  "Thepower 
of  making  rules  and  regulations  is 
necessarily  incident  to  a  corporation; 
and  it  is  generally  inserted  in  the  act 
of  incorporation,  to  define  its  nature 
and  limit  its  extent."  Mechanics  &c. 
Bankw  Smith,  19  Johns.  (N.  Y.)  115, 
124,  per  Woodworth,  J.  "The  mak- 
ing of  by-laws  is  incident    to  every 


corporation  aggregate ;  for  that  power 
is  included  in  the  incorporation." 
London  City  v.  Vanacker,  Carth.  480, 
per  Lord  Holt,  C.  J.  Cases  are  found 
where  the  proposition  is  put  forward 
that  corporations  must  show  their 
power  to  pass  by-laws  (Dunham  v. 
Trustees  of  Rochester,  5  Cow.  (N.  Y.) 
462),  and  bring  themselves  by  proof 
within  that  power.  Taylor  v.  Gris- 
wold,  14  N.  J.  L.  222. 

3  Aug.  &  A.  Corp.,  §   325;   Child  u. 
Hudson's  Bay  Co.,  2  P.  Williams,  207; 
State  V.  Ferguson,  33  N.  H.  424,    430; 
State  V.  Mayor  &c.,  33  N.  J.  L.  57. 
773 


1  Thonip.  Corp.  §  957.]       by-laws. 

§  956.  Must  be  Made  by  the  Corporators,  not  by  the  Direct- 
ors. —  Law^  governing  the  internal  operations  and  business  of  a 
corporation  are  necessarily  matters  of  such  a  constituent  char- 
acter that,  in  the  absence  of  a  statute  otherwise  providing,^ 
they  can  only  be  made  by  the  corporation  at  large,  that  is  to 
say,  by  the  members  in  their  constituent  character  at  a  general 
meeting  of  the  corporation.  Without  such  statutory  authoriza- 
tion, they  can  only  be  made  by  the  most  numerous  body  or  con- 
stituency, and  cannot  be  made  by  the  directors,  trustees  or 
other  managers.^ 

§  957.   Charters  Conferring  this  Power  on  the  Directors.  — 

Many  charters  and  statutes  no  doubt  exist,  conferring  this 
power  upon  the  directors.  In  one  case  which  has  come  under 
observation,  the  charter  gave  the  board  of  directors  express 
authority  to  adopt  a  by-law  prohibiting  the  transfer  of  stock 
where  the  owner  was  in  default.^     In  another  case,  it  was  held 


1  As  hereafter  seen  such  statutes 
exist  in  many  States:  1  Rev.  Stat. 
Mo.  1890,  §  2506;  post,  §  978.   et  seq. 

2  Rex  V.  Westwood,  2  Dow.  &  CI. 
21,  36;  Morton  Gravel  Roid  Co.  v. 
Wysons,  51  Ind.  4;  Carroll  v.  Mul- 
lanphy  Savings  Bank,  8  Mo.  App.  249; 
State  Savings  Asso.  v.  Nixon-Jones 
Printing  Co.,  25  Mo.  App.  642;  Union 
Bank  v.  Ridgely  1  Harr.  &  G.  (Md.) 
324;  Salem  Bank  ?;.  Gloucester  Bank, 
17  Mass.  1;  Martin  y.  Nashville  Build- 
ing Asso.,  2  Cold.  (Tenn.)  418;  Bank 
of  Holly  Springs  v.  Pinson,  58  Miss. 
421;  Slate  u.  Curtis,  9  Nev.  325.  In 
Indiana  it  has  been  said  that  the 
power  to  make  by-laws  resides  in  the 
members  of  the  corporation  at  large, 
where  tht-re  is  no  law  or  valid  usage  to 
the  contrary.  Morton  Gravel  Road  v. 
Wysong,  51  Ind.  4,  12.  What  the 
court  meant  by  "  valid  usage  "  in  this 
passage  is  probably  explained  by  tiie 
quotation  which  follows  in  the  opin- 
ion from  a  work  of  reputation:  "Un- 
less by  the  charter  or  some  general 
statute  to  which  the  charter  is  made 
subject,  or  by  immemorial  usage,  this 

774 


power  is  delegated  to  particular  of- 
ficers or  members  of  the  corporation, 
like  every  other  incidental  power,  it 
resides  in  the  members  of  the  corpo- 
ration at  large,  to  be  exerci  ed  by 
them  in  the  same  manner  in  which  the 
charter  may  direct  them  to  exer- 
cise other  powers  or  transact  their 
general  business;  and  if  the  charter 
contain  no  such  direction,  to  be  exer- 
cised according  to  the  rules  of  the 
common  law,"  etc.  Ang.  &  A.  Corp., 
§  327;  citing  Union  Bank  v.  Ridgely,  I 
Harr.  &  G.  (Md.)  324;  Rex  v.  West- 
wood,  2  Dow.  &  CI.  21.  It  is  said  in 
an  English  work:  «' In  all  corpora- 
tions, to  which  the  power  of  making 
by-laws  is  incident,  it  is  to  be  exer- 
cised by  the  entire  body  of  corporators, 
as  distinguished  from  select  bodies, 
unless  the  constitution  of  the  corpo- 
ration have  vested  the  whole  power  of 
making  by-laws  in  some  particular 
part  or  body  of  the  corporation." 
Grant  Corp.  77;  citing  Rex  v.  West- 
wood,  2  Dow.  &  CI.  21. 

3  Mechanics   Bank     v.    Merchants' 
Bank,  45  Mo.  513. 


POWER    AND    MODE    OF    EXACTING.       [1  Thomp.  Corp.    §    959. 

that  a  provision  of  the  charter,  making  the  stock  of  the  corpo- 
ration personal  property,  and  authorizing  the  board  of  di- 
rectors to  make  rules  and  reijulatious  concernins:  its  transfer, 
subject  to  the  general  law  of  the  State,  authorized  the  board  to 
adopt  a  rule  prohibiting  the  transfer  of  such  sstock  until  all  debts 
due  by  the  owner  thereof  to  the  corporation  should  be  paid,  al- 
though such  rule  was  inconsistent  with  the  general  law  of  the 
State  governing  the  transfer  of  personal  poperty.^ 

§  958.  What  Quorum  of  a  Select  Body  may  Adopt.  —  Where 
a  statute  autliorizes  a  select  body,  e.^.,  directors  of  a  corporation, 
to  make  by-laws,  a  majority  of  that  body,  at  least,  is  necessary 
to  constitute  a  quorum?  Where  the  charter  of  a  corporation 
authorizes  the  president  and  directors  to  adopt  by-laws,  it  is  held 
that  by-laws  may  be  adopted  by  a  meeting  at  which  the  president 
Sin([ixq}iorum  of  the  directors  are  present ;  and  where  the  quorum 
consists  of  a  majority  the  assent  of  a  majority  is  sufficient  in 
order  to  make  the  by-laws  valid. ^ 

§  959.  Delegation  of  Power  to  Select  Body  does  not 
Necessarily  Divest  Power  of  General  Body. —  A.  statutory 
delegation  to  a  select  body  of  the  corporation,  of  the  power  to 
make  by-laws,  does  not  divest  the  inherent  power  of  the  general 
body,  so  to  do,  unless  the  statute  so  declares  in  express  terms. 
Thus,  although  the  power  of  making  by-laws  is  vested  in  the 
managers  of  the  corporation,  and  not  in  the  stockholders,  a  by- 
law passed  at  a  meeting  called  as  a  stockholder's  meeting  will  be 
valid,  if  the  stockholders  and  managers  were  the  same  persons, 
and  all  were  present  and  participated.*  This  principle  is  also 
well  illustrated  by  a  leading  English  case,  where  a  charter  vested 
the  right  to  elect  burgesses  in  the  general  body  of  an  ancient 
corporation,  and  gave  a  power  to  make  by-laws  to  a  select  body. 
The  general  body   made  a  l)y-lavv  delegating  the  power  to  elect 

1  Perpetual  Ins.  Co.  v.  Goodfollow,  ^  Cahill  v.  Kalamazoo  Mutual  Ins. 
9  Mo.  14!).  Compare  Carroll  v.  Mul-  Co.,  2  Don-;.  (Mich.)  124;  s.  c.  43  Am. 
lanphy  Saviui^s  Hank,  8    Mo.  App.  24!t,      Dec.  4;"i7,  461. 

253,  where  the.se  two  cases  are  dis-  •*  People  v.   Sterling  Manf.   Co.,  82 

tinguislierl.  111.  4.57. 

2  Ex   parte  Willcocks,  7  Cow.    (N. 
Y.)  402;  ojit^.,  «  7'_'rj. 

775 


1  Thomp.  Corp.  §  963.]       by-laws. 

burgesses  to  the  select  body.  It  was  held  by  the  House  of 
Lords,  that  this  was  a  good  by-law;  for  the  power  given  by  the 
charter  to  the  select  body  to  make  by-laws  did  not  divest  the 
general  body  of  the  right  to  make  such  laws,  which  was  inci- 
dent to  it  at  common  law.^ 

§  960.  Amendment  and  Repeal  of  By-Laws. —  It  is  scarcely 
necessary  to  say  that  a  corporation  which  is  authorized  by  its 
charter  to  make  such  by-laws  as  may  be  necessary  to  attain  the 
objects  for  which  it  is  created,  has  power  to  change  such  by-laws 
from  time  to  time,  when  necessary  to  carry  out  such  objects.^ 
But  it  is  scarcely  necessary  to  say  that  the  power  to  amend  or 
repeal  by-laws,  even  when  expressly  conferred  by  the  charter, 
cannot  be  so  exercised  as  to  impair  any  rights  that  have  been 
given  and  vested  by  virtue  of  the  by-law.^ 

SUBDIVISION  II.  Statutes  Vesting  Power  in  the  Corporation  or  Members. 

Section  Section 

962.  General  statutory  power  to  make      969.  Same  as  preceding:  also  number 

by-laws  not  inconsistent  with  of    directors,  penalties,  liens 

law,  etc.  upon  shares,  etc. 

963.  For  management  of  property  and      ^j^^  Provisions  applicable  to  benevo- 

regulation  of  affairs.  ^^^^.^     religious,     educational, 

964.  For  the  regulation  of  its  property,  literary,  social,  and  other  so- 

managemeut  of  its  affairs,  and  cieties. 

965.  And  as  to  corporate  meetings.  ^71.  Provisions  applicable  to  railroad 

966.  Corporate  meetings  and  voting:  companies. 

forfeiture  of  shares :  penalties,      972.  Provisions    applicable    to  boom 
etc.  and  navigation  companies. 

967.  Concerning    officers,     meetings,       __„    „     .  ,, 

.     °  '  "  '      973.  Various  other  provisions. 

968.  Management  of  property,  regula-      9^*-  ^«  *«  forfeiting  shares. 

tion    of    affairs,     transfer    of      975.  How  enacted. 

stocls,  duties  of  officers.  976.  How  amended,  repealed,  etc. 

§  902.  General  Statutory  Power  to  make  By-Laws  not  In- 
consistent with.  Law,  etc.  —  Incorporated  bureaus   of  immigration 

»  Rex  V.  Westwood,  2   Dow.  &  CI.  78  N.  Y.  159;  when  a  stockholder  will 

21,  36.  not    be     estopped     from    objecting: 

2  Schrick  v.  St.  Louis  Mut.  House  Bergman  v.  St.  Paul  Mut.  Bldg.  Assc, 

Building  Co.,  34  Mo.  423.  20  Miuu.  275. 

2  Kent  V.   Quicksilver  Mining  Co., 
776 


POWER   AND    MODE    OF    ENACTING.       [1  Thomp.  Corp.   §  962. 

"shall  make  by-laws  in  accordance  with  their  objects:  Provided,  that 
such  by-laws  be  not  in  contravention  of  the  laws  of  this  State  or  the  laws 
and  constitution  of  the  United  States."  ^  .  -  -  -  Incorporated 
institutions  of  learning  have  power  "  to  make  such  laws  for  their  own 
government  as  may  deemed  proper:  Provided,  that  the  same  shall  not 
conflict  with  the  constitution  and  laws  of  the  United  States  or  the  con- 
stitution and  laws  of  the  State  of  Arkansas."  2  _  _  .  _  "  All  cor- 
porations have  the  right  ...  to  make  by-laws,  binding  on  their 
own  members,  not  inconsistent  with  the  laws  of  this  State  and  of  the 
United  States."  ^  _  _  _  -  'Each,  co-operatiue  association  ^'^  may  make 
its  own  by-laws,  provided  they  be  not  repugnant  to  this  act,  nor  to  the 
laws  of  the  State."  A  copy  of  such  by-laws  must  be  filed  in  the  clerk's 
office  of  the  place  where  it  transacts  business.*  -  -  -  -  Corpora- 
tions for  the  purpose  of  engaging  in  any  species  of  trade,  business,  or 
commerce,  "  may  make  by-laws  not  inconsistent  with  the  constitution 
of  this  State  or  constitution  of  the  United  States. "  ^  _  _  .  -  "Every 
corporation  may  adopt  a  code  of  regulations  for  its  government,  not 
inconsistent  with  the  constitution  and  laws  of  the  State."  ^  _  _  _  _ 
Horticidtural  corporations  "may  adopt  such  by-laws  for  their  protection 
and  good  order  as  it  [they]  may  deem  necessary,  not  inconsistent  with  the 
laws  of  this  State."  '  Certain  associations,  such  as  labor,  agricultural, 
rehgious,  charitable,  fire,  hook  and  ladder  companies,  academies,  jockey, 
yacht,  sporting  and  other  clubs  may  be  incorporated  and  when  so  or- 
ganized "  ever}^  such  corporation,  and  its  officers  and  stockholders,  may 
make  by-laws  not  repugnant  to  the  laws  of  the  State."  ^  _  _  _  _ 
Private  business  corporations  ' '  may  establish  by-laws  for  the  govern- 
ment of  their  affairs  and  may  alter  or  repeal  the  same."  ^  -  -  -  - 
' '  Savings  banks  and  savings  institutions  may  adopt  by-laws  for  their 
government,  not  inconsistent  with  law. "  ^"^  -  -  -  -  Corporations 
for  literary,  scientiflc,  religious  and  charitable  purposes  have  power 
"  to  make  rules,  by-laws  and  ordinances,  and  do  every  thing  needful  for 
their  good  government  and  support  not  repugnant  to  the  constitution 
and  laws  of  the  United  States,  to  the  constitution  and  laws  of  this  State, 
or  to  the  instrument  upon  which  the  corporations  respectively  are  formed 
and  estabHshed." "  _  .  .  -  Corporations  other  than  joint-stock 
companies  "  may  make  and  adopt  for  their  government,  and  to  enable 

1  Ark.  Dig.  Stat.  (1884),  §  1016.  «  Rev.  Stat.  Ohio  (1890),  §  3249. 

»  Ark.  Dig.  Stat.  (1884),  §  1006.  '  Rev.  Stat.  Ind.  (1888),  §  3492. 

3  Ga.  Code  (1882),  §  1079.  »  Gen.  Stat.  S.  C.  (1881),  §  1372. 

<  Rev.  Stat.  Mian.  (1881),  p.  402,  §  »  Rev.  Laws  Vt.  (1880),  §  3281. 

158.  *°  Rev.  Laws  Vt.  (1880),  I  35G2. 

'  Gen.  Stat.  Nev.  (1885),  §  805.  "  Voor.  Rev.  Stat.  La.,  p.  183,  §  680. 

777 


1  Thomp.  Corp.  §  963.]       by-laws. 

them  to  conduct  and  pursue  their  business  and  purpose,  all  necessary 
bjMaws  and  regulations  not  inconsistent  with  the  constitution  and  laws 
of  the  United  States  and  of  this  State. ' '  ^ 

§  963.  For  Management  of  Property  and  Regulation  of 
Affairs.  —  Another  class  of  statutes  is  a  little  more  specific  :  granting 
the  power  either  to  corporations  generally,  or  else  to  various  named 
corporations,  to  make  by-laws  for  the  regulation  of  their  affairs  and  the 
management  of  their  property,  or  both,  thus :  In  South  Carolina,  by  gen- 
eral provision,  "corporations  shall  have  power  .  .  .  to  make  by- 
laws and  regulations,  consistent  with  the  constitution  and  laws  of  this 
State,  for  their  own  government  and  the  due  and  orderly  conduct  of 
their  affairs,  and  the  management  of  their  property."^  _  _  _  - 
"All  corporations  may,  whenever  no  other  provision  specially 
made  .  .  .  make  by-laws  and  regulations,  consistent  with  law,  for 
their  government  and  for  the  due  and  orderly  conducting  of  their  affairs 
and  the  management  of  their  property. "  ^  -  -  -  -  "  All  corpora- 
tions shall,  when  no  other  provision  is  specially  made,  be  capable,  .  .  . 
to  make  by-laws  and  regulations,  consistent  with  the  laws  of  the  State, 
for  their  own  government,  and  for  the  due  and  orderly  conducting  of  their 
affairs,  and  the  management  of  their  property."  *  _  _  -  -  "Every 
corporation,  where  no  other  provision  is  specially  made,  may  in  its 
corporate  name  sue  and  be  sued  .  .  .  and  make  by-laws  and  reg- 
ulations consistent  with  law,  for  its  own  government,  the  due  and 
orderly  conducting  of  its  affairs,  and  the  management  of  its  prop- 
erty."^ _  _  _  -  "  All  corporations  shall,  when  no  other  provis- 
ion is  specially  made,  be  capable  in  their  corporate  name  . 
to  make  by-laws  and  regulations  consistent  with  the  laws  of 
the  State,  for  their  own  government,  and  for  the  due  and  orderly 
conducting  of  their  affairs,  and  the  management  of  their  prop- 
erty." ^  -  _  .  -  Among  the  powers  of  corporations  for  pecuniary 
profit  are  the  following:  "To  establish  by-laws,  and  make  all  rules 
and  regulations  deemed  expedient  for  the  management  of  their  affairs  in 
accordance  with  law. "  '  -  -  -  -  "  All  corporations  shall,  when  no 
other  provision  is  specially  made,  be  "capable  ...  to  make  by- 
laws, consistent  with  the  laws  of  the  State,  for  their  own  government 
and  the  management  of  their  property."  ^     -     .     -     -     "  Every  corpo- 

1  Kev.  Stat.  W.  Va.  (1879),  vol.  1,  «  Stat.  Mass.  1882,  p.  565,  §  4. 
p.  327,  §  8.                                                                 fi  How.  Mich.  Stat.  1882,  §  4860. 

2  Gen.  Stat.  S.  C.  (1881),  §  1350.  '  Rev.  Stat.  Iowa,  1888,  §  1(;09. 

3  Pub.  Stat.  R.  I.  (1882),  p.  3(18,  §  1.  »  Rev.  Code  Del.  (1874),  p.  376,  §  1. 
*  Code  N.  C.  (1883),  vol.  1,  §  663. 

778 


POWER   AND   MODE    OF    ENACTIXG.       [1  Thomp.  Corp.   §  963. 

ration  as  such,  has  power :    ...     7.  To  make  by-laws,  not  inconsistent 
with  any  existing  law,  for  the  management  of  its  affairs."  i     -     -     -     - 
"  The  powers  enumerated  in  the  preceding  section  [§  124] ,  shall  vest  in 
every  corporation  in  this  State,  whether  the  same  be  formed  without,  or 
by  legislative  enactment,  although  they  may  not  be  specified  in  its  charter 
or  articles  of  association. "  2    _     .    .     _     Church,  religious,  benevolent, 
literary,  agricultural  or  mechanical  corporations  have  power  "  to  make 
by-laws,  not  inconsistent  with  any  existing  law,  for  the  government  of 
its  affairs  and  the  management  of  its  property."  3     _     _     -     .     "  Every 
private    corporation    may,    when     no     other    provision    is    specially 
made     .     .     .     make  by-laws  consistent  with  law,  for  its  government, 
the    regulation    of     its  affairs,    and    the   management    of     its    prop- 
ert3\"*     _    _     _     -     "  Among  the  powers  of  such  bodies  corporate,"  — 
corporations  in   general,  —  "  shall  be  the  following:      ...     7.  To 
establish  bj^-laws  and  make  all  rules  and  regulations  deemed  expedient 
for   the    management    of     their     affairs    not    inconsistent    with    the 
constitution  and   laws   of   the   United    States    and   laws   of    this   ter- 
ritory." 5    -      -      -      -     Manufacturing    and    other    lawful    business 
corporations  have   power   "to  ordain   and  establish   by-laws   for   the 
government  and  regulation  of   their  affairs,  and  to  alter  and  repeal  the 
same."  6     -     .     -     _     A  benevolent,  charitable,  scientific  or  missionary 
corporation  shall  have  power  ' '  to  make  by-laws  for  the  management  of 
its  affairs,  not  inconsistent  with  the  constitution  and  laws  of  this  State 
or  of  the  United  States."  '     -     -     -     -     A  Young  Men's  Christian  As- 
socia'ion,  upon  being  incorporated  "  shall  have  power  to  make  by-laws 
for  the  management  of   the   affairs  of   the  association  not  inconsistent 
with  the  constitution  and  laws  of  this  State."  8     _     _     -     -     A  driving- 
park,  park,  or  agricultural  corporation  can   "  make  by-laws  for  the 
management  of  its  affairs  not  inconsistent  with  the  laws  of  this  State  or 
of  the  United  States."  9     -     -     -     -     A  corporation  to  prevent   cruelty 
to   animalti  "  shall    have    power     .     .     .     5.  To    make    by-laws    not 
inconsistent  -n-ith  the  laws  of   this  State  or  of  the  United  States,  for  the 
management  of  its  property  and  the  regulation  of  its  affairs. "  i"  -     -    -   - 
A  coiporation  for  agricultural  or  horticultural  purposes  can  "  make  by- 
laws for   the   management  of  its  affairs,  not  inconsistent  with  the  laws 

1  Comp.  Stat.  Neb.    (1887),  p.  255,  '  3  Rev.  Stat.  N.  Y.  (Banks  &  Bros. 
§  124.                                                                     8th  ed.),  p.  l'J22,  §  2. 

2  Corap.  Stat.    Neb.  (1887),  p.  25G,  »  3  Rev.  Stat.  N.  Y.  (Banks  &Bros. 
§  125.                                                                     8th  ed.),  p.  1934,  §  2. 

3  Hill's  Laws  Ore.  (1887),  §  3299.  »  3  Rev.  Stat.  N.  Y.  (Banks  &  Bros. 
•*  Gen.  Stat.  Conn.  (1888),  §  1006.           8th  ed.),  p.  2007,  §  2. 

«  Rev.  Stat.  Ariz.  (1887),  §  233.  i"  3  Rev.  Stat.  N.  Y.  (Banks  &  Bros. 

«  Ark.  Dig.  Stat.  (1884),  §  072.  8th  ed.),  p.  1933,  §  2. 

779 


1  Thomp.  Corp.  §  963.]       by-laws. 

of  this  State  or  of  the  United  States."  i  -  -  -  -  Business  corpora- 
tions, other  than  banking,  insurance  and  railroad,  have  power  "  to 
estabhsh  by-laws,  and  make  all  rules  and  regulations  deemed  expedient 
for  the  management  of  their  affairs  not  inconsistent  with  the  consti- 
tution or  laws  of  this  State  or  of  the  United  States."^  .  -  -  _ 
Coi'ijorations  for  works  of  jiuhlic  improvement,  huve  'power  "to  make 
and  establish  such  by-laws  for  the  proper  management  and  regula- 
tion of  the  affairs  of  the  corporation  as  may  be  necessary  and 
proper."-^  _  .  _  _  Corporations  such  as  raiZroads,  canaZs  and  the 
Mke  can  "  establish  by-laws,  and  make  all  rules  and  regulations  deemed 
expedient  for  the  management  of  its  [their]  affairs,  in  accordance  with 
law,  and  not  incompatible  with  an  honest  purpose."  ■*  >  _  _  _  Man- 
vfacturing  corporations  have  power  "  to  ordain  and  establish  by-laws,  for 
the  government  and  regulation  of  their  affairs,  and  to  alter  and  repeal  the 
same."^  -  -  -  -  "  The  general  powers  of  all  corporations,  chartered 
for  purposes  of  indi^adual  profit,  shall  be  —  .  .  .  4.  To  estabhsh 
bj'-laws  aud  make  all  rules  and  regulations  not  inconsistent  with  the 
laws  and  the  constitution,  deemed  expedient  for  the  management  of  cor- 
porate affairs."^  _  _  _  _  A  corporation  formed  for  the  recovery 
of  stolen  animals  and  to  insure  against  the  loss  of  the  same  by  being 
stolen  ' '  may  adopt  such  by-laws  for  its  regulation  as  are  not  incon- 
sistent with  the  provisions  of  this  act,  and  may  therein  prescribe  the 
compensaiio?!,  of  its  o^ce?'s."  '  -  -  -  -  C/iari7a6Ze  corporations  may 
"  adopt  such  articles  of  association  as  may  be  necessary,  declaring  the 
objects  and  purposes  thereof  (which  shall  not  be  in  conllict  with  the 
laws),  the  duties  and  liabihties  of  its  members  and  officers,  fixing  the 
names  of  the  officers  of  the  association,  the  time  and  places  of  its  meet- 
ings,-the  names  of  the  persons  elected  to  fill  the  several  offices,  the 
terms  of  its  officers,  and  the  time  and  manner  of  electing  their  succes- 
sors, and  such  other  matters  as  may  be  necessary  to  carry  out  its  legiti- 
mate objects."^  -  -  _  _  "  Every  corporation  as  such  shall  have 
power  ...  to  make  ordinances,  by-laws,  and  regulations  for  the 
government  of  its  council,  board,  officers  and  agents,  and  the  manage- 
ment and  regulation  of  its  projDerty  and  business."^  _  _  _  - 
"  Every    corporation,    in     respect     to    which     it    is     not     otherwise 

1  3  Rev.  Stat.  N.  Y.  (Banks  &  Bros.  6  Tenn.  Code  (1884),  §  1704. 

8th  ed  ),  p.  2015,  §  2.  '3  Rev.  Stat.  N.  Y.  (Banks  &  Bros. 

2  Gen.  Slat.  Ky.  (1888),  p.  763,  §  2.  8tli  ed.),  p.  2072,  §  13. 

3  Voor.  Rev.  Stat  La.,  p.  184,  §  G84.  «  Florida  Dig.  Laws  (1881),  p.  2*2, 
■»  Rev.    Stat.  Minn.    (1881),  p.  3C9,  §  2. 

§4.  »  Rev.  Stat.  W.  Va.   (1879),  vol.   1, 

=■  Rev.    Stat.    Minn.   (1881),  p.  398,      p.  304,  §  1. 
§  132. 

780 


POWER    AND    MODE    OF    ENACTING.       [1  Thomp.  Corp.    §  965. 

provided,  may  .  .  .  make  ordinances,  by-laws  and  regulations, 
consistent  with  the  laws  of  this  State  and  of  the  United  States,  for  the 
government  of  all  under  its  authority,  for  the  management  of  its  es- 
tates, and  the  due  and  orderly  conducting  of  its  affairs."  ^  -  -  -  - 
' '  When  the  certificate  of  the  auditor  ...  the  persons  who  shall  have 
sio-ned  and  acknowledged  the  same,  and  such  persons  as  thereafter  be- 
come their  associates,  or  successors  shall  be  a  body  politic  and  corpo- 
rate and  by  their  corporate  name  shall  have  succession  .  .  .  and 
power  .  .  .  Sixth.  To  make  by-laws,  not  inconsistent  with  the 
law  of  this  State,  for  the  organization  of  the  company,  the  management 
etc. ,  and  for  carrying  on  all  kinds  of  business  within  the  objects  and 
pm-poses  of  the  company."  ^ 

§  964.  For  the  Regulation  of  its  Property,  Management  of 
its  Affairs,  and  Transfer  of  its  Stock.  —  To  the  foregoing  cata- 
logue some  statutes  add,  —  "and  for  the  transfer  of  its  stock,"  — 
thus:  "  Every  corporation,  as  such,  has  power :  ...  6.  To  make 
by-laws,  not  inconsistent  with  any  existing  law,  for  the  management  of 
its  property,  the  regulation  of  its  affairs,  and  for  the  transfer  of  its 
stock."  3  _  .  _  _  "  Every  corporation,  as  such,  shall  have 
power :  .  .  .  Sixth,  to  make  by-laws  not  inconsistent  with  the  laws 
of  the  State,  for  the  management  of  its  property,  the  regulation  of  its 
affairs,  and  for  the  transfer  of  its  stock."  4  -  -  -  -  "  Every  cor- 
poration, as  such,  has  power  .  .  .  Sixth,  to  make  by-laws  not  in- 
consistent with  existing  law,  for  the  management  of  its  property,  the 
regulation  of  its  affairs  and  for  the  transfer  of  its  stock,"  5  _  _  _  _ 
"  Every  private  corporation,  as  such,  has  power —  ...  6.  To  make 
by-laws  not  inconsistent  with  existing  laws  for  the  management  of 
its  property,  the  regulation  of  its  affairs  and  the  transfer  of  its 
stock. "  ^  -  -  -  -  The  persons  who  subscribe  the  articles  of  as- 
sociation and  persons  who  become  stockholders  "shall  be  a  corpora- 
tion and  as  such  may  make  by-laws,  not  inconsistent  with  law,  for  the 
management  of  the  property  of  the  corporation,  the  regulation  of  its 
affairs,  and  the  transfer  of  its  stock."  "^ 

§  965.  And  as  to  Corporate  Meetings. —  Others  add  provisions 
as  to  corporate  meetings  and  elections,  and  as  to  voting  thereat,  and 
especially  as  to  voting  by  proxy, —  thus :    An  educational  and  religious 

1  Code  Va.  (1887),  §1008.  ■•  Florida  Dig.  Laws  (1881),  p.  228, 

2  Rev.  Stat.    Iowa    (18S8),    §    1792.      §3. 

This    provision    relates    to    savings  »  Rev.  Stat.  Mo.  (1889),  §  2508. 

banks.  ^  Sayle's  Tex.  Civ.  Stat.,  art.  575. 

8  2  Deer.  Cal.  Code,  §  35-t.  '  Rev.  Laws  Vt.  (1880),  §  3309. 

781 


1  Thonip.  Corp.  §  1)06.]       uv-laws. 

corporation  ''may  establish  such  rules  and  by-laws  as  may  be  neces- 
sary or  proper  for  its  government,  and  may  determine  how  many 
members  shall  constitute  a  quorum  for  the  transaction  of  busi- 
ness." ^  _  _  -  _  The  corporation  "may  determine  the  manner  of 
calling  and  conducting  meetings ;  the  number  of  members  [shares] 
that  shall  entitle  a  member  of  a  joint-stock  company  to  a  vote,  and  the 
mode  of  voting  by  proxy;  it  may  make  all  necessary  by-laws,  not  in- 
consistent "svith  the  laws  of  this  State,  and  impose  all  necessary 
duties."^  _  -  _  _  "  The  number,  function,  qualilication  and  com- 
pensation of  the  officers  of  any"  —  building,  loan  or  savings  — 
"  association,  their  terms  of  office,  the  times  of  their  election,  as  well 
as  the  quahfication  of  the  electors,  and  the  votes  and  manner  of  voting, 
and  the  periodical  meetings  of  such  corporation,  shall  be  determined 
by  the  by-laws  of  such  association,  when  not  provided  by  this 
act. "  ^  -  -  -  -  All  corporations  may  make  by-laws  consistent 
with  the  laws  of  the  State  and  their  charter,*  and  "  may  determine  by 
their  by-laws  the  manner  of  calling  and  conducting  meetings  ;  the  num- 
ber of  members  that  constitute  a  quorum ;  the  number  of  votes  to  be 
given  by  shareholders ;  the  tenure  of  the  several  officers  ;  the  mode  of 
voting  by  proxy ;  and  of  selling  shares  for  neglect  to  pay  assessments  ; 
and  may  enforce  such  by-laws  by  penalties  not  exceeding  twenty  dol- 
lars."^ _  _  _  -  "Every  company  may  determine,  by  its  by-laws, 
the  manner  of  calling  and  condncting  all  meetings,  wiiat  number  of 
shares  shall  entitle  the  stockholders  to  one  or  more  votes,  what  number 
of  stockholders  shall  attend,  either  in  person  or  by  proxy,  or  what 
number  of  shares  or  amount  of  interest  shall  be  represented  at  any 
meeting,  in  order  to  constitute  a  quorum."  *^ 

§  966.  Corporate  Meetings  and  Voting :  Forfeiture  of 
Shares  :  Penalties,  etc.  —  "  All  corporations  may  by  their  by-laws, 
where  no  other  provision  is  specially  made,  determine  the  manner  of 
calling  and  conducting  all  meetings  ;  the  number  of  members  that  shall 
constitute  a  quorum  ;  the  number  of  shares  that  shall  entitle  a  member 
to  one  or  more  votes  ;  the  mode  of  voting  by  proxy  ;  the  mode  of  sell- 
ing shares  for  non-payment  of  assessments  ;  and  the  tenure  of  office  of 
the  several  officers ;  and  the  manner  in  which  vacancies  in  any  of  the 
offices  shall  be  filled  till  a  regular  election,  and  they  may  annex  suitable 
penalties  to  such  by-laws,  not  exceeding  in  any  case  the  sum  of  twenty 

1  Rev.  Stat.  Ind,  (1888),  §  34G0,  «  Rev.  Stat.  Me.  (1883),  p.  400,  §  6. 

2  Rev.  Code  Miss.  (18S0;,  §  1031.  «  Rev.    Stat.    N.    J.    (1877),  p.  181, 
8  Rev.  Stut.  Ind.  (1888),  §  ;;411.              §  21. 

-*  Rcv.  Stat.    Me.   1883,  p.    3'jy,  §2. 
782 


POWER    AND    MODE    OF    ENACTING.       [1  Thomp.  Corp.    §   966. 

dollars  for  any  one  offense :  Provided,  that  no  such  by-law  shall  be  made 
by  any  corporation  repugnant  to  its  charter."^  _  _  -  -  "Cor- 
porations may,  by  their  by-laws,  where  no  other  provision  is  specially 
made,  determine  the  manner  of  calling  and  conducting  meetings,  the 
number  of  shares  that  shall  constitute  a  quorum,  the  number  of  shares 
that  shall  entitle  the  members  to  one  or  more  votes,  the  mode  of  voting 
by  proxy,  the  mode  of  selling  shares  for  the  non-payment  of  assessments 
and  the  tenure  of  office  of  the  several  officers,  and  they  may  annex 
suitable  penalties  to  such  by-laws,  not  exceeding  in  any  case  the  sum 
of  twenty  dollars  for  any  one  offense,  but  no  such  by-law  shall  be 
made  by  any  corporation  repugnant  to  the  provision  of  its  char- 
ter." 2  _  _  _  _  "  Corporations  shall,  when  no  other  provision  is 
specially  made,  be  capable  .  .  .  to  make  necessary  by-laws  ;  deter- 
mine the  manner  of  calling  and  conducting  meetings,  the  number  that 
shall  constitute  a  quorum,  the  number  of  shares  that  shall  entitle  a  mem- 
ber to  one  or  more  votes  (Provided,  each  stockholder  shall  have  one 
vote  for  each  share  owned  and  held  by  him  for  ten  days  previous  to  the 
meetings  of  the  association)  :  the  mode  of  voting  by  proxy,  the  pa^^ment 
of  assessments,  and  the  mode  of  selling  shares  for  the  non-pay- 
ment of  assessments ;  and  the  tenure  of  office  of  the  several  offi- 
cers."^ _  _  -  _  "AH  corporations  may,  if  no  other  provision  is 
specially  made,  determine  by  their  by-laws,  how  meetings  shall  be 
called  and  conducted ;  how  many  shall  be  a  quorum ;  the  number  of 
shares  that  shall  entitle  the  members  to  one  or  more  votes ;  the  mode  of 
voting  by  proxy ;  when  and  how  many  shares  shall  be  sold  for  non- 
payment of  assessments,  and  may  annex  suitable  penalties  to  such 
by-laws,  not  exceeding,  in  any  case,  twenty-five  dollars,  for  au}?^  of- 
fence." 4  _  _  _  _  "  Corporations  may,  by  their  by-laws,  where  no 
other  provision  is  specially  made,  determine  the  manner  of  calling  and 
conducting  their  meetings,  the  number  of  members  that  shall  constitute 
a  quorum,  the  member  of  shares  that  shall  entitle  the  members  to  one 
or  more  votes,  the  mode  of  voting  by  proxy,  the  mode  of  selling  shares 
for  the  non-payment  of  assessments,  and  the  tenure  of  office  of  the 
several  officers.  They  may  annex  suitable  penalties  to  such  by-laws, 
not  executing  twenty  dollars  for  one  offense."  ^  _  _  _  _  "  Everj-^ 
corporation  organized  under  any  general  or  special  law,  unless  other 
provision  is  specially  made,  may  make,  amend  and  repeal  by-laws  and 

»  Code  N.  C.  (1883),  vol.  1,  §  004.  contrary.     Morton  G.   R.  Co,  v.  Wj- 

3  Pub.  Stat.  R.  I.  (1882),  p.  308,  §  3.  Bow^,  FA  Ind.  4. 

2  Rev.    Stat.    Ind.    (1888),    §   3002.  ■*  Rev.  Code  I)il.  (1874),  p.  370,  §  2. 

The  power  to  make  by-laws  is  in  the  ^  Rev.    Stat.   Minn.    (1881),  p.   450, 

members   at   large   of   a  corporation,  §  409. 
when  there   is  no  law  or  usage  to  the 

783 


1  Thomp.  Corp.  §  967.]       by-laws. 

regulations,  not  iuconsistcnt  with  law  or  its  articles  of  organization  for 
its  own  government,  for  the  orderly  conducting  of  its  affairs,  and  the 
management  of  its  property,  for  determining  the  manner  of  calling  and 
conducting  its  meetings  the  manner  of  appointing  and  mode  of  voting 
by  proxy,  and  the  tenure  of  office  of  its  several  officers,  and  such 
others  as  shall  be  necessary  or  convenient  for  the  accomplishment  of 
its  purposes,  and  may  prescribe  suitable  penalties  for  the  violation  of 
its  by-laws,  not  exceeding  in  any  one  case  twenty  dollars  for  any  one 
offense. ' '  ^ 

§  967.  Concerning  Officers,  Meetings,  Elections,  etc. —  "The 
by-laws  of  every  corporation  created  under  the  provisions  of  this  act ' '  — 
an  ' '  act  to  provide  for  the  organization  and  regulation  of  certain  busi- 
ness corporations  "  —  "  shall  be  deemed  and  taken  to  be  its  law,  and 
shall  provide :  1.  The  number  of  directors  of  the  corporation.  2.  The 
term  of  office  of  such  directors,  which  shall  not  exceed  one  year.  3. 
The  manner  of  filling  vacancies  among  directors  and  officers.  4.  The 
time  and  place  of  the  annual  meeting.  5.  The  manner  of  calling  and 
holding  special  meetings  of  the  stockholders.  6.  The  number  of  stock- 
holders who  shall  attend  either  in  person  or  by  proxy,  at  every  meeting 
in  order  to  constitute  a  quorum.  7.  The  officers  of  the  corporation, 
the  manner  of  their  election  by  and  among  the  directors,  and  their  pow- 
ers and  duties.  But  such  officers  shall  always  include  a  president,  a 
secretary  and  a  treasurer.  8.  The  manner  of  electing  or  appointing  in- 
spectors of  election.  9.  The  manner  of  amending  the  by-laws."  ^  "A 
corporation  may,  by  its  by-laws,  when  no  other  provision  is  specially 
made,  provide,  among  other  things  for :  1.  The  time  place  and  manner 
of  calling  and  conducting  its  meetings.  2.  The  number  of  stockholders 
or  members  constituting  a  quorum.  3.  The  mode  of  voting  by  proxy. 
4.  The  time  of  the  annual  election  for  directors,  and  the  mode  and 
manner  of  giving  notice  thereof.  5.  The  compensation  and  duties  of 
officers.  6.  The  manner  of  election  and  the  tenure  of  office  of  all  officers 
other  than  directors.  7.  Suitable  penalties  for  violation  of  by-laws 
not  exceeding,  in  any  case,  one  hundred  dollars  for  any  one  offense."  ^ 
"  A  corporation  by  its  regulations,  when  no  other  provision  is  specially 
made  in  this  title,  may   provide  for :    1.  The  time,  place  and  manner  of 

*  Rev.  Stat.  Wis.  (1878),  §  1748.  antee    the     same,     and     bonds    and 

2  3  Rev.  Stat.  N.  Y.  (Banks  &  Bros.  mortgages.     The  7th   subsection  adds 

8th  ed.),   p.  1980,  §  6.    Substantially  after  the  word  "  treasurer,"  the  words 

the  same  provision  is  found  in  a  law  "and  general  manager." 
of  New  York    relating  specially   "to  ^2  Deer.  Cal.  Cork.   (1885),  §  303. 

provide  for  the  incorporation  of  com-  The  same  provision  is  found  literally 

paniesto  examine  titles,  and  to  guar-  in  Rev.  Stat.  Idalio  (1887),  §  2980. 
784 


POWER   AND    MODE    OF   ENACTING.       [1  Thomp.  Coi'Pc    §   969. 

calling  and  conducting  its  meetings.  2.  The  number  of  stockholders 
or  members  constitating  a  quorum.  3.  The  time  of  the  annual  election 
for  trustees  or  directors,  and  mode  and  manner  of  giving  notice  thereof. 
4.  The  duties  and  compensations  of  officers.  5.  The  manner  of  election 
or  appointment,  and  the  tenure  of  office,  of  all  officers  other  than  the 
trustees  or  directors.  6.  The  qualification  of  members,  when  the  cor- 
poration is  not  for  profit."  ^ 

§  968.  Management  of  Property,  Regulation  of  Affairs, 
Transfer  of  Stock,  Duties  of  Officers. —  "  When  so  organized 
every  such  corporation  "  — certain  business  corporations  —  "  shaU  pos- 
sess the  following  powers :  .  .  .  .  5.  To  make  by-laws  for  the  man- 
agement of  its  property,  the  regulation  of  its  affairs,  for  the  transfer  of 
its  stock,  and  defining  the  duties  of  its  officers,  and,  from  time  to 
time,  to  amend  the  same."  ^  _  _  _  _  "When  organized  every  cor- 
poration "  —  to  examine  titles  and  to  guaranty  the  same,  and  bonds  and 
mortgages  —  "shall  possess  the  following  general  powers :  .  .  .  5. 
To  make  by-laws  for  the  management  of  its  property,  the  regulation  of  its 
affairs,  for  the  transfer  of  its  stock,  and  defining  the  duties  of  its  oficers, 
and  from  time  to  time  to  amend  the  same."  ^  _  _  _  .  Corpoi'ations 
for  mining,  manufacturing,  or  other  industrial  pursuits,  or  the  construc- 
tion or  operation  of  railroads,  wagon  roads,  irrigating  ditches,  colleges, 
seminaries,  churches,  libraries  or  any  benevolent,  charitable  or  scientific 
association,  "  shall  have  power  to  make  by-laws  not  inconsistent  with 
the  laws  of  this  territory,  for  the  organization  of  the  company,  the  man- 
agement of  its  property,  the  regulation  of  its  affairs,  the  transfer  of  its 
stock,  and  for  carrying  on  all  kinds  of  business  within  the  objects  and 
purposes  of  the  company."*  _  _  _  _  "The  stockholders  of  such 
corporation," — manufactm-iug,  railroads,  and  other  business  corpora- 
tions—  "  or  the  trustees,  if  the  certificate  of  incorporation  so  provides, 
shall  have  power  to  make  by-laws  as  they  shall  deem  proper  for  the  man- 
agement and  disposition  of  the  stock  and  business  affairs  of  such  com- 
pany, not  inconsistent  with  the  laws  of  this  territory,  and  prescribing 
the  duties  of  officers,  artificers  and  servants  that  may  be  emploj^ed,  for 
the  appointment  of  all  officers,  and  for  carrying  on  all  kinds  of  business 
within  the  objects  and  purposes  of  such  company."  ^ 

§  969.  Same  as  Preceding :  Also  IVumber  of  Directors,  Penal- 
ties, Liens  upon  Shares,  etc.  —  "  Every  corporation,  as  such,  shall 

1  Rev.  Stat.  Ohio  (1890),  §  3252.  3  3  Rev.  Stat.  N.  Y.  (Banks  &  Bros. 

2  3  Rev.  Stat.  N.  Y.  (Banks  &  Bros.      8th  cd.),  p.  1712,  §  2. 

8th  ed.),  p.  I'JTD,  §  2.  *  Coinp.  Laws  N.  M.  (1884),  §  195. 

'■>  Rev.  Stat.  Wy.  (1887),  §  509. 

50  785 


1  Thomp.  Corp.  §  970.]       by-laws. 

be  deemed  to  have  power  ...  6.  To  make  by-laws  not  incon- 
sistent vnih  the  constitution  or  laws  of  the  United  States  or  of  this  State, 
fixing  and  altering  the  number  of  its  directors  for  the  management  of 
its  property,  the  regulation  and  government  of  its  affairs,  and  for  the 
transfer  of  its  stock,  with  penalties  for  the  breach  thereof  not  exceeding 
twenty  dollars. "  ^  _  _  _  _  "  Such  corporation  " — mining,  quarry- 
ing or  manufacturing — "  has  power  .  .  .  5.  To  make  all  need- 
ful by-laws,  rules  and  regulations  for  the  transaction  of  its  business, 
the  management  and  control  of  its  affairs,  and  the  uses  and  disposition 
of  its  property,  and  for  the  transfer  of  its  stock,  and  for  the  creation 
and  preservation  of  a  Hen  upon  the  shares  of  its  stockholders  for  the 
payment  of  any  debt  or  liability  they  may  incur  to  the  corporation."  ^ 

§  970.  Provisions  Applicable  to  Benevolent,  Religious, 
Educational,  Literary,  Social  and  Other  Societies. —  Any  incor- 
porated benevolent,  religious,  scientific,  fraternal,  beneficial,  or  educa- 
tional association  ' '  shall  make  by-laws  for  its  government  and  support 
and  the  management  of  its  property,  and  therein  provide,  unless  such 
provision  is  already  made  in  its  charter,  for  the  admission  of  new  mem- 
bers and  how  they  shall  be  admitted,  and  prescribe  their  quahfications. 
Provision  may  also  be  made  in  such  by-laws  for  the  removal  of  officers 
for  cause  and  for  the  expulsion  of  members  guilty  of  any  offense  which 
affects  the  interests  or  good  government  of  the  corporation,  or  is  indict- 
able by  the  laws  of  the  land :  Provided,  always,  that  such  by-laws  shall 
be  conformable  to  the  charter  of  such  corporation,  and  shall  not  im- 
pair or  limit  any  pro^asion  thereof  or  enlarge  its  scope,  and  shall  not 
be  contrary  to  the  provisions  of  the  constitution  or  laws  of  this 
State."  ^  _  _  -  _  "Any  association  formed  under  the  preceding 
section" — voluntary  association  without  capital  stock — "may  make 
by-laws  imposing  fines  and  penalties,  and  lay  assessments  to  further 
the  objects  of  such  association,  but  such  by-laws  shall  be  adopted  by 
two-thirds  of  the  members  of  the  association."  *  -  -  -  -  A 
corporation  for  social,  literary,  aesthetic,  political  or  recreative  pur- 
poses has  power  "  to  make  and  adopt  a  constitution,  by-laws,  rules  and 
regulations  for  the  government  of  said  corporation,  and  for  the  admis- 
sion, voluntary  withdrawal,  censure,  suspension  and  expulsion  of  its 
members,  for  the  establishing  and  collection  of  fees  and  dues  of  its 

1  Rev.  Stat.  N.  J.  (1877),  p.  175,  §  1.      on    lawful  enterprises   not  otherwise 

2  Code  of  Ala.  (1886),  §  15G2.  By  specially  provided  for,  when  duly  or- 
§   1664   of  the  same  sta'ute  the  same      gauized." 

provision  is  extended  to  "all  private  ^  Rev.  Stat.  Mo.  (1889),  §  2831. 

corporations  organized  for  carrying  *  Gea.  Stat.  Conn.  (1888),  §  1908. 

786 


POWER    AND    MODE    OF   ENACTING.       [1  ThoiUp.   Corp.    §  970. 

members,  the  number  and  election  of  its  officers,  and  to  define  their 
duties  and  compensation,  and  for  the  safe-keeping  of  its  property,  and 
from  time  to  time  to  alter,  modify  or  change  such  constitution,  rules  and 
regulations ;  provided,  however,  that  no  constitution,  by-laws,  rules  or 
regulations  shall  be  made  or  adopted  by  said  corporation  which  shall  be 
inconsistent  with  the  constitution  and  laws  of  the  United  States  or  of 
this  State."!  _  _  _  _  A.  political  club  may  be  incorporated  with 
power  "  to  make  and  adopt  a  constitution,  by-laws,  rules  and  regula- 
tions for  the  government  of  such  corporation,  and  for  the  admission, 
voluntary  withdrawal,  censure,  suspension  and  expulsion  of  its  mem- 
bers, for  the  establishing  and  collection  of  the  fees  and  dues  of  its 
members,  the  number  and  election  of  its  officers,  and  to  define  their 
duties  and  compensation,  and  for  the  safe-keeping  of  its  property,  and 
the  general  conduct  of  its  affairs,  and  from  time  to  time  to  alter,  modify 
or  change  such  constitution,  by-laws,  rules  and  regulations ;  provided, 
however,  that  no  constitution,  by-laws,  rules  or  regulations,  shall  be 
made  or  adopted  by  said  corporation  which  shall  be  inconsistent  with 
the  constitution  or  laws  of  the  United  States  or  this  State."  2  _  _  _  _ 
An  alumni  association  may  be  incorporated  with  power  "  to  adopt  such 
a  constitution  and  by-laws  and  rules  and  regulations  as  may  be 
necessary  or  proper  for  its  government  and  regulation,  and  for 
the  accomplishment  of  the  objects  of  its  incorporation,  not  incon- 
sistent with  the  laws  of  their  State."  ^  -  -  -  -  A  bar  asso- 
ciation may  be  incorporated  with  power  "to  make  by-laws,  rules 
a,nd  regulations  for  the  government  of  said  association,  and  for 
admission,  voluntary  withdrawal,  censure,  suspension  and  expulsion  of 
its  members  ;  for  the  establishing  and  collection  of  the  fees  and  dues  of 
its  members,  the  number  and  election  of  its  officers,  and  to  define  their 
duties  and  compensation,  and  for  the  safe-keeping  of  its  property,  and 
from  time  to  time,  to  alter,  modify  or  change  such  by-laws,  rules  and  reg- 
ulations, provided,  however,  that  no  by-laws,  rules  or  regulations  shall 
be  made  or  adopted  by  said  association  which  shall  be  inconsistent  with 
theconstitutionorlawsof  the  United  States  or  of  this  State."  ■*  -  -  -  - 
A  library  society  may  be  incorporated  with  power  to  "  prescribe  by  its 
by-laws  what  persons  may  thereafter  become  its  members  and  have  the 
right  to  vote  at  its  meetings."  ^  _  _  _  .  Any  debating  society, 
literary,   scientific,  industrial  or  benevolent  association  (other  than  col- 

1  3  Rev.  Stat.  N.  Y.  (Banks  &  Bros.  *  3  Rev.  Stat.  N.  Y.  (Banks  &  Bros. 

8th  ed),  p.  2022,  §  2.  8th  cd.),  p.  2032,  §  2. 

»  3  Rev.  Stat.  N.  Y.  (Banks  &  Bros.  &  3  Rev.  Stat.  N.  Y.  (Banks  &  Bros. 

8th  ed.),  p.  2028,  §  2.  8th  ed.),  p.  2041,  §  3. 

3  3  Rev.  Stat.  N.  Y.  (Banks  &  Bros. 
8th  ed.),  p.  2030, §  4. 

787 


1  Thomp.  Corp.  §  971.]       by-laws. 

leges,  universities,  academies  or  seminaries)  may  be  incorporated,  and 
when  incorporated  may  elect  such  officers  and  make  such  by-laws,  rules, 
and  regulations,  as  may  be  necessary  and  expedient  for  its  own  govern- 
ment, and  the  management  of  its  fiscal  and  other  affairs  to  effect  their 
respective  objects.  A  copy  of  such  by-laws  and  all  amendments  thereto 
shall  be  filed  in  the  office  of  the  secretary  of  the  territory,  and  no  by-law 
shall  be  valid  until  so  filed.  1  -  -  -  -  "  Incorporated  boards  of  trade 
may  adopt  and  prescribe  rules  and  by-laws  for  the  government  of  its 
officers,  directors,  agents  and  members. ' '  ^  The  law  of  Illinois  governing 
co-operative  associations  for  profit  provides  in  section  6  :  "  All  by-laws 
of  the  associatiou  shall  be  adopted  by  the  shareholders  of  the  associa- 
tion," and  in  section  23:  "No  by-law  shall  be  adopted,  amended  or 
repealed  except  by  an  affirmative  vote  of  a  majority  of  all  the  share- 
holders entitled  to  vote. ' '  ^ 

§  971.  Provisions    Applicable    to    Railroad    Companies. — 

"  Where  no  other  provision  is  especially  made  by  this  act  "  —  of  railroad 
corporations  —  "  a  corporation  formed  under  it,  may  by  its  by-laws, 
provide  for:  First.  The  time,  place,  and  manner  of  calling  and  con- 
ducting the  meeting  of  its  directors  and  stocldiolders.  Second.  The 
number  of  stockholders  constituting  a  quorum  at  meetings  of  stock- 
holders. Third.  The  mode  of  voting  by  proxy  at  meetings  of  stockholders. 
Fourth.  The  time  for  holding  annual  elections  for  directors  and  the 
mode  and  manner  of  giving  notice  thereof.  Fifth.  The  compensation 
and  duties  of  officers.  Sixth  —  The  manner  of  election  and  the  tenure  of 
office  of  all  officers  other  than  directors.  Seventh  —  Suitable  fines  for 
violations  of  by-laws,  not  exceeding  in  any  case  one  hundred  dollars  for 
one  offense  ;  and  Eighth  —  The  mode  and  manner  of  collecting  assess- 
ments, except  as  otherwise  pro\aded  in  this  act."  ^  -  -  -  -  "  Every 
corporation  formed  under  this  act  "  — railroad  corporations  —  "must 
within  thi'ee  months  after  filing  articles  of  incorporation,  adopt  a  code  of 
by-laws  for  its  government,  not  inconsistent  with  the  laws  of  this  territory. 
By-laws  may  be  adopted  by  the  stockholders  representing  a  majority  of  all 
the  subscribed  capital  stock,  at  a  meeting  of  the  stoclcholders  called  for 
that  pui'pose  by  order  of  the  acting  president,  served  upon  them  person- 
ally in  writing,  or  by  advertisement  in  some  newspaper  published  in  the 
county  in  which  the  principal  place  of  business  of  the  corporation  is  lo- 
cated, if  there  be  one  published  therein,  but  if  not,  then  in  some  paper 
pubUshed  in  some  adjoining  county.     The  time  specified  in  said  order 

1  Comp.  Laws  N.  M.  (1884),  §§  235,  ^  Acts  of  111.  1887,  p.  135. 

240.  *  Comp.   Laws,  New  Mex.  (1884), 

2  Rev.  Stat.  Incl.  (1888),  §  3523.  §  2631. 

788 


POWER  AND  MODE  OF  ENACTING.     [1  Thomp.  Corp.  §  972. 

for  such  meeting  shall  not  be  less  than  two  weeks  from  the  date  there- 
of :  Prodded,  that  the  written  assent  of  the  holders  of  two-thirds  of 
the  subscribed  capital  stock  shall  be  effectual  to  adopt  a  code  of  by-laws 
without  a  meeting  of  the  stockholders  for  that  purpose."  i  -  -  -  - 
"  The  corporation  " — raikoad — "  has  power  ...  6.  To  provide  for 
the  transfer  of  its  stock  and  to  make  such  by-laws  as  may  be  deemed 
necessary  for  the  creation  and  preservation  of  a  lien  upon  the  stock  of 
the  shareholders  for  all  indebtedness  or  Kabihty  they  may  incur  to  or  with 
the  corporation. "  2  -  _  -  -  Raih'oad  corporations  "  shall  establish 
by-laws,  and  make  all  rules  and  regulations  deemed  necessary  for  the  man- 
agement of  its  affairs  in  accordance  with  law. "  ^  -  -  -  -  "A  copy  of 
the  by-laws  of  the  corporation ' '  —  railroad  — ' '  when  formed  and  adapted 
by  the  stockholders,  duly  certified,  shall  be  recorded  "  in  the  office  of 
county  clerk  of  each  county  through  or  into  which  such  railroad  is  pro- 
posed to  be  run  and  in  the  office  of  the  Secretary  of  State,  "  and  all 
amendments  and  additions  thereto,  duly  certified,  shall  also  be  recorded 
as  herein  provided,  within  ninety  days  after  the  adoption  there- 
of." ^ "  The  corporation  "  —  [street  railways]  —  "  has  power 

to  make  such  by-laws  and  rules  as  are  necessary  for  the  regulation  of 
the  business,  and  the  management  of  the  property  of  the  corporation ; 
and  for  the  transfer  of  its  stock ;  and  for  the  creation  and  preservation 
of  the  hen  on  the  shares  of  stockholders,  for  any  debt  or  liability  in- 
curred by  them  to  the  corporation."  ^ 

§  972.  Provisions  Applicable  to  Boom  and  I^avigation 
Companies.  —  Corporations  for  the  erection  of  booms  and  dams  in 
cei'tain  counties  "may  establish  by-laws,  and  make  all  rules  and  regu- 
lations deemed  necessary  for  the  management  of  its  affairs  in  accordance 
with  law."^  -  =  -  ■  A  copy  of  the  by-laws  when  formed  and 
adopted  by  the  stockholders,  shall,  within  thirty  days,  and  all  amend- 
ments and  additions  thereto  within  ninety  days  after  their  adoption,  be 
recorded  in  the  office  of  the  county  clerk  of  the  county  in  which  the 
boom  may  be  constructed  and  in  the  office  of  the  Secretary  of  State.''' 
"The  company" — navigation  corporations — -"may  adopt  such  by- 
laws for  the  management  of  its  business,  not  inconsistent  with  law,  as  it 
)aay  see  fit ;  but  no  company  organized  hereunder  shall  have  banking 

^  Comp.  Laws  New    Mex.    (1884),  '  Code  of  Ala.  (1886),  1 1G08. 

§  2630.  8  Hev.  Stat.   W.  Va.   (1879),  vol.  1, 

2  Code  of  Ala.  (188G),  §  1580.  p.  279,  §  4. 

3  Rev.  Slat.  W.  Va.  (1879);  vol,  2,  '  Rev.  Stat.  W.  Va.  (1879),  vol.  1, 
p.  943,  §  4.  p.  279,  §  5. 

■«  Rev.  Stat.  W.  Va.  (1879),  vol,  2, 
p.  943  §  5. 

789 


1  Thomp.  Corp.  §  ?)7^{.]       by-laws. 

privileges,  or  powers  not  necessary  for  managing  aline  of  vessels  carry- 
ing freight  and  passengers."  ^ 

§  973.  Various  Other  Provisions.  —  "  Such  corporation  "  — 
banking  corporations  —  "when  organized  has  power  ...  5.  To 
make  such  by-laws  as  may  be  necessary  for  the  management  of  its 
property,  the  regulation  of  its  affairs,  the  creation  and  a  preservation  of 
a  lien  on  the  shares  of  any  stockholder  for  any  indebtedness  or  liability 
he  may  incur  to  the  corporation,  and  such  regulations  as  are  deemed 
proper  for  the  transfer  of  its  stock."  ^  _  .  .  .  "Such  corpora- 
tion" —  insurance  —  "  has  the  power  ...  5.  To  make  such  by- 
laws for  the  management  of  the  property,  the  regulation  of  the  affairs, 
the  transfer  of  the  stock  of  the  corporation  and  the  creation  and  preserv- 
ation of  a  lien  on  the  shares  of  stockholders  for  any  indebtedness  con- 
tracted with,  or  liabiUty  incurred  to  it,  as  may  be  deemed  neces- 
sary." ^  .  .  -  -  Macadamized,  graded  and  plank  road  companies 
' '  may  make  and  publish  such  by-laws  as  they  may  deem  proper,  not 
inconsistent  with  any  law  of  this  State,  in  order  to  regulate  travel  upon 
such  road,  and  the  rules  to  be  observed  by  persons  in  meeting  or  pass- 
ing with  teams  or  vehicles,  and  all  other  matters  which  may  be  deemed 
for  the  welfare  of  such  company. "  4  _  _  _  _  "  The  by-laws  of  every 
corporation  created  under  the  provisions  of  this  statute  "  — the  general 
incorporation  act  —  "or  accepting  the  same  shall  be  deemed  and  taken 
to  be  its  law,  subordinate  to  this  statute,  the  charter  of  the  same,  the 
constitution  and  laws  of  this  commonwealth,  and  the  constitution  of  the 
United  States.  They  shall  be  made  by  the  stockholders  or  mem- 
bers of  the  corporation,  at  a  general  meeting  called  for  that  pur- 
pose, unless  the  charter  prescribes  another  body  or  a  different  mode. 
They  shall  prescribe  the  time  and  place  of  meeting  of  the  corporation, 
the  powers  and  duties  of  its  officials,  and  such  other  matters  as  shall  be 
pertinent  and  necessai-y  for  the  business  to  be  transacted,  and  may 
contain  penalties  for  the  breach  thereof,  not  exceeding  twenty  dol- 
lars."^ -  -  -  -  Corporations  have  power  "  to  make  by-laws  not 
inconsistent  with  law  for  the  management  of  its  property,  the  regula- 
tion of  its  affairs,  and  for  the  transfer  of  its  stock,  if  any  such  stock 
there  be  ;  for  the  forfeiture  of  stock  not  paid  for  and  for  disposition  of 
the  proceeds  thereof ;  for  the  calling  of  regular,  special  and  general 
meetings  of  the  directors,  managers  and  trustees  of  such  corporation,  and 
fixing  the  place  or  places  where  the  same  shall  be  held,  and  to  provide 

1  Code  of  Ala.  (1886),  §  1657.  *  Eev.  Stat.  Mo.  (1889),  §  2710. 

2  Code  of  Ala.  (1880),  §  1525.  »  Brightly's  Pur.    Dig,  Peun.    Stat. 

3  Code  of  Ala.  (1886),  §  1.535.  1885,  p.  341,  §  22. 

7P0 


POWER  AND  MODE  OF  ENACTING.     [1  Thomp.  Corp.  §  975. 

for  all  other  matters,  which  may  be  regulated  by  by-laws,  and  may  from 
time  to  time,  repeal,  amend,  or  re-enact  the  same  ;  but  every  such  by- 
law, and  every  repeal,  amendment,  or  re-enactment  thereof,  unless  in 
the  meantime  confirmed  at  a  general  meeting  of  the  company  duly 
called  for  that  purpose,  shall  only  have  force  until  the  next  annual 
meeting  of  the  company,  and  in  default  of  confirmation  thereof,  shall, 
from  that  time  only,  cease  to  have  force.  The  stoclvholders  or  mem- 
bers of  a  corporation  may,  at  any  general  meeting,  make  by-laws, 
which  shall  not  be  rescinded  by  the  directors,  managers  or  trus- 
tees." 1 

§  974.  As  to  Forfeiting  Shares.  — ■  A  corporation  formed  under 
the  general  incorporation  act  of  Oregon  is  by  statute  declared  to  have 
power  ' '  to  make  by-laws  not  inconsistent  with  any  existing  law  for  the 
sale  of  any  portion  of  its  stock  for  delinquent  or  unpaid  assessments  due 
thereon,  which  sale  may  be  made  without  judgment  or  execution :  pro- 
vided, that  no  such  sale  shall  be  made  without  thirty  days'  notice  of  time 
and  place  of  sale  in  some  newspaper  in  circulation  in  the  neighborhood 
of  such  company,  for  the  transfer  of  its  stock,  for  the  management  of 
its  property,  and  for  the  general  regulation  of  its  affairs."  ^ 

§  975.  How  Enacted.  —  In  enactment  of  by-laws,  the  stockholder 
shall  be  allowed  one  vote  for  each  share  of  stock  owned  by  him,  and  that 
in  person  or  by  proxy.  And  such  by-law  cannot  be  enacted,  altered, 
or  amended,  added  to,  repealed,  or  suspended,  except  at  a  regular  an- 
nual meeting  of  the  stockholders,  and  by  a  majority  vote  of  two-thirds 
in  value  of  all  the  stoekof  the  corporation. ^  -  -  -  -  "At  the 
first  meeting  "  — of  joint-stock  corporations  —  "  by-laws  for  the  regu- 
lation of  the  affairs  of  the  corporation  may  be  adopted.  At  any  subse- 
quent meeting  of  the  stockholders  specially  called  for  that  purpose, 
by-laws  may  be  adopted,  or  the  by-laws  previously  adopted  may  be 
altered  or  repealed."^  _  .  _  -  "Regulations  maybe  adopted  or 
changed  by  the  assent  thereto,  in  writing,  of  two-thirds  of  the  stock- 
holders, or,  if  there  is  no  capital  stock,  of  the  members,  or  by  a  majority 
of  the  stockholders  or  members,  at  a  meeting  held  for  that  purpose,  no- 
tice of  which  has  been  given  by  the  acting  president  personally  to  each 
member  or  stockholder,  or  by  publication  in  some  newspaper  of  general 
circulation  in  the  county  in  which  the  corporation  is  located,  or  in  the 
counties  through  which  its  improvement  does  or  will  pass. "  ^     .     -     _     _ 

1  Rev.  Code  Md.  (1878),  p.  320,  §  50.  *  Gen.  Stat.  Conn.  (1888),  §  1946. 

2  Hills' Laws  Ore.  (1887),  §3221.  »  ll^^y^    gtat.    Ohio   (1800),  §    3251. 

3  Sayle's  Tex.  Civ.  Stat.  1888,  vol.  This  is  a  general  provision. 
2,  art.  4136. 

791 


1  Tiiomp.  Corp.  §  976.]       by-laws. 

"  Eveiy  corporation  formed  under  this  title" — concerning  corpora- 
tions, general  provisions  —  "  must,  within  one  month  after  filing  articles 
of  incorporation,  adopt  a  code  of  by-laws  for  its  government  not  incon- 
sistent with  the  laws  of  Congress  or  of  this  territory.  The  assent  of 
stockholders  representing  a  majority  of  all  the  subscribed  capital  stock, 
is  necessary  to  adopt  by-laws,  if  thc}^  are  adopted  at  a  meeting  called 
for  that  purpose ;  and  if  such  meeting  be  called,  two  weeks'  notice  of 
the  same  by  advertisement  in  some  newspaper  published  in  the  county 
in  which  the  principal  place  of  business  of  the  corporation  is  located,  or, 
if  none  be  published  therein,  then  in  a  paper  published  at  the  capital  of 
the  territor}',  must  be  given  by  order  of  the  actuig  president.  The 
written  assent  of  the  holders  of  two-thirds  of  the  stock  subscribed,  or  of 
two- thirds  of  the  members,  if  there  be  no  capital  stock,  shall  be  effectual 
to  adopt  a  code  of  by-laws  without  a  meeting  for  that  pur- 
pose."^ _  _  _  _  "  Every  corporation  formed  under  this  title  "  — 
general  provisions  applicable  to  all  corporations  —  "must,  within 
one  month  after  filing  articles  of  incorporation,  adopt  a  code  of  by-laws 
for  its  government  not  inconsistent  with  the  laws  and  constitution  of  this 
State.  The  assent  of  stockholders  representing  a  majority  of  all  the 
subscribed  capital  stock,  or  of  a  majority  of  the  members,  if  there  be 
no  capital  stock,  is  necessary  to  adopt  by-laws,  if  they  are  adopted  at  a 
meeting  called  for  that  purpose. ' '  After  providing  how  that  meeting  may 
be  called,  the  statute  provides:  that  "  the  written  assent  of  the  holders 
of  two-thirds  of  the  stock,  or  of  two-thirds  of  the  members  if  there  be 
no  stock,  shall  be  effectual  to  adopt  a  code  of  by-laws  without  a  meeting 
for  that  purpose. "  2  _  -  _  _  The  stockholdeTs  ot  banks  oi  civcnla.- 
tion,  discount  and  deposit,  "shall  adopt  by-laws  for  the  government 
thereof  and  of  the  board  of  directors."  3  _  _  «  _  "  When  the  word 
'  by-law  '  is  used  in  this  chapter  "  —  a  chapter  to  pro\ide  for  the  incor- 
poration of  joint-stock  companies  —  "  it  is  to  be  understood  as  if  imme- 
diately followed  by  the  word  '  adopted  by  the  stockholders  in  general 
meeting  assembled.'  "  ^ 

§  976.  How  Amended,  Repealed,  etc.  —  "By-laws  may  be 
repealed  or  amended,  or  new  by-laws  may  be  adopted,  at  the  annual 
meeting,  or  at  any  other  meeting  of  the  stockholders  or  members, 
called  for  that  purpose  by  the  directors,  by  vote  representing  two- 
thirds  of  the  subscribed  stock,  or  by  two-thirds  of  the  members. 
The  written  assent  of  the  holders  of  two-thirds  of  the  stock,  or 
of  two-thirds  of  the  members,  if   there  be  no  capital,  shall  be  effec- 

1  Rev.  Stat.  Idaho  (1887),  §  2588.  *  Rev.  Stat.  W.  Va.  (1879),  p.  312, 

2  2  Deer.  Cal.  Code  (1885),  §  301.  §2. 

3  Rev.  Laws  Vt.  (1880),  §  3495. 

792 


POWER   AND    MODE    OF    ENACTING.        [1  Thomp.  Corp.    §  978. 

tual  to  repeal  or  amend  any  bj^-law,  or  to  adopt  additional  by-laws.  The 
power  to  repeal  and  amend  the  by-laws,  and  adopt  new  by-laws,  may,  by  a 
similar  vote  at  any  such  meeting,  or  similar  written  assent,  be  delegated 
to  the  board  of  du*ectors.  The  power,  when  delegated,  may  be  revoked 
by  a  similar  vote,  at  any  regular  meeting  of  the  stockholders  or  mem- 
bers." ^  _  >  -  _  The  by-laws  may  be  repealed  or  amended,  or  new 
b3'-laws  may  be  adopted,  at  the  annual  meeting  of  the  stockholders  or 
members  called  for  that  purpose  by  the  directors,  by  a  vote  represent- 
ing two-thirds  of  the  subscribed  stock,  or  two-thirds  of  the  members 
when  there  is  no  capital  stock,  or  the  power  to  repeal  and  amend  the 
by-laws,  and  adopt  new  by-laws,  may,  by  a  similar  vote  at  any  such 
meeting,  be  delegated  to  the  hoard  of  directors.  This  power,  when  so 
delegated,  may  be  revoked  by  a  similar  vote  at  any  regular  meeting  of 
the  stockholders  or  members. ^  -  -  -  -  "By-laws"  of  railroad 
companies — "may  be  amended  or  repealed,  or  new  by-laws  may  be 
adopted  at  an  annual  meeting,  or  any  other  meeting  of  the  stockholders 
called  by  the  directors  for  that  purpose,  by  a  vote  representing  two- 
tliirds  of  the  subscribed  capital  stock,  or  the  power  to  amend  or  repeal 
or  adopt  new  by-laws,  may  by  a  similar  vote,  at  any  such  meeting,  be 
delegated  to  the  board  of  directors.  Such  powers,  when  delegated,  may  be 
removed  by  a  similar  vote  at  any  regular  meeting  of  the  stockholders."  ^ 

SUBDIVISION  III.     Statutes  Vesting  Power  in  the  Directors  or  Other  Officers. 
Section  Section. 

978.  Enacted  by  the  directors,  etc.  991.  luiand  navigation  companies. 

979.  Academies,  colleges,  seminaries,         992.  Insurance  companies. 

uuiversities.  993.  Library  companies. 

980.  Banks  of  discount.  994.  Manufacturing  companies. 

981.  Breeding  associations.  995.  Mining     and    smeltmg  compa- 

982.  Bridge  companies.  ujgg_ 

983.  Building  and  construction  com-  990.  Navigation   improvement   com- 

P^"'^'^-  panics. 

984.  Canal  companies.  997.  Piank-road  and  turnpike   com- 

985.  Gaslight  companies.  panies. 

986.  Guano  companies.  998,  Railroad  companies. 

987.  Guaranty  companies.  999.  Religious  corporations. 

988.  Homestead  companies.  1000.  Safe  deposit  companies. 

989.  Hotel  companies.  lOoi.  Savings  banks. 

990.  Industrial,  co-operative  and  mu-       1002.  Telegraph  companies. 

tual  benefit  societies.  1003.  Trust  companies. 

§  978.  Enacted  by  the  Directors,  etc.  —  Directors  or  trustees 
may  adopt  by-laws  for  the  corporation,  but  such  may  be   amended 

1  2  Deer.  Gal.  Code  (1885),  §  304.  ■■>  Comp.  Laws  N.  M.  (1884),  §  2692. 

2  Rev.    Stat.  Idaho  (1887),    §  2591. 

79P> 


IThoiup.  Corp.  §  978.]       by-laws. 

or  altered  or  changed  by  a  vote  of  stockholders  at  an  election  ordered 
for  that  purpose  by  the  directors,  on  written  application  of  a  majority 
of  the  stoclvholders  or  members.^  _  _  _  _  "  Any  company  formed 
under  this  act' '  —  an  act  to  provide  for  the  organization  of  town  and 
county  co-operative  fire  and  lightning  insurance  companies  —  ' '  may 
make  and  enforce  such  by-laws  for  its  regulation  as  two-thirds  of  all  the 
directors  of  such  company  may  adopt,  and  any  amendment  of  such  by- 
laws may  be  adopted  by  being  presented  to  the  president  at  least  three 
months  previous  to  any  meeting  of  such  directors ;  but  said  proposed 
amendments  shall  be  voted  for  at  a  regular  meeting  only,  and  two- 
thirds  of  the  votes  of  all  the  directors  shall  be  required  to  adopt  them. 
No  by-laws  shall  be  of  any  effect  which  are  inconsistent  with  this  act  or 
the  laws  of  the  State."  2  .  _  _  _  "  By-laws  to  direct  the  manner  of 
taking  the  votes  of  stockholders  on  the  question  of  increasing  or  dimin- 
ishing the  number  of  directors  or  trustees,  of  changing  the  corporate 
name,  may  be  made  by  the  directors  of  the  corporation  for  the  time 
being."  3  _  _  _  _  "  The  directors  or  managers  may  adopt  by-laws  for 
the  government  of  the  officers  and  affairs  of  the  company ;  provided  they 
are  not  inconsistent  with  the  laws  of  this  State."  ^  _  _  _  _  "The 
stocldiolders  of  any  corporation  formed  under  this  act' '  —  a  general  act 
for  the  formation  of  corporations  —  "  or  the  directors  or  trustees,  if  the 
certificate  of  incorporation  so  provide,  shall  have  power  to  make  such 
prudential  by-laws  as  they  deem  proper  for  the  management  of  the  af- 
fairs of  the  company,  not  inconsistent  with  the  laws  of  this  State,  for  the 
purpose  of  carrying  on  all  kinds  of  business  within  the  objects  and  pur- 
poses of  such  company."  5  _  -  -  _  "The  trustees  or  directors  of 
a  corporation  may  adopt  a  code  of  by-laws  for  their  government,  not 
inconsistent  with  the  regulations  of  the  corporation,  or  the  constitu- 
tion and  laws  of  the  State,  and  may  change  the  same  at  pleas- 
ure." ^  _  -  .  _  "The  directors  or  trustees"  —  of  every  private 
corpoi'ation  — ' '  may  adopt  by-laws  for  the  government  of  the  corpora- 
tion ;  but  such  by-laws  may  be  altered,  changed  or  amended  by  a 
majority  vote  of  the  stockholders  at  any  election  or  special  meeting  or- 
dered for  that  purpose  by  the  directors  or  trustees,  on  a  written  applica- 
tion of  a  majority  of  the  stoclcholders  or  members."  7  _  _  _  _  Cor- 
porations, either  business,  literary,  scientific  or  charitable,  "  may  make 
all  such  by-laws,  rules  and  regulations,  not  inconsistent  with  the  laws  in 

1  Gen.  Stat.  Kau.,  vol.  1,  §  1176.  governing      corporations      when    no 

^  3  Rev.  Stat.  N.  Y.  (Banks  &  Bros,  special  provision  is  made. 
8th  ed.),  p.  1701,  §  17.  5  Qen.  Stat.  Col.  (1883),  §  245. 

3  Rev.  Stat.  Mo.  (1889),  §  2506.  6  Rev.  Stat.  Ohio  (1890),  §  3250. 

*  Starr  &  Curt.  111.   Stat.,  p.    612,  ^  Sayle's  Tex.  Cir.  Stat.,  art.  581. 

§   6.     This   is  the   general   provision 
794 


POWER    AND    MODE    OF    ENACTING.       [1  Thotup.  Coip.    §  981. 

force,  or  which  may  be  in  force  in  this  territory,  and  not  inconsistent 
with  other  corporate  rights  and  vested  privileges,  as  may  be  necessary  to 
carry  into  effect  the  object  of  the  association ;  and  such  by-laws,  rules 
and  regulations  may  be  made  in  a  general  meeting  of  the  stockholders, 
or  by  a  board  of  officers  elected  by  them."  ^ 

§  979.  Academies,  Colleges,  Seminaries,  Universities. —  The 

board  of  trustees  of  colleges,  academies,  high  schools  or  other  semi- 
naries of  learning,  "  may  make  and  adopt  all  necessary  by-laws,  rules 
and  regulations  not  inconsistent  with  the  laws  of  the  United  States  or  of 
this  State,  for  the  governing  of  such  college,  etc.,  and  to  enable  the  said 
board  to  properly  discharge  its  duties  as  such."  2  _  _  _  _  The 
trustees  of  any  incorporated  college  or  university  "  may  enact  such  by- 
laws not  inconsistent  with  the  laws  of  this  State  or  of  the  United  States, 
for  the  government  of  the  institution,  and  for  conducting  the  affairs  of 
the  corporation,  as  they  may  deem  necessary."  3  _  .  -  -  Trustees 
of  colleges  and  seminaries  have  power  "  to  make  all  ordinances  and  by- 
laws necessary  and  proper  to  carry  into  effect  the  foregoing  powers."  * 

» 
§  980.  Banks  of  Discount.— "  Every  such  bank" — incorpo- 
rated banks  of  discount  and  deposit — "  shall  have  power  to  prescribe 
by  its  board  of  directors,  bj'^-laws  not  inconsistent  with  law,  regulating 
the  manner  in  which  its  stock  shall  be  transferred,  its  general  business 
conducted,  and  the  privileges  granted  it  by  law  exercised  and  en- 
joyed." ^  _  -  -  -  "The  directors" — of  incorporated  banks  of 
discount  and  deposit  —  "  are  authorized  to  adopt  such  by-laws,  not  in 
conflict  with  this  act,  as  may  be  necessary. ' '  ^ 

§  981.  Breeding  Associations. —  "  The  corporators,  or  trustees, 
or  directors,  as  the  case  may  be,  of  any  company  organized  under  this 
act"  —  an  act  for  the  incorporation  of  associations  for  mpro«t>ij  the 
breed  of  horses —  "  shall  have  power  to  make  such  by-laws,  not  incon- 
sistent with  the  laws  of  this  State,  as  may  be  deemed  necessary  for  the 
government  of  its  officers  and  the  conducting  of  its  affairs,  and  the 
same  to  alter  or  amend  at  pleasure ;  they  may  also  prescribe  such  rules 
and  regulations  for  the  sale  and  transfer  of  the  stock  of  the  company  as 
they  may  deem  just  and  expedient."  ' 

'  Corap.  Laws   Utah  (1876),    §  534.  ^  Code  Va.  (1887),  §  1156. 

2  Rev.  Stat.  W.  Va.  (1879),  vol.  1,  "  Comp.  Stat.  Mont.  (1888),  p.  750 
p.  291,  §11.  §518. 

3  Comp.  vStat.  Neb.  (1887),  p.  233,  '  3  Rev.  Stat.  N.  Y.  (Banks  &  Bros. 
§  17.  8th  ed.),  p.  2068,  §  6.     Also,  Ibid.,  p. 

*  Rev.  Stat.    Minn.  (1881),  p.  405,      2074,  §  6. 


§175. 


795 


1  Thomp.  Corp.  §  985. J       by-laws. 

§  982.  Bridge  Companies.  —  "The  said  company  "  — bridge  cor- 
poration—  "  shall  have  power  from  time  to  time,  at  any  regular  meet- 
ing of  the  board  of  directors,  to  make,  alter,  and  change  such  by-laws 
and  rules  for  the  government  of  said  company. "  1  -  -  -  -  "The 
directors  first  elected  "  —  of  bridge  corporations  —  ' '  shall  immediately 
provide  a  code  of  by-laws  for  the  government  of  the  corporation  and 
management  of  its  prudential  concerns,  and  present  the  same  to  the 
company  for  adoption  ;  which  by-laws  if  not  repugnant  to  the  laws  of 
the  State,  when  approved  by  a  vote  of  a  majority  of  the  stock  represented, 
shall  become  a  law  and  be  binding  on  all  parties  concerned  until  altered 
or  amended  by  a  similar  vote,  at  any  meeting  of  the  stockholders."  ^ 

§  983.  Building  and  Construction  Companies.  —  "  The  trust- 
ees of  such  company" — corporations  for  erecting  buildings,  docks, 
and  tvharves,  buying  and  selling  lands,  erecting  and  using  elevators,  and 
making  and  dealing  in  building  material  —  "  shall  have  power  to  make 
such  prudential  by-laws  as  they  shall  deem  proper,  for  the  management 
and  disposition  of  the  stock  and  business  affairs  of  such  company,  not 
inconsistent  with  the  laws  of  this  St&te,  and  prescribing  the  duties  of 
officers,  artificers  and  servants  that  may  be  employed,  for  the  appoint- 
ment of  all  officers,  and  for  carrying  on  all  kinds  of  business  within  the 
objects  and  purposes  of  such  company."  ^ 

§  984.  Canal  Companies.  —  "  The  officers  so  elected  "  —  of  canal 
corporations  —  "  shall  provide  a  code  of  by-laws  for  the  government  of 
the  corporation,  regulating  the  use  and  navigation  of  the  canal,  and  the 
tariff  of  tolls  and  water  rents  on  the  same ;  which  by-laws  when  ap- 
proved by  a  majority  of  the  stockholders  shall  become  law,  and  bind- 
ing, until  altered  or  amended  by  a  vote  of  an  annual  or  called  meeting 
of  the  stockholders."  ^ 

§  985.  Gaslight  Companies.  —  "The  directors  of  such  com- 
pany "  — gaslight  corporations  —  "  shall  have  power  to  make  such  pru- 
dential by-laws  as  they  shall  deem  proper  for  the  management  and 
disposition  of  the  stock  and  business  affairs  of  such  company,  not  incon- 
sistent with  the  laws  of  this  State,  and  prescribing  the  duties  of  officers, 
artificers,  and  servants  that  may  be  employed  ;  for  the  appointment  of 
all  officers  and  for  carrying  on  the  business  aforesaid."  ^ 

1  Conip.  Stat.  Neb.  (1887),  p.  237,  ^  3  Rev.  Stat.  N.  Y.  (Banks  &  Bros. 
§  34.  8th  ed.),  p.  1992,  §  7. 

2  Rev.  Stat.  Ind.  (1888),  §§  3533 and  ^  Rev.  Stat.  Ind.  (1888),  §  3572. 
3550.  *  3  Rev.  Stat.  N.  Y,  (Banks  &  Bros . 


796 


8th.  ed.;,  p.  2077  §  7. 


POWER   AND   MODE    OF   ENACTING.       [1  Thomp.  Coi'p.   §  989. 

§  986.  Guano  Companies.  — ' '  The  trustees  of  such  company ' ' — 
corporations  to  procure  and  traffic  in  guano  —  ' '  shall  have  power  to  make 
such  prudential  by-laws  as  they  shall  deem  proper  for  the  management 
and  disposition  of  the  stock  and  business  affairs  of  such  company,  not 
inconsistent  with  the  laws  of  this  State,  and  prescribing  the  duties  of 
officers,  artificers  and  servants  that  may  be  employed,  for  the  appoint- 
ment of  all  officers,  and  for  carrying  on  all  kinds  of  business  within  the 
object  and  purposes  of  such  company."  ^ 

§  987.  Guaranty  Companies. — "  The  corporators,  or  the  trustees 
or  directors,  as  the  case  ma}^  be,  of  any  company  organized  under  this 
act"  —  an  act  to  pro\ade  for  the  organization  of  credit  guaranty  com- 
panies—  "shall  have  power  to  make  such  by-laws,  not  inconsistent 
with  the  constitution  or  the  laws  of  this  State,  as  may  be  deemed  neces- 
sary for  the  government  of  its  officers  and  conduct  of  its  affairs,  and 
the  same,  when  necessary,  to  alter  and  amend.  "  ^ 

§  988.  Homestead  Companies. —  "The  directors  of  such  cor- 
poration " —  associations  to  provide  members  with  homesteads  —  "  shall 
have  power  to  make  such  prudential  by-laws  as  they  shall  deem  proper 
for  the  management  and  disposition  of  the  stock  and  business  affairs  of 
such  company,  not  inconsistent  with  the  laws  of  this  State,  or  of  the 
articles  of  the  association  ;  and  prescribing  the  duties  of  directors,  offi- 
cers and  servants  that  may  be  emploj-ed  ;  for  the  appointment  of  officers 
and  agents ;  for  the  security  of  the  funds  of  the  corporation,  and  for 
carrying  out  the  objects  and  purposes  of  such  corporation."  ^ 

§  989.  Hotel  Companies. —  "The  trustees  of  such  company  "  — 
corporations  for  erecting  and  keeping  hotels  —  ' '  shall  have  power  to 
make  such  prudential  b^^-laws  as  they  shall  deem  proper  for  the  man- 
agement and  disposition  of  the  stock  and  business  affairs  of  such  com- 
pany, not  inconsistent  with  the  laws  of  this  State,  and  prescribing  the 
duties  of  officers,  artificers  and  servants  that  may  be  emploj'cd,  for  the 
appointment  of  all  officers,  and  for  carrying  on  all  kinds  of  business 
within  the  objects  and  purposes  of  such  company."  * 

1  3  Rev.  Stat.  N.  Y.  (Banks  &  Bros,  make  by-laws.  3  Rev.  Stat.  N.  Y. 
8th  ed.),  p.  2085,  §  7.  (Banks  &  Bros.  8th ed.),  p.  1G43,  §  11. 

2  3  Rev.  Stat.  N.  Y.  (Banks  &  Bros.  a  3  Rev.  Stat.  N.  Y.  (Banks  &  Bros. 
8th  ed.),  p.  1721,  §  9.     The  same  Ian-  8th  ed.),  p.  2012,  §  18. 

guage,  precisely,  is  used  as  to  the  right  ^  3  Rev.  Stat.  N.  Y.  (Banks  &  Bros, 

of  fire  and  inland  navigation  and  trans-      8th  ed.),  p.  2002,  §  7. 
portatiou    insurance     compauies     to 

797 


1  Thomp.  Corp.  §  1)92.]       by-laws. 

§  990.  Industrial  Co-operative  and  Mutual  Benefit  So- 
cieties.—  "  The  trustees  of  such  company"  —  corporation  for  indus- 
trial or  productive  purposes  — "shall  have  power  to  make  such  pruden- 
tial by-laws  as  they  shall  deem  proper  for  the  management  and  disposition 
of  the  stock  and  business  affairs  of  such  company,  not  inconsistent  with 
the  laws  of  the  United  States  and  of  this  territory,  and  prescribing  the 
duties  of  officers,  artificers,  and  servants  that  may  be  employed  ;  for  the 
appointment  of  all  officers,  and  for  carrying  on  all  kinds  of  business 
within  the  objects  and  purposes  of  such  company."!  .  _  -  _  "The 
corporators,  or  trustees  or  directors,  as  the  case  may  be,  of  any  corpo- 
ration organized  under  this  act"  —  co-operative  and  working-men's 
unions  —  "shall  have  power  to  make  such  by-laws,  not  inconsistent  with 
the  laws  of  this  State,  as  may  be  deemed  necessary  for  the  government 
of  its  officers  and  conducting  of  its  affairs,  and  the  same  to  alter  and 
amend  at  pleasure."  2  _  _  _  _  "A  majority  of  the  trustees" — of 
co-operative  and  mutual  benefit  associations  — ' '  duly  convened  accord- 
ing to  the  by-laws,  shall  constitute  a  quorum  for  the  transaction  of  busi- 
ness. The  trustees  shall  adopt  by-laws  and  regulations  not  inconsistent 
with  the  articles  of  association  or  the  provisions  of  this  act."  ^ 

§  991.  Inland  Navigation  Companies. — "The  directors"  — 
of  inland  navigation  companies  —  "  shall  have  power  to  make  such  rea- 
sonable by-laws,  not  inconsistent  with  the  laws  of  this  State  or  of  the 
United  States,  as  they  shall  deem  proper  for  the  management  and  dis- 
position of  the  property,  affairs  and  concerns  of  such  company ;  for  pre- 
scribing the  power  and  duties  of  the  officers  of  such  company ;  for  the 
appointment  of  such  officers,  and  for  the  transaction  and  carrying  on  all 
kinds  of  business  within  the  objects  and  purposes  of  such  corpora- 
tions."^ _  -  -  -  "The  officers  so  elected" — of  steam-packet 
companies  —  ' '  shall  provide  a  code  of  by-laws  for  the  government  of  the 
corporation  ;  which  by-laws,  when  approved  by  a  majority  of  the  stock- 
holders, shall  become  law  and  binding  until  altered  or  amended  by  a  vote 
of  a  meeting  of  the  stockholders."  ^ 

§  992.  Insurance  Companies.  —  "The  directors  of  any  such 
company  "  —  of  insurance  companies  —  ' '  shall  have  power  to  appoint  a 
secretary  .  .  .  ;  they  may  ordain  and  establish  such  by-laws  and 
regulations,  not  inconsistent  with  this  chapter     ...     as  shall  appear 

1  Comp.  Stat.  Mont.  (1888),  p.  727,  3  Acts  Mich.  1887,  p.  195,  §  10. 

§  454.  *  3  Rev.  Stat.  N.  Y.  (Banks  &  Bros. 

2  3  Rev.  Stat.  N.  Y.  (Banks  &Bro8.      8th  ed.),  p.  1855,  §  7. 

8th  ed.),  p.  2046,  §  6.  *  Rev.  Stat.  Ind.  (1888),  §  4137. 

798 


POWER  AND  MODE  OF  ENACTING.     [1  Thomp.  Corp.  §  994. 

to  them  necessary  for  regulating  and  conducting  the  business  of  the  com- 
pany." ^  _  .  _  -  "  The  corporators,  or  the  trustees  or  directors, 
as  the  case  may  be,  of  any  company  organized  under  the  provisions  of 
this  act  "  — an  act  to  provide  for  the  organization  of  marine  insurance 
companies  —  "  shall  have  power  to  make  such  by-laws,  not  inconsistent 
with  the  constitution  or  laws  of  this  State,  as  may  be  deemed  neces- 
sary for  the  government  of  its  officers  and  the  conduct  of  its  af- 
fairs." ^  .  _  _  _  "The  corporators,  trustees,  directors,  members 
or  representatives,  as  the  case  may  be,  of  any  association,  corporation 
or  society  organized  under  this  act  "  —  an  act  to  provide  for  the  organ- 
ization of  co-operative  or  assessment  life  and  causualty  insurance.com- 
panies — "shall  have  power  to  make  such  by-laws,  not  inconsistent 
with  the  constitution  or  laws  of  this  State,  or  of  the  United  States,  as 
may  be  deemed  necessary  for  the  government  of  its  officers  and 
conduct  of  its  affairs,  and  the  same,  when  necessary,  to  alter  and 
amend,"  3  -  -  -  _  "  The  corporators,  or  the  trustees,  or  dii'ectors, 
as  the  case  may  be,  of  any  company  "  — life,  health  and  casualty  in- 
surance companies  —  ' '  organized  under  this  act  shall  have  power  to 
adopt  a  seal,  and  to  make  such  by-laws,  not  inconsistent  with  this  actor 
the  constitution  and  laws  of  this  State,  as  may  be  deemed  necessary  for 
the  management  of  its  affairs."  *  -  -  -  -  A  mutual  fire  insurance 
corporation,  "  may  make  by-laws  and  regulations  for  the  government  of 
its  board  of  directors  and  other  officers  and  agents,  and  the  management 
and  regulation  of  its  property  and  business.  .  .  .  All  bj'-laws  shall 
be  adopted  by  the  directors  of  the  company  in  a  general  meeting  assem- 
bled, and  shall  be  void  if  not  consistent  with  the  laws  of  this  State."  ^ 

§  993.  Library  Companies.  —  "  The  trustees  "  —  of  any  library 
corporation  — ' '  shall  establish  by-laws  and  rules  for  the  regulation  of 
such  library. '  *  ^ 

§994.  Manufacturing  Companies.  —  "The  trustees  of  such 
company" — manufacturing  company  —  "for  the  time  being,  shall 
have  power  to  make  and  prescribe  such  by-laws,  rules  and  regulations 
as  they  shall  deem  proper  respecting  the  management  and  disposition  of 
the  stock,  property  and  estate  of  such  company,  the  duties  of  the 
officers,  artificers  and  servants  by  them  to  be  employed,  the  election  of 
trustees,    and  all  such  matters  as  appertain  to  the  concerns  of  the  said 

1  Rev.  Stat.  Iowa,  1888,  §  1692.  *  3  Rev.  Stat.  N.  Y.  (Banks  &  Bros. 

23   Rev.    Stat.    N.    Y.    (Banks    &      8th  ed.),  p.  1007,  §  10. 
Brothers  8th  ed.),  p.  1631,  §  12.  6  Rev.  Stat.  W.  Va.  (1879),  vol.  1, 

3  3  Rev.  Stat.  N.  Y.  (Banks  &  Bros.      p.  328,  §§  1,  5. 
8th  ed,),  p.  1704,  §  4.  «  Rev.  Stat.  Ind.  (1888),  §  3786. 

799 


1  Thoiup.  Corp.  §  990.]       by-laws. 

company,  to  appoint  such  and  so  many  officers,  clerks  and  servants  for 
caiTying  on  the  business  of  the  said  company,  and  with  such  wages  as 
to  them  shall  seem  reasonable :  Provided,  That  such  by-laws  be  not  in- 
consistent with  the  constitution  and  laws  of  this  State  or  of  the  United 
States."^ 

§  995.  Mining  and  Smelting  Companies.  — A  mining  and 
s^nelting  corporation  "  may  prescribe  by-laws  for  the  management  of  its 
business  and  affairs  by  a  board  of  directors,  trustees,  committee  or 
other  officers  or  agents,  and  provide  for  their  election  or  appointments, 
and  prescribe  their  duties,  and  may  require  bond  from  any  officer  for 
the  faithful  discharge  of  duties,  and  may  by  such  by-laws  prescribe  in 
respect  to  all  matters  appertaining  to  the  business  and  affairs  of 
said  corporation,  not  inconsistent  with  the  provisions  of  this  act,  nor 
the  constitution  or  laws  of  this  State.  Such  by-laws  may  be  made, 
altered  or  amended  by  the  directors,  trustees  or  committee  clothed  with 
the  general  management  of  the  affairs  of  such  corporation ;  but  the 
stockholders,  at  any  regular  meeting,  may  repeal  or  alter  any  by-law,  or 
adopt  new  ones,  and  such  action  shall  remain  binding  until  repealed  or 
changed  by  the  stocldiolders  themselves  at  some  regular  meeting."  ^ 

§  996.  TfaTigation  Improvement  Companies. —  Corporations 
for  the  improvement  of  the  navigation  of  navigable  rivers  —  called 
slack  water  navigation  companies,  have  by  "the  directors  of  such  com- 
pany power  to  make  by-laws  for  the  management  of  the  stock,  property 
and  business  affairs  of  the  company,  not  inconsistent  with  the  laws  of 
this  State,  and  to  prescribe  the  duties  of  officers  and  all  other  persons 
that  may  be  employed  by  them,  and  for  the  appointment  of  the  officers 
for  carrying  on  all  business  within  the  object  and  purpose  of  the  com- 
pany." ^  _  _  -  -  "  The  officei's  so  elected  "  —  of  corporations  for 
building  dams  across  streams  so  as  to  afford  slack-water  navigation  — 
"  shall  provide  a  code  of  by-laws  for  the  government  of  the  corpora- 
tion, regulating  the  use  and  navigation  of  such  part  of  said  water- 
com'se  as  lies  within  the  Minits  of  said  corporation,  and  the  tariff  of 
tolls  and  water  rent  on  the  same ;  which  by-laws,  when  approved  by  a 
majority  of  the  stockholders,  shall  become  law  and  binding  until  altered 
or  amended  by  a  vote  of  an  annual  or  called  meeting  of  the  stock- 
holders." ^ 

1  3  Rev.  Stat.  N.  Y.  (Banks  &  Bros.  3  Rev.  Stat.  Ind.  (1888),  §  4106. 
8th  ed.),  p.  1949,  §  6.  *  Rev.  Stat.  Ind.  (1888),  §  4123. 

2  Rev.    Stat.  Minn.   (1881),  p.  400, 
§148. 

800 


POWER  AND   MODE    OF   ENACTING.       [1  Thomp.  Corp.   §  998. 

§  997.  Plank-Road  and  Turnpike  Companies. —  "  The  presi- 
dent and  dii'ectors"  — of  plank  road  companies —  "  shall  have  power 
to  make  and  prescribe  such  by-laws,  rules  and  regulations  ...  as 
they  may  deem  proper,  not  inconsistent  with  the  constitution  and  laws 
of  the  United  States  or  of  this  State."  ^  _  -  _  _  "  The  president 
and  directors" — of  turnpike  companies  —  "shall  have  power  and  it 
shall  be  their  duty.  .  .  .  2nd.  To  make  such  by-laws,  rules  and 
regulations  as  in  their  judgment  the  affairs  of  the  corporation  shall  re- 
quire." 2 

§  998.  Railroad  Companies. —  "  The  directors  of  a  railroad  coT' 
poration  shall  have  the  power  to  make  b3'-laws  for  the  management 
and  disposition  of  the  stock,  property  and  business  affau's  of  such  com- 
pany not  inconsistent  with  the  laws  of  this  State,  and  prescribing  the 
duties  of  officers,  artificers  and  servants  that  may  be  employed,  and  for 
the  appointment  of  all  the  officers  for  carrj^  ing  on  all  the  business  with- 
in the  object  and  purposes  of  such  company."  ^  _  .  _  .  "The 
board  of  directors"  —  oi  railroad  companies — "shall  have  power  to 
make,  and  from  time  to  time  to  amend  the  b3^-laws  of  the  compan}^, 
and  may,  by  such  by- laws  pro\dde  that  less  than  a  majority  of 
the  board  shall  constitute  a  quorum,  and  may  delegate  any  and 
all  of  the  powers  of  the  board  of  directors  to  an  executive  committee 
during  the  interval  between  the  meetings  of  the  board."  *  _  _  -  _ 
"  The  directors  of  any  j'az'ZroacZ  corporation  shall  have  power  to  make 
such  by-laws  as  they  may  think  proper,  and  alter  the  same  from  time  to 
time,  for  the  transfer  of  the  stock,  and  the  management  of  the  prop- 
erty and  business  of  the  company,  of  every  description  whatsoever, 
within  the  objects  and  purposes  of  such  company,  and  for  the  prescrib- 
ing the  duties  of  officers,  artificers,  and  employes  of  said  company,  and 
for  the  appointment  of  all  officers,  and  all  else  that  by  them  may  be 
deemed  needful  and  proper,  within  the  scope  and  power  of  said 
company;  provided,  that  such  by-laws  shall  be  approved  by  a  majority 
of  the  stocldioklers  and  shall  not  be  inconsistent  or  in  conflict  with  the 
laws  of  this  State,  or  with  the  articles  of  association."  ^  _  _  .  _ 
"■  The  directors  of  such  company  "  — street  railway  companies — "shall 
have  power  to  make  by-laws  for  the  management  and  disposition  of  the 
stock,  property  and  business  affairs  of  the  company  not  inconsistent  with 
the  laws  of  this  State;  to  prescribe  tlic  duties  of  officers,  artificers,  and 
servants  that  may  be  employed,  for  the  appointment  of  aU  officers  for 

1  How.  Mich.  Stat.  1882,  §  3G05.  ■•  3  Rev.  Stat.  N.  Y.  (Banks  &  Bros. 

2  2  Rev.  Stat.  N.  Y.  (Banks  &  Bro.s.      8th  ed.),  p.  17(;8,  §  4. 

8th  ed.),  p.  14K5,  §  14.  *  Gun.  Stat.  Nev.  (1885),  §  843. 

3  Rev.  Stat.  lud.  (1888),  §  3897. 

51  801 


1  Tliomp.  Corp.  §  1001. J      uv-lavvs. 

carrying  on  all  business  within  the  objects  and  purposes  of  such  com- 
pany; and  for  regulating  the  running- time,  fare,  etc.,  of  said  road  or 
roads."  ^ 

§  999.  Religious  Corporations.  —  "  The  board  of  trustees  "  — 
of  any  church  or  religious  corporation  —  "is  empowered  to  make  such 
by-laws  and  rules  as  are  necessary  to  carry  out  the  objects  of  the 
trust."  2 

§  1000.  Safe  Deposit  Companies.  —  "  The  trustees  of  such  corpo- 
rations "  — safe-keeping  companies  —  "  shall  have  power  to  make  such 
by-laws  as  they  shall  deem  proper  for  the  management  and  disposition 
of  the  stock,  property  and  business  affairs  of  such  company,  not  incon- 
sistent with  the  laws  of  this  State  and  of  the  United  States,  and  pre- 
scribing the  duties  of  officers  and  servants  that  may  be  employed,  the 
manner  of  appointment  and  election  of  all  officers,  and  for  carrying  on 
all  kinds  of  business  within  the  objects  and  purposes  of  said  corpora- 
tion." 3 

§  1001.  Savings  Banks.  —  "  The  board  " —  of  incorporated  sav- 
ings banks, —  "may  make  by-laws  and  regulations  for  managing  the 
property  of  the  institution,  conducting  its  business  and  paying  its  ex- 
penses ;  subject  always  to  the  power  of  the  members  in  general  meeting 
to  repeal  or  modify  such  by-laws  and  regulations,  and  make 
others."^  _  _  _  -  "The  board  of  trustees" — of  saving  banks, 
trust  deposits  and  security  associations,  incorporated — "shall  have 
power  from  time  to  time  to  make,  constitute,  ordain  and  establish  such 
by-laws,  rules  and  regulations,  as  they  shall  deem  proper  for  the  election 
of  their  officers,  and  the  appointment  of  agents,  servants,  and  employes; 
for  prescribing  their  respective  functions,  and  the  mode  and  manner  of 
discharging  the  same ;  for  the  regulation  of  time  of  meeting  of  the  offi- 
cers and  trustees ;  and  generally  for  transacting,  managing,  and  dis- 
charging the  affairs  of  the  association :  Provided  such  by-laws,  rules, 
and  regulations,  are  not  repugnant  to  this  act,  to  the  laws  of  this  terri- 
tory, or  the  constitution  and  laws  of  the  United  States."^  _  -  .  _ 
",  The  board  of  directors  of  any  such  corporation  "  — savings  banks  — 
"  shall  have  power,  from  time  to  time,  to  make  such  by-laws,  rules  and 
regulations  as  they  may  think  proper,  for  the  election  of  officers     . 

1  Rev.   Stat.  Ind.  (1888),  §  4151.  *  Code  Va.  (1887),  §  1177. 

2  Rev.  Stat.  Tnd.  (1888),  §  3(323.  -^  Comp.  Stat.  Mout.   (1888),  p.  763, 
=>  2  Rev.  Stat.   N.  Y.  (Bank  &  Bros.      §  557. 

8th  ed.),  p.  1605,  §  7. 
802 


REQUISITES    AND    VALIDITY.       [1  ThoiUp.  Coi'p.    §   1003. 

and  generally  for  transacting,  managing  and  directing  the  affairs  of  the 
corporation  ;  provided  such  b^^-laws,  rules  and  regulations  are  not  re- 
pugnant to,  nor  inconsistent  with  the  provisions  of  this  act,  the  constitu- 
tion and  laws  of  this  State  or  of  the  United  States."  i 

§  1002.  Telegrrapli  Companies. —"  The  board  of  directors" — 
of  telegraph  companies —  "  shall  provide  a  code  of  by-laws  for  the  gov- 
ernment  of  the  corporation  and  the  management  of  its  business."  2 

§  1003.  Trust  Companies. —  "  The  trustees  "  — of  trust  com- 
panies  —  ' '  shall  have  power  to  make  and  use  a  common  seal  .  .  . 
and  shall  have  power,  from  time  to  time,  to  make  and  establish  such  by- 
laws, rules  and  regulations,  not  inconsistent  with  the  laws  of  this  State 
or  of  the  United  States,  as  they  shall  deem  expedient  for  the  conduct 
and  management  of  the  business  affairs  and  property  of  said  company ; 
for  the  issue  and  transfer  of  the  stock  of  said  company ;  for  determin- 
ing the  time  and  manner  of  holding  elections  and  meetings  of  the  com- 
pany and  of  the  trustees,  for  the  filling  of  vacancies  in  the  board  of 
trustees,  and  for  the  conduct,  management  and  regulation  of  all  other 
matters  that  may  appertain  to  the  concerns  of  said  corporation."  ^ 


Article  III.  Requisites  and  Validity. 


Section 

1010.  General  statements  of  the  requi- 

sites of  good  by-laws. 

1011.  Mu-t   not    be    contrary  to    the 

cliartei". 

1012.  Illustrations. 

1013.  Must  not  be  contrary  to  law. 

1014.  Limit  itions     of    the    foregoing 

rule. 

1015.  Must  not  be  contrary  to  the  ar- 

tic  es  of  mcorjioration. 

1016.  Mustuotbe  coutrary  to  common 

right. 

1017.  Illustrations  of    municipal    or- 

dinances   coutrary    to     com- 
mon right. 

1018.  Mu>t  operate  equally. 

lOM).  Must  not  disturb  vested  rights. 
1020.  Must  not  be  unreasonable,  op- 
pressive or  extoriiouate. 

1  2  Rev.  Stat.  N.  Y.  (Banks  &  Bros. 
8th ed.),  p.  I5(J6,  §  251. 

*  Rev.  Stat.  Ind.  (1S88),  §  4107. 


Section 

1021.  Must  be  reasonable. 

1022.  Reasonableness  of  corporate  by- 

laws a  question  of  law. 

1023.  Illustrations    of    by-laws    held 

void  because  unreas.mable. 

1024.  Instances  of  municipal  by-laws 

held  unreasonable  and  hence 
void. 

1025.  Illustrations    of  municipal  by- 

laws held  not  unreasouable. 

1026.  By-laws  touchinii  the  admission 

of  persons  to  the  freedom  of  a 
place. 

1027.  By-law  compelling  elected  mem- 

ber  to   wear  livery,  and  pay 
initiation  fee  or  a  forfeiture. 

1028.  Must  notbe  in  restraint  of  trade. 

1029.  The  ancieut  law  on  this  sub- 

ject. 

3  2  Rev.  Stat.  N.  Y.  CBanks  &Bro8. 
8th  ed.;,  p.  1699,  §  18. 

803 


IThomp.  Corp.  §  1010.]      by-laws. 


Section 

1030.  By-laws  establishing  combina- 

tions    among     workmen     to 
maintain  prices. 

1031.  Regulating  or  restraining  trans- 

fers of  shares. 

1032.  Creating  a  lien  upon  shares. 

1033.  Releasing     shtireholders     from 

their  obligation  of  payment. 
1084.  Restricting  the  right  to  sue  in 
the  courts. 

1035.  Corapelliug  members  to  submit 

their  disputes  to  arbitration. 

1036.  Power  to  enforce  by  pecuniary 

fines. 

1037.  Cannot  be  enforced  by  a  forfeit- 

ure of  property. 

1038.  Nor  by  a  forfeiture  of  shares. 

1039.  Otherwise    where     power    ex- 

pressly conferred  by  charter. 

1040.  The  flue  or  penalty  must  be  cer- 

tain. 

1041.  Making  the  corporation  a  judge 

in  its  own  case. 


Section 

1042.  Views  as  to  the  proper  measure 

of  such  fines. 

1043.  Illustrations:  by-laws  of  build- 

ing associations  imposing  ex- 
cessive fines. 

1044.  Imposing   fine  for    non-accept- 

ance of  a  corporate  office. 

1045.  Imposing  fines  for  non-attend- 

ance at  corporate  meetings. 
By-laws  regulating  the  conduct 

of  corporate  members. 
Disiuclination  of  the  courts  to 

interfere  with  the  by-laws  of 

societies. 
Valid  in  part  and  void  in  part. 
Establishing  a    quorum  of  the 

board  of  directors. 
Regulating  corporate  elections. 
Forbidding    secret  societies  in 

colleges. 

1052.  Instances  of  by-laws  which  have 

been  held  valid. 

1053.  Conclusion  of  title  one. 


1046. 


1047. 


1048. 
1049. 


1050. 
1051. 


§  1010.  General  Statements  of  the  Requisites  of  Good 
By-Laws.  —  Collecting  certain  general  statements  of  the  requi- 
sites of  good  by-laws  which  are  to  be  met  with  in  the  decis- 
ions,—  it  may  be  said  that  a  by-law  must  be  certain;'^  must 
be  directed  to  all  within  the  sphere  of  its  operation,^  and  must 
operate  equally  upon  all  to  whom  it  applies.^  To  these  it  may 
be  added  that  it  must  not  be  contrary  to  the  charter,*  or  articles 
of  association  of  the  corporation,^  or  to  the  constitution  or  com- 
mon or  statute  law  of  the  State, ^  nor  retroactive,'  nor  violative 
of  vested  rights,^  nor  in  restraint  of  trade,^  nor  unreasonable, ^° 
nor  contrary  to  good  morals  or  public  policy  .^^ 


1  Goddard  v.  Merchants'  Exchange, 
9  Mo.  App.  290,  295. 

2  Post,  §  1018. 

3  Goddard  v.  Merchants'  Exchange, 
9  Mo.  App.  290,  295;  Stewart  v.  Father 
Matthew  Society,  41  Mich.  67 ;  Cartan 
V.  Father  Matthew  Society,  3  Daly  (N. 
Y.),20;  People  v.  Medical  Society,  24 
Barb.  (N.  Y.)  570. 

4  Fust,  21011. 

804 


*  Post,  §  1015. 
«  Post,  §  1013. 
'  Post,  §  1019. 

8  Post,  §  1019. 

9  Post,  §  1028. 

10  Post,  §  1021. 

11  <'  The  power  of  a  corporation  to 
make  by-laws  for  the  government  of 
its  members  does  not  authorize  it  to 
violate  law,  nor  to  require  its  mem- 


REQUISITES    AND    VALIDITY.       [1  Thomp.  Corp.    §   1011. 

§  1011.  Must  not  be  Contrary  to  the  Cliarter.  —  By-laws 
which  are  contrary  to  the  charter  or  governing  statute  of  the 
corporation  are  of  course  void.^  Stated  in  general  terms,  no 
by-law  is  valid  which  either  enlarges  or  restricts  the  rights  and 
powers  conferred  by  the  charter  or  governing  statute  ;2  for,  as 
already  seen,  a  body  of  co-adventurers  cannot  make  themselves 
a  corporation,  or  take  to  themselves  corporate  franchises  without 
the  authorization  of  the  State. ^  So,  by  a  parity  of  reasoning, 
they  cannot  enlarge,  by  the  mere  passage  of  by-laws,  the  powers 
and  franchises  which  the  State  has  seen  fit  to  confer  upon  them; 
nor  can  the  majority  of  them  curtail  or  diminish  those  powers 
and  franchises  to  the  injury  of  a  dissenting  minority.*  A  com- 
mon illustration  of  this  principle  is  found  in  the  proposition, 
supported  by  decisions  almost  without  number,  that  the  power 
given  to  a  municipal  corporation,  by  its  charter  or  governing 
statute,    to  establish  ordinances  in  certain  cases  and  for  certain 


bers  to  do  so.  The  power  is  limited 
by  the  uature  of  the  corporation  and 
the  laws  of  the  country.  It  can  make 
no  rule  which  is  contrary  to  law,  good 
morals,  or  public  policy."  Sayre  v. 
Louisville  &c.  Asso.,  IDuv.  (Ky.)  143; 
s.  c.  85  Am.  Dec,  613;  citing  Aug.  &  A. 
Corp.,  §  335.  "  Every  by-law  by  which 
the  benefit  of  the  corporation  is  ad- 
vanced is  a  good  by-law  for  that  very 
reason;  that  being  the  true  touch- 
stone of  all  by-laws."  London  City  w. 
Vanaclcer,  Carth.  480,  482,  per  Lord 
Holt,  C.  J. 

^  Kent  V.  Quicksilver  Mining  Co., 
78  N.  Y.  157,  182;  Bergman  v.  St.  Paul 
&c.  Building  Asso.,  29  Minn.  275; 
State  V.  Curtis,  9  Nev.  325;  Presby- 
terian &c.  Fund  V.  Allen,  106  Ind.  593; 
America!!  Legion  of  Honor  v.  Perry, 
140  Mass.  580;  State  v.  Curtis,  9  Nev. 
i{25;  Kearney  v.  Andrews,  10  N.  J.  Eq. 
70;  Brewster  v.  Hartley,  37  Cal.  15, 
24;  s.  c.  99  Am.  Dec.  237;  Andrews  v. 
Union  &c.  Ins.  Co.,  37  Me.  256;  Uexv. 
Weymouth,  7  Mod.  373;  Hex  v.  Berm- 
stead,  2  Barn.  &  Ad.  699;  Rex  v. 
Spencer,   3   Burr.    1827.     "A  by-law 


may  subject  persons  to  penalties,  but 
cannot  make  an  act  void  which  is  war- 
ranted by  the  original  constitution." 
Dr.  Harscot's  Case,  Comb.  202,  203, 
per  Holt,  C.  J.  "  They  ought,"  said 
Lord  Mansfield,  *•'  (as  being  the  crea- 
ture of  the  charter) ,  to  be  restrained 
from  making  any  by-laws  inconsistent 
with  it,  or  counteracting  the  end,  in- 
tention, and  directions  of  it;  though 
it  may  not  be  unreasonable  to  allow  a 
greater  latitude  in  making  by-laws, 
for  the  good  of  the  corporation,  to  the 
common  council  cf  a  corporation  by 
prescription,  where  the  common  coun- 
cil is  by  prescription,  and  such  pre- 
scription authorizes  them  to  make  by- 
laws for  the  good  of  the  corporation." 
Rex  V.  Cutbush,  4  Burr.  2204. 

2  Brewster  v.  Hartley,  37  Cal.  15; 
s.  c.  99  Am.  Dec.  237;  Great  Falls  &c. 
Ins.  Co.  V.  Harvey,  45  N.  II.  292;  Kent 
V.  Quicksilver  Mining  Co.,  78  N.  Y. 
159;  Railway  Co.  v.  Allerton,  18  Wall. 
(U.  S.)  233. 

3  Ante,  §  35. 

*  Brewster  v.  Hartley,  37  Cal.  16, 
24;  s.  c.  99  Am.  Dec.  237. 

805 


1  Thomp.  Corp.  §  1012  ]      by-laws. 

purposes,  is  a  delegation  of  legislative  power  for  those  cases  and 
those  purposes  only,  and  all  others  are  excluded  by  implication.^ 
Where  there  are  general  provisions  for  the  enactment  of  ordi- 
nances or  by-laws,  and  in  the  same  charter  there  are  specific 
provisions  for  special  subject-matters,  the  general  provisions  do 
not  enlarge  or  restrict  the  special  provisions  ;  nor  do  the  specific 
provisions,  for  special  subject-matters,  curtail  the  power  under 
the  general  provision^:,  any  further  than  necessarily  results  from 
the  nature  of  the  special  provisions,  unless  a  contrary  intent  is 
apparent.^  But  it  seems  that  a  by-law  is  not  necessarily  void 
because  it  still  further  restricts  a. provision  of  the  cliarter, 
unless  the  provision  of  the  charter  is  couched  in  such  terms 
as  to  show  that  the  power  to  restrict  was  intended  to  be  ex- 
cluded.^ 

§  1012.  Illustrations. —  Thus,  where  the  charter  gives  to  the  stock- 
holders the  power  to  elect  the  directors,  the  corporation  cannot,  by  a 
by-law,  take  away  this  power.*  So,  where  the  charter  of  an  insurance 
company  authorizes  it  to  insure  against  fire  only,  a  by-law  referred  to 
in  a  poUcy  recognizing  damages  by  lightning  as  one  of  the  risks 
assumed,  imposes  no  obligation  upon  a  company  to  pay  for  losses 
other  than  by  fire,^^  a  decision  which  puts  the  public  deaUng  with  cor- 
porations at  the  peril  of  knowing  the  powers  conferred  by  every  special 
charter.  So,  where  the  salaries  of  some  of  the  officers  of  a  corpora- 
tion are  fixed  by  the  charter,  the  corporation  have  no  authority  to 
change  such  salaries  by  the  by-laws,  although  the  charter  contains  a 
clause  authorizing  them  to  fix  salaries.  This  can  apply  only  to  salaries 
not  fixed  by  the  charter.^ 

*  New  Orleans  v.   Philippi,   9  La.  choose    one  to  be  mayor.     This  was 

An.  44;    Dill.  Mun.  Corp.   (4th  ed.),  held  to  be  but  a  usage,  its  object  being 

§  316.  merely   to    avoid  popular    confusion. 

2  Huesing  v.  City  of  Eock  Island,  Barber  v.   Boulton,    1   Strange,    314. 
128  III.  4G5.  But  it  is  obvious  ihat  in  this  case  the 

3  The  charter  of  a  borough  pro-  by-law  was  not  at  all  restrictive  of 
vided  that  the  mayor  was  to  be  chosen  the   charter  provision,   which   simply 
by    the  capital  burgesses,  out  of  the  regulated  the  mode  of  selection, 
capital  burgesses  who  should  number  *  Brewster  v.    Hartley,  37  Cal.  15, 
24;  but  a  iisagi',  founded  on  a  by-law,  24;  s.  c.  99  Am.  Dec.  237. 

was  1o  the  effect  that  th  ;  common  bur-  ^  Andrews  v.    Union  &c.  Ins.  Co., 

gesses   should   put  five  of  the  capital  37  Me.  256. 

burgesses  in  nomination,  out  of  wliich  ^  Carr  v.    City  of   St.  Louis,  9  Mo. 

five    the    capital    burgesses     should  191. 
800 


REQUISITES    AND    VALIDITY.        [1  Thomp.  Corp.    §   1014. 

§  1013.  Must  not  be  Contrary  to  Law — Generally  speaking, 
a  by-law  which  is  contrary  to  tiie  law  of  the  land,  common  or 
statutory,  is  void.^  For  stronger  reasons,  it  is  void  if  it  is  con- 
trary to  the  constitution  of  the  State,  for  an  act  of  the  legisla- 
ture in  such  a  case  is  void.^  As  the  legislative  power  cannot  be 
delegated,  it  has  been  reasoned  that  the  legislature  cannot  confer 
on  a  monej^ed  corporation  power  to  enact  by-laws  contravening, 
repealing  or  in  any  wise  changing,  the  statutory  or  common  law 
of  the  land.^ 

§  1014.  Limitations  of  the  Foregoing  Rule.  —  But  this  is  to 
be  understood  rather  of  by-laws  which  violate  the  positive  in- 
junctions of  the  statute  law  of  the  State,  which  are  intended  to 
operate  universally  and  of  those  cases  where  no  power  has  been 
conferred  upon  the  corporation  to  make  a  different  rule  for  the 
pariicular  corporation  or  particular  case.  And,  in  its  relation  to 
the  common  law,  it  is  to  be  understood  of  by-laws  which  violate 
those  fand(f mental  principles  of  right  which  are  embodied  in  the 
common  law.  Obviously,  the  mere  fact  that  a  by-law  makes  a 
different  ride  for  the  government  of  the  paiticular  class  of  per- 
sons upon  whom  it  operates,  from  the  general  rule  of  the  common 
law,  is  no  obiection  to  its  validity;  for  otherwise  by-laws  would 
be  of   no  value,  because  unnecessary.     As  they  could  not  dis- 

1  Bullard  v.  Bank,  18  Wall.  (U.  S.)  59;  Livingston  v.  Albany,  41  Ga.  22; 
589;  People  v.  Benevolent  Society,  3  Wood  v.  Brooklyn,  U  Barb.  (N.  Y.) 
Hun  (N.  Y.),  361;  People  V.  Fire  De-  425;  State  v.  Hardy,  7  Neb.  377; 
partmeiit,  31  Mich.  458;  People  v.  Cullinan  v.  New  Orleans,  28  La.  An. 
Crockett,  9  Cal.  112;  Kennebec  &c.  R.  102;  Illinois  Central  R.  Co.  v.  Bloom- 
Co.  •«.  Kendall,  31  Me.  470;  Haydcn  u.  ingtou,  76  111.  447;  Shreveport  v. 
Noyes  5  Conn.  391  ;  Peoples.  Medical  Levy,  26  La.  An.  671 ;  s.  c.  21  Am.  Rep. 
Soc,  24  Barb.  (N.  Y.)  570;  New  Or-  553;  Judson  y.  Reardon,  16  Minn.  431, 
leans  v.  Philippi,  9  La.  An.  44.  So  a  435;  New  Orleans  v.  Savings  Bank, 
mnnicipnl  ordinance  \y\\ic\\\fi  repugnant.  31  La.  An.  637;  Wa'ker  y.  New  Or- 
either  to  the  constitution  of  the  leans,  31  La.  An.  828;  State  u.  C'a Id- 
United  States,  the  constitution  of  the  well,  3  La.  An.  435;  Vance  v.  Little 
particular  State,  or  its  general  law,  Rock,  30  Ark.  435;  Mayor  d.  Hussey, 
whether  statute  or  common,  is  ipso  21  Ga.  80;  Haywood  y.  Mayor,  12  Ga. 
facto  void.     Burlington   v.   Kellar,  18  404. 

Iowa,  65;    Peslerfleld    v.    Vickers,  3  2  state    v.    City    of  Cincinnati,  23 

Coldw.    (Tenn.)    205;  Indianapolis  v.  Ohio  St.  445. 

Gaslight  Co.,  66  Ind.  3:)6;  Wilkesbarre  "  Seneca  County  Bank  v.  Lamb,  26 

City    Hospital  v.    Luzerne,   84  Pa.  St.  Barb.  (N.  Y.)  595. 

807 


1  Xhomp.  Corp.  §  1010.]      by-laws. 

place  or  supplement  rules  of  the  common  law,  they  would  in  all 
cases  be  nugatory.  The  mere  suggestion  of  the  case  of  the  ordi- 
nances of  municipal  corporations  will  give  point  to  this.  By  the 
principles  of  the  common  law,  every  man  may  lawfidly  engage 
in  trade  without  restriction  or  without  paying  a  tax  for  the  priv- 
ilege. By  municipal  ordinances,  license  taxes  are  imposed  upon 
merchants  doing  business  within  the  limits  of  the  particular 
municipality,  to  which  citizens  outside  the  municipality  are  not 
subject  by  the  ordinary  law  of  the  State.  Such  ordinances  are 
therefore  in  a  sense  contrary  to  the  law  of  the  State,  and  yet  they 
are  not  for  this  reason  invalid,  although  they  are  enforced  by  the 
sanction  of  fine  and  imprisonment.  So,  the  by-laws  of  munici- 
pal corporations  frequently  define  and  punish  offenses  of  a  petty 
character,  of  which  the  general  statute  law  of  the  State  and  the 
common  law  take  no  notice ;  but  they  are  not  for  this  reason  to 
be  regarded  as  void,  because  contrary  to  the  general  law.  It  is 
therefore  a  sound  conclusion  that  if  a  by-hnv  of  a  corporation  is 
not  unreasonable,  or  contrary  to  the  general  policy  of  the  law, 
the  mere  fact  that  it  introduces  a  new  rule  which  is  not  the 
rule  of  the  common  law  does  not  render  it  invalid.^ 

§  1015.  3Iust  not  be  Contrary  to  the  Articles  of  Incorpora- 
tion.—  As  already  pointed  out^,the  articles  of  incorporation, 
where  the  corporation  is  organized  under  a  general  law,  occupy, 
when  conformable  to  the  governing  statute,  the  place  of  a  charter 
for  the  corporation,  and  in  some  States  the  word  "  charter"  is 
used  with  reference  to  such  articles.  They  are  the  constitution 
of  the  company,  as  distinguished  from  its  b;/-laws,  which  in  their 
relation  to  the  former  are  in  the  nature  of  subordinate  regula- 
tions. It  follows  that  a  by-law,  by  which  a  corporation  under- 
takes to  deprive  a  dissenting  stockholder  of  a  right  secured  to 
him  by  the  articles  of  association,  is  void.  Thus,  it  has  been 
held  that  a  buildins;  association  cannot  retire  and  cancel  shares  of 
stock  against  the  will  of  the  holder  thereof.^ 

§  1016.   Must    not    be   Contrary  to    Common    Right. — The 

proposition  that  a  corporate  by-law  must  not  be  contrary  to   the 

1  Goddardr.  Merchant's  Exchange,  "  Ante,  §216. 

9  Mo.  App.  290;  s.  c.  affirmed,  78  Mo.  ^  Bergman  v.  St,  Paul  Mut.  Building 

609.  Assoc.  29  Minn.  275. 
808 


REQUISITES  AND  VALIDITY.     [1  Thomp.  Corp.  §  1017. 

common  law,  is,  as  has  been  suggested,^  to  be  understood  as 
meaning  that  it  must  not  contravene  those  principles  of  common 
rigid  which  are  imbedded  in  the  common  law.  When,  there- 
fore, a  by-lawr  is  contrary  to  common  right,  it  will  be  declared 
void  by  the  judicial  courts,  unless  express  legislative  authority 
can  be  found  for  its  enactment.  This  is  very  nearly  the  legal 
equivalent  of  the  pioposition,  discussed  hereafter,  that  by-laws 
are  void  when  unreasonable ;  ^  since  anything  is  unreasonable  in 
a  legal  sense  when  it  is  contrary  to  a  common  right. 

§  1017.  Illustrations  of  Municipal  Ordinances  Contrary  to 
Common  Riglit.  —  The  author  is  indebted  to  a  learned  note  of  Mr. 
Freeman  in  the  American  Decisions, ^  for  a  collection  of  cases  in  which 
municipal  by-laws  have  been  held  void,  on  the  ground  of  being  contraiy 
to  common  right.  This  has  been  held  of  a  by-law  prohibiting  all  per- 
sons, except  the  inhabitants  of  a  town,  from  taking j^s/i  from  a  navigable 
river  within  the  town  limits ;  ^  conferring  a  right  to  obstruct  the  high- 
ivay,  or  the  approaches  to  a  bridge,  so  as  to  interfere  with  public 
travel ;  ^  under  a  power  to  regulate  loharves,  defining  the  line  of  high 
water  mark  and  declaring  the  erection  of  buildings  below  that  line  a 
nuisance  ;  ^  authorizing  the  sale  without  notice  to  the  owner,  of  property 
left  on  the  levee  beyond  a  certain  time  ;  "^  imposing  a  tux  on  wagons  of 
outside  residents  engaged  in  hauling  into  and  out  of  the  city ;  ^  assum- 

1  Ante,  §  1014.  tax   called  an  octroi,  which   is  levied 

2  Post,  §  1023.  upon  articles  of  farm  produce,  wines 

3  38  Am.  Dec.  636.  and  other  things  consumed  within  the 

*  Ha\  den  v.  Noyes,  5  Conn.  391 ;  city  by  its  inhabitants,  and  brought  in 
Willard  ».  Killingworth,  8  Conn.  2i7.      by  producers  from  the  outside.     Trav- 

fi  Stack  V.  East   St.   Louis,   85  111.  elers  who  have  carried  their  luncheon 

377;  Pettis  v.  Johnson,  56  Ind.  139.  with  them  in  a  basket  have  had  amus- 

fi  Evansville  v.  Martin,  41  Ind.  145.  ing  experiences  in  Italian  cities,  with 

'  Laufear  v.  Mayor,  4  La.  97;  s.  c.  the   collectors  of  this   local  tax,  over 

23  Am.  D.  c.  477.  the  question  of  payhig  duty   on  their 

*  St.  Charles  v.  Nolle,  51  Mo.  122.  dinner.  The  American  principle  does 
In  numerous  other  cases  municipal  not,  it  has  been  held,  ext  nd  sofar  as 
by-laws  have  been  set  aside  which  to  render  a  municipal  ordinance  void 
impose  restrictions  upon  the  free  which  exacts  a  license  of  a  person 
vending  within  the  city  limits  of  the  whose  business  is  that  of  manufactur- 
producers  of  farm  produce.  In  this  ing  and  whose  manufacturing  estab- 
respect  the  American  municipal  regu-  lishment  is  outsiilethe  city,  but  whose 
lationsareeutirely  diffeientfromthose  goods  are  delivered  inside  in  his  own 
which  obtain  on  the  continent  of  wagons.  Memphis  v.  Battaile,  8 
Europe.  In  France  it  is  permitted  to  IleisL'i.  (Tenn.)  524;  Edonton  v.  Cape- 
municipalities    to    establish    a    local  hart,  71  N.  C.  156. 

809 


IThomp.  Corp.  §  1018.]      by-laws. 

ing  to  regulate  or  prohibit  hurt/ in'j  grounds  outside  the  corporate  limits,^ 
though  within  the  corporate  Umits  this  is  a  proper  subject  of  municipal 
regulation. 2  The  proposition  of  the  preceding  section  is  also  well  illus- 
trated by  judicial  holdings  to  the  effect  that  a  municipal  ordinance 
authorizing  the  arrest  of  persons  without  warrant  is  void  because  in  con- 
travention of  those  principles  of  common  right  secured  by  the  general 
law  of  the  land.^ 

§  1018.  Must  Operate  Equally.  —  Another  principle,  which 
is  perhaps  a  mere  paraphrase  of  the  princij)le  that  by-laws  must 
be  reasonable  and  of  the  principle  that  they  must  not  be  contrary 
to  common  right,  is  that  they  must  operate  equally  upon  all  per- 
sons of  the  class  which  thoy  are  intended  to  govern.  On  this 
ground,  a  municipal  ordinance  which  is  flagrantly  unequal  and 
partial  will  be  set  aside  as  void.  It  has  been  so  held  of  an  ordi- 
nance exacting;  a  license  for  selling  o-oods,  and  fixing  one  rate  of 
license  to  be  paid  for  selling  goods  within  the  corporate  limits 
or  in  transitu  to  the  city,  and  another  and  much  larger 
rate  for  selling  goods  not  within  the  city  or  iii  transitu  to  it.* 
The  same  has  been  held  of  a  municipal  ordinance  imposing  a 
license  fee,  and  discriminating  between  merchants  and  manu- 
facturers residing  outside  the  city  limits,  and  other  persons  of 
the  same  class  residing  within  the  city  limits.  Not  only  was  this 
void  because  it  operated  unequally  and  [martially,  but  it  was  held 
to  be  beyond  the  authority  of  the  city  council.^     Another  court 

1  Begein  v.  Anderson,  28  Ind.  79.  private  hospital  witliin  the  city  Umits 

2  City  Council  v.  Baptist  Church,  4  is  not  invalid.  Milne  v.  Davidson,  5 
Strobh.  L.  (S.  C.)  SOO;  Coates  v.  Mart.  (n.  s.)  (La.)  409;  s.  c.  16  Am. 
Mayor,  7  Cow.  (N.  Y.)  585;  Com.  v.  Dec.  189.  So,  an  ordinance  has  been 
Fahey,  5  Cush.  (Mass.)  408;  Bogert  upheld,  forbidding  the  purchase  of 
V.  Indianapolis,  13  Ind.  134;  New  the  carcasses  of  dead  animals  for 
Orleans  v.  St.  Louis  Church,  11  La.  the  purpose  of  boiling,  steaming  and 
An.  244;  Brick  Presbyterian  Church  rendering  them,  and  prohibiting  them 
V.  Mayor,  5  Cow.  (N.  Y.)  538;  Com.  from  being  boiled,  steamed  and  ren- 
V.  Goodrich,  13  Allen  (Mass.),  546;  dered  within  certain  limits.  State  v. 
Musgrove  v.  Catholic  Church,  10  La.  Fisher,  52  Mo.  174,  177. 

An.  431.     But  such  restiaints  must  be  3  petersfleld  v.   Vickers,  3    Coldw. 

r.asonable;  and  an  oidin  ince  forbid-  (Tenn.)  205;  Judson   v.    Keardon,    16 

ding    burials    within    the     corporate  Minn.   431;  Pinkerton   v.  Verberg,  30 

limits   but  not  in  a  populous  section  Cent.  L.  J.  352. 

has  been  held  void,     Austin  v.  Murray,  ■*  Ex  parte  Frank,  52  Cal.  606. 

16  Pick.    (Mass.)   121.     So,   au   ordi-  ^  Nashville    v.    Altliorp,   5    Coldw. 

nance  prohi luting  the    erection    of  a  (Tenn.)  554.     Accordingly,  it  has  been 
810 


REQUISITES    AND    VALIDITY.        [1  Thomp.  Coi'p.    §   1019. 

has  said:  "All  corporation  by-laws  must  stand  on  their  own 
validity,  and  not  on  any  dispensation  granted  to  members.  1  hey 
cannot  be  subjected  to  any  conditions  which  do  not  apply  to  all 
alike,  and  cannot  be  compelled  to  receive,  as  matter  of  grace, 
anything  which  is  a  matter  of  right;  neither,  on  the  one  hand, 
should  there  be  personal  exemptions  of  a  general  nature  from 
any  valid  regulations  that  bind  the  mass  of  corporators."  ^  So, 
it  has  been  held  that,  under  the  power  of  a  corporation  to  make 
by-laws,  a  resolution  directed  against  the  stock  of  a  certain  share- 
holder is  unlawful.^ 

§  1019.  Must  not  Disturb  Vested  Rights. — As  statutes 
which  impair  the  obligation  of  contracts  and  disturb  vested 
rights  are  unconstitutional  and  hence  void,^  so,  for  stronger 
leasons,  the  by-laws  of  a  corporation  will  be  held  void,  where 
they  operate  todi-^turb  the  vested  rights  of  the  members.*  And, 
although  the  power  is  reserved  to  a  corporation,  by  its  charter, 
to  alter,  amend,  or  repeal  its  by-laws,  it  cannot  repeal  a  by-law 
so  as  to  impair  rights  which  have  become  vested  thereunder.^ 
A  striking  illustration  of  this  is  found  in  the  principle  that  where 
neither  the  charter  nor  the  governing  statute  imposes  on  the 
members  a  personal  liability  to  pay  the  debts  of  the  corporation, 
such  a  liability  cannot  be  created  by  any  by-law  or  vote  of  the 
corporation  so  as  to  be  bindmg  on  dissenting  members.^  So, 
where  a  city  has  giantcd  to  a  street  railway  company  a  fram-hise 
to  operate  a  railway  with  a  double  track,  it  cannot,  after  the  com- 
pany has  expended  money  under  the  grant,  restrict  it  to  a  single 
track,  by  an  amendment  to  the  ordinance  conferring  the  franchise.^ 

said  that  "by-laws  must  be  certain,  <  People   v.   Fire    Department,   31 

must    be    directed  to  all  within  the  Mich.  458;  People   v.  Crockeit,  9  Cal. 

Sphere  of  their  operation,  and  must  112;  Gray  V.Portland  Bank,  3  Mass. 

operate    equally."     Goddard   v.  Mer-  363. 

chants  Exchange,  9  Mo.  App.290,  295;  ^  Kent  w.  Quicksilver   Minin.ir;  Co., 

op  n  on  by  Hnyden,  .1.,  quotedwith  ap-  78  N.  Y.  159,  affirming  s.  c.  12  Hun  (N. 

proval  in   Budd  v.  Multnomah   St.  R.  Y.),  53. 

Co.,  15  Ore.  413;  s.  c.   3  Am.  St.  Rep.  «  Trustees      v.     Flint,     13     Mete. 

169,  174,  (Mass.)  539;  Kennebec   &c.   R.  Co.  v. 

1  People  V.  Young  Men  &c.  Society,  Kendall,  31  Me.  470;  Reid  v.  Eatonton 
41  Mich.  07.  Manufacturing  Co.,  40  Ga.  98. 

2  Budd  V.  Multnomah  Street  Ry.  '  Burlington  v.  Burlington  Street 
Co.,  15  Ore.  413.  Railway  Co.,  49  Iowa,  144. 

*  Post,  Ch.  117,  Art.  I. 

811 


1  Thomp.  Corp.  §  )02l.]      by-laws. 

§  1020.  Must  not  be  Unreasonable,  Oppressive  or  Extor- 
tionate.—  It  may  be  stated,  as  a  general  rule,  that,  in  the  ab- 
sence of  any  statutory  restraint,  and  considering  the  question 
solely  as  a  question  between  the  corporation  and  its  meujbers,  a 
by-law  of  a  corporation,  in  order  to  be  valid,  must  not  be  un- 
reasonable, oppressive  or  extortionate. ^ 

§  1021.  Must  be  Reasonable.  —  Corporations  have  none  of 
the  elements  of  sovereignty;  they  cannot  go  beyond  the  powers 
granted  to  them;  they  must  exercise  those  powers  in  a  reasona- 
ble manner ;  and  whether  they  have,  in  a  given  instance,  exer- 
cised them  reasonably  or  unreasonably,  is  a  question  which  it  is 
competent  for  the  judicial  courts  to  decide. ^  It  is  therefore 
a  principle  of  the  common  law,  running  back  so  far  that  its  origin 
cannot  be  found,  that  the  by-laws  of  a  corporation  will  be  set 
aside  by  the  judicial  courts  when  deemed  unreasonable.^  The 
principle  applies  equally  to  private  and  public  corporations. 
No  doubt  it  had  its  origin  when  nearly  all  corporations  were 
municipal  in  character,  and  in  the  earliest  cases  it  was  asserted 
and  applied  in  respect  of  municipal  by-laws,  called  in  modern 
times   ordinances.*     In   other  words,  the  judge,  enlightened  by 

1  Hagerman  v.  Ohio  &c.  Asso.,  25  v.  Eichardson,  1  Burr.  539;  Com.  v.  St. 
Ohio  St.  186;  Forest  City  &c.  Asso.  v.  Patrick's  Society,  2  Binn.  (Pa.)  441; 
Gallagher,  25  Oh.  St.  208;  Citizens'  4  Am.  Dec.  453;  Com.  w.  Cain,  5  Serg, 
&c.  As-o.  V.  Webster,  25  Barb.  (N.  Y.)  &  R.  (Pa.)  512;  St.  Luke's  Church  v. 
263;  Shannon  v.  Howard  Building  Mathews,  4  Desau.  (S.  C.)  578,  585; 
Asso.,  36  Md.  383;  State  v.  Overton,  s.  c.  6  Am.  Dec.  619;  Gray  v.  Medical 
24  N.  J.  L.  435 ;  s.  c.  61  Am.  Dec.  671 ;  Soc,  24  Barb.  (N.  Y.)  570,  574 ;  citing 
Peoples.  Throop,  12  Wend.  (N.  Y.)  2  KentCom.  29G.  "  A  by-law  must  be 
183,  186 ;  Buffalo  v.  Webster,  10  Wend,  reasonable,  and  for  tlie  comm')n  ben- 
(N.  Y.)  99.  eflt;    it  must  not  be   in   restraint  of 

2  Com  V.  Worcester,  3  Pick,  trade,  nor  ought  it  to  impose  a  burden 
(Ma-s.)  461,  473;  St.  Louis  v.  Weber,  without  an  apparent  benefit."  Com- 
44  Mo.  547.  missioners  v.  Gas  Co.,  12  Pa.  St.  318; 

3  Com.  Dig.,  tit.  Franch.,  F.  10;  Budd  v.  Multnomah  Street  R.  Co.,  15 
Bac.Abr.,  tit.  By-law;  2  Kyd  Corp.  95;  Ore.  413;  s.  c.  3  Am.  St.  Rep.  169,  174. 
Sutton's  Hospital  Case,  10  Coke  Rep.  See  on  this  subject:  Buffalo  v.  Web- 
1,  31a;  Louden  v.  Vanacker,  1  Ld.  ster,  10  Wend.  (N.  Y.)  99;  Hudson  «. 
Raym.  498;  Rex  v.  Spencer,  3  Burr.  Thorne,  7  Paige  (N.  Y.),  261;  Stokes 
1828;  Norris  v.  Staps,  Hob.  211;  Felt-  v.  City  of  New  York,  14  Wend.  (N. 
makers  v.  Davis,  1  Bos.  &  P.  98,  100;  Y.)  87. 

Palmetto  Lodge  v.  Hubbell,  2  Strobh.  ■*  The  following  cases   assert   and 

L.  (S,  C.)  457;  49  Am  Dec.  604;  Rex      illustrate  the  principle  that  municipal 
812 


REQUISITES    AND    VALIDITY.        [1  Thomp.  Corp.    §    1021. 

his  knowledire  of  the  principles  of  the  law  of  the  land,  will  as- 
sume the  office  of  determining  what  is  reasonable,  contrary  to 
the  opinion  of  the  corporators  or  of  a  majority  of  them.  But 
this  principle  has  its  limits.  If,  in  a  strictly  private  association, 
the  members  agree  among  themselves  that  a  particular  rule  is 
reasonable,  the  same  not  being  opposed  to  the  law  in  the 
sense  of  being  immoral  or  criminal,  the  courts  will  give 
effect  to  it  as  a  private  contract,  and  will  not  set  it  aside 
because  they  may  deem  it  unreasonable.^  Neither  can  a 
by-lavv  be  set  aside  as  unreasonable  by  the  judicial  courts, 
when  it  is  within  the  powers  expressly  conferred  upon  the 
corporation;  for,  where  the  legislature,  by  a  valid  and  constitu- 
tional law,  have  declared  that  a  certain  thing  is  reasonable,  the 
courts  cannot  say  that  it  is  unreasonable. ^  Moreover,  before  a 
court  will  declare  a  corporate  by-law  or  ordinance  unreasonable, 
its  unreasonableness  must  clearly  appear.  The  courts  will  not 
look  closely  into  mere  matters  of  judgment,  where  there  may  be  a 
reasonable  difference  of  opinion.^  It  has  been  judicially  stated, 
in  respect  of  municipal  ordinances,  that  *'  an  ordinance,  general 
in  its  scope,  may  be  adjudged  reasonable  as  applicable  to  one 
state  of  facts,  and  unreasonable  when  applied  to  circumstances  of 

or5i»ia«ces will  be  set  aside  by  the  ju-  77;  Commissioners  r.  Gas  Co.,  12  Pa. 

dicial  courts  wiieu   deemed  uureasou-  St.  318;  Fislier  t;.  llarrisburg,  2  Grant 

able:  Cape  Girardi-au  v.  Kiley,  72  Mo.  Cas.  (Pa.)  291;  Com.  v.   Robertson,  5 

220;  TugmaQ  u.    Chicago,  78   111.405;  Cush.  (Mass.)   438;  Waters  v.  Leech, 

Atkinson  v.  Goodrich  Transportation  3   Ark.     110;    Mayor    v.    Wiufield,    8 

Co.,  60  Wis.  141;   Kirkham  u.  Russell,  Humph.  (Tenn.)  707;  Davis  v.  Anita, 

76  Va.   'JoG ;  Omaley  v.  Freeport,   96  73   Iowa,  325.     See  further  as   to  the 

Pa.  St.  24;  Meyers  v.    Chicago  &c.  R.  validity  of  by-laws  of  municipal  cor- 

Cc,  67  Iowa,  555;  Gillhara  v.   "Wells,  porations:    Floyd  v.  Commissioners, 

64  Ga.  192 ;  Ex  parte  Chin  Yan,  60  Cal.  14  Ga.  354 ;  s.  c.  58  Am.  Dec.  559 ;  Tanner 

78;  Clayson    v.   Milwaukee,   30  Wis.  t?.  Trustees,  5  Hill  (N.  Y.),  121;  s.c.  40 

316;  Dunham    v.    Rochester,  5    Cow.  Am.  Dec.  337;  Mobile  u.  Yuille,  3  Ala. 

(N.  Y.)  462;  Com.   v.  Steffee,  7  Bush  137;  s.  c.  36  Am.  Dec.  441;  Robinson 

(Ky.),     161;    People  v.    Throop,     12  v.  Mayor  &c.  of  Franklin,  I    Humph. 

Wend.  (N.  Y.)  18:5;  Mayor  v.  Beasley,  (Tenn.)  156;  s.c.  34  Am. Dec.  625;  and 

1  Humph.  (Tenn.)  232;  s.  c.    34   Am.  see  note  34  Am.  Dec.  627,  eif  seg'. 

Dec.  646;  State  v.  Fre'raan,  38  N.  II.  ^  Kehlenbeck  u.  Logeman,  10  Daly 

26;     AVhyte    v.    Nashville,    2    Swan  (N.  Y.),  447. 

(Tenn.),  364;    Pedrick  v.   Bailey,   12  2  jjaynes  u.  Cape   May,  50  N.  J.  L. 

Gray  (Mass.),  161;  Ex  parte  Frank,  52  55;    Di>trict  of  Columbia  v.  Wagge- 

Cal.  606;  Kip  v.  l'ater.«on,  26  N.  J.  L.  man,  4  Mackey  (D.  C),  328. 

298;  Dayton  v.  Quiglcy,  29  N.  J.  Eq.  ^  gt.  Louis  v.  Weber,  44  Mo.  547. 

813 


1  Thomp.  Corp.  §  1032.]      by-la-vvs. 

SL  diffcrcut  character. ^^  ^  But  whether  this  principle  can  be  ap- 
pealed to  in  detex'mining  the  validity  of  the  by-law  of  a  private 
corporation,  is  a  question  on  which  we  are  not  enlightened  by 
judicial  authority. 

§  1022.  Reasonableness  of  Corporate  By-Laws  a  Question 
of  Law. —  The  validity  of  a  corporate  bj'-hiw,  as  depending 
upon  its  reasonablent'ss  or  otherwise,  is  a  pure  question  of  law, 
and  is  not  to  be  submitted  to  a  juiy.  Su('h  by-laws  may  be  set 
aside  when,  in  the  opinion  of  the  courts  tliey  are  unrea-sonahle.'^ 
The  same  rule  ap[)lies  to  the  ref/vlatious  of  railway  companies  or 
other  ^;((6/2c'  carriers;  and,  although  such  a  regulation  is  not 
strictly  a  corporate  by-law,  yet  whether  it  is  reasonable  and 
hence  valid,  or  uni'easonable  and  hence  void,  is  a  question  of 
law,  .and  not  of  fact.^  But  whether  a  certain  regulation  of  a 
railway  company  is  sufficient  for  the  prevention  of  collisions, 
has  been  held  a  question  for  a  jury.*  It  has  been  held  that  the 
question  of  the  rea-ouaI)leness  of  a  rule  established  by  a  railway 
company , is  a  question  of  law  for  the  court,  where  ihe  facts  are 
undi-puted;  ^  but  when  the  question  depends  upon  the  exi-tence 
of  particular  facts  and  circumstances,  it  is  said  to  bo  a  question 
for  the  jury,  under  proper  instructions  from  the  court. ^  It  will 
be  observed  that  this  rule  involves  nothing  more  than  the  sub- 
stitution of  the  op'nion  ot"  the  judge  for  th  it  of  the  governing 
body  of  the  corporation,  in  determining  whether  a  corporate  by- 
law is  to  stand  or  fall.     The  rule  applies  to  the  by-laws,  more 

1  Knapp,  J.,  in  Nicoulin  v.  Lowery,  Central  R.  Co.  v.  Whittemore,  43  TU. 
49  N.  J.  L.  391.  See  also  Penusylvauia  420,  423;  Vedder  v.  Fellows,  '10  N.  Y. 
E.   Co.  V.  Jersey  City,  47  N.  J.  L.  286.  126.     At  the   same  time,   it   has  been 

2  Morris  &o.  R.  Co.  v.  Ayres,  20  N.  held  proper  to  admit  testimony  in  re- 
J.  L.  39.'.;  s.  c.  80  Am.  Dec.  215;  State  gard  to  the  npcessUy  of  sucli  a  rule. 
V.  Overton,  24  N.  J.  L.  435;  s.  c  61  Illiuiis  Central  R.  Co.  v.  Whittemore, 
Am.    Dec.    671;    Neier    v.     Missouri  supra. 

raciflc   R.  Co.,  12  Mo.  App.  26;  Merz  *  Chicago  &c.    R.  Co.    w.  McLallen, 

V.  Mi-souri  Pacific  R.  Co  ,  14  Mo.  App.  84  II.  lUJ.  116. 

459;  .St,    Louis  i;.  Weber,  44  Mo.  547;  *  Old   Colony   R.   Co.   v.  Tripp,  33 

St.    Louis  V.  St.  Louis  R.  Co  ,  14  Mo.  Am.  &  Eng.  R.  Cas.  488,  4;t6;  Vedder 

App.  2i'l;  Commonwealth  v.  Worces-  v.  Fellows.  20  N.  Y.  126,  131. 

ter,  3  Pick.  (Mass.)  4G1,  473.  «  Pittsburgh   &c.    R.    Co.    v.  Lyon, 

3  State  V.  Overton,  24  N.  J.  L.  123  Pa.  St.  140;  s.  c.  10  Am.  St.  Kep. 
435;    s.  c.  01    Am.    Dec.  G71;   Illinois  517. 

814 


KEQUISITES    AND    VALIDITY.       [1  Thomp.  Corp.    §    1023. 

usually  called  ordinances,  of  municipal  corporations,  which  im- 
pose penalties  for  prescribed  oifenses;  the  question  of  their 
reasonableness  is  a  question  of  law.^ 

§  1023.  Illustrations  of  By-laws  Held  Void  because  Unrea- 
sonable. —  A  b3'-law  of  the  merchants'  exchange,  which  compels  mem- 
bers to  submit  their  business  controversies  to  arbitration,  on  pain  of 
suspension  or  expulsion,  is  unreasonable  and  void.^  -  -  -  -  It  has 
been  held  that  a  by-law  of  an  mcorj)orated  association  of  carriers  by- 
water,  declaring  that  no  member  ' '  shall  go  into  any  river  or  trade  and 
work  for  less  than  the  wages,  nor  take,  bargain  for,  or  carry  any  freight 
for  less  than  the  estabhshcd  rate  in  the  trade,"  and  imposing  a  fine  for 
a  violation  of  such  by-law,  and  prohibiting  the  members  from  employing 
agents  who  do  not  belong  to  the  association,  or  to  some  association 
acting  in  concert  with  it,  and  prohibiting  them  from  advertising  or 
working  for  any  boat  not  represented  in  that  or  in  some  other  association 
acting  in  concert  with  it,  is  unreasonable  and  void,  because  it  imposes 
an  obligation  ou  the  members  not  to  carry  freight  for  less  than  the  rate 
fixed  by  the  association,  without  reference  to  the  question  whether  the 
rate  was  reasonable  or  not.^  -  -  -  -  It  was  held  that  a  by-law  of 
the  city  of  London  compelling  dancing  masters  to  accept  the  freedom 
of  the  company  of  minstrels  was  a  bad  bj'-law.  "  The  court  held  the 
by-law  to  be  naught  to  obhge  dancing  masters  to  be  of  the  company  of 
musitioners."  Lord  Holt  said:  "  The  musitioners  were  no  corporation, 
they  are  a  brotherhood  or  club  to  meet  and  drink  and  talk  together, 
that's  all.  The  city  might  make  a  guild  or  fraternity  of  dancing  masters 
(though  they  cannot  make  a  corporation),  and  then  it  were  reasonable 
to  oblige  the  dancing  masters  to  be  of  that  company,  but  not  of  a 
foreign  company.  A  dancing  master  might  be  of  another  company  be- 
fore, which  tho'  it  were  not  this  case,  yet  if  any  such  case  may  happen, 
the  by-law  is  not  good.  The  by-law  should  be  mended  throughout ;  the 
city  hath  nothing  to  do  to  set  rates  and  prices  for  dancing. "  *  -  -  -  - 
A  by-law  imposing  a  duty  upon  a  member  of  a  corporation  and  affixing 
a  penalty  to  the  non-performance  of  it  unless  there  be  reasonable  excuse 
for  not  performing  it,  which  reasonable  excuse  is  to  be  approved  by  a 
court   of   the  corporation,  was  held  void  because  it  had  the  effect  of 

1  Kneedler  v.  Norristown,    100  Pa.  ^  state  v.  Merchants'  Exchange,  2 

St.  3G8;  s.  c.   45  Am.  Kep.  38:5;  Com-  Mo.  App.  96. 

missioner  t;.  Northern  Liberties  Gas  ^  Sayre  v.  Louisville  &c.  Asso.,  1 

Co.,  12  Pa.  St.  318;  Fisher  v.  Harris-  Duv.  (Ky.)  143;  s.  c.  85  Am.  Dec.  G13. 

burg,  2  Grant  Cas.  (Pa.)  291 ;  Dayton  ^  Robinson  v.  Groscot,  Comb.  872, 

V.   Quigley,   29  N.  J.   Eq.    77;   1  Dill.  373. 


Mun.  Corp  ,  §§  319,  320,  321. 


815 


1  Thomp.  Corp.  §  1024.]     by-laws. 

making  tlie  corporation  a  judge  in  its  own  case.  "  Here,"  said  Lord 
Holt,  C.  J.,  "  the  cause  of  excuse  is  to  be  approved  by  them,  so  that 
if  it  were  reasonable  and  not  approved,  the  party  would  be  without 
remedy."  It  was  so  held  concerning  a  by-law  of  the  community  of 
stationers  of  London,  which  provided  that  the  master  wardens  and 
assistants  or  a  major  part  of  them  should  from  time  to  time  elect  such 
members  as  they  should  think  fit,  into  the  livery  of  the  society,  and  that 
if  any  person  so  elected  should  refuse  to  accept  the  office  without  a  rea- 
sonable excuse,  to  be  approved  of  by  the  court  of  assistants,  he  should 
forfeit  £40.1 

§  1024.  Instances  of  Municipal  By-laws  held  Unreasonable 
and  hence  Void.  —  As  the  holdings  of  the  courts  in  passing  upon  the 
reasonableness  of  munvij)al  ordinances  may  afford  some  analogy  upon 
the  corresponding  question  in  its  relation  to  the  by-laws  of  private  cor- 
porations, a  number  of  instances  in  which  municipal  ordinances  have 
been  held  invalid  because  unreasonable  are  here  given.  Some  of  them 
are  taken  from  a  »note  to  the  admirable  treatise  of  Judge  Dillon  on 
Municipal  Corporations,  ^  and  for  others  the  writer  is  indebted  to  a  learned 
note  of  Mr.  Freeman,  the  editor  of  the  American  Decisions.^  The  fol- 
lowing municipal  ordinances  have  been  held  void  because  unreasonable : 
Requiring  steamboats  to  have  spark  arresters;  ^  requiring  druggists  to  fur- 
nish verified  statements  of  the  sales  of  intoxicating  liquors,  to  whom  sold, 
etc. ;  ^  exacting  a  license  from  peddlers  of  "  not  less  than  one  nor  more 
than  twenty-five  dollars  for  a  fixed  time,  in  the  discretion  of  the 
mayor."  ^  Requiring  cotton  merchants  to  keep  a  record  oi  the  names  of 
those  who  sell  to  them  loose  cotton,  the  quantity  of  each  purchase, 
etc. ,  —  the  same  being  against  the  principles  of  personal  liberty  and 
common  right ;  "^  absolutelj'  prohibiting  street  processions  with  music, 
banners,  torches,  singing,  shouting,  etc.,  under  a  severe  fine  and  im- 
prisonment, without  express  legislative  authority ;  ^  a  public  school  regu- 
lation denjang  admission  to  a  candidate  who  could  not  pass  a  satisfactory 
examination  in  grammar;  ^  expelling  a  child  from  school  for  refusing  un- 

1  Stationers  of  London t).  Salisbury,  '  Long  v.  Taxing  District,  7  Lea 
Comb.  221.  (Tenn.),  13i. 

2  1  Din.  Mnn.  Corp.,  §  319,  note.  ^  jje  Frazee,  63  Mich.  39G;  s.  c.  30 

3  U  Am.  Dec.  C33.  N.  W.  Rep.  72;  35  Alb.  L.  J.  6.     Com- 

4  Atkinson  t;.  Goodrich  Transporta-  pare  People  v.  Rochester,  44  Hun  (N. 
tion  Co.,  60  Wis.  141.  Y.),     166   (Salvation    Army    parading 

^  Clinton  v.  Phillips,  58  III.  102;  s.      with  banners). 
c.  11  Am.  Rep.  52.  »  Trustees  v.  People,  87  111.  303. 

^  State    Center     v.    Barenstein,  66 
Iowa,  249. 

816 


REQUISITES  AND  VALIDITY.     [1  Thomp.  Corp.  §  1024. 

der  the  direction  of  her  parents  to  study  book-keeping ;  ^  requiring  the 
poUce  to  arrest  all/ree  negroes  found  on  the  street  after  ten  o'clock  at 
night  and  to  place  them  in  confinement  until  morning ;  ^  levying  a  tax 
for  a  sidewalk  in  an  uninhabited  portion  of  the  city,  disconnected  with 
any  other  street  or  sidewalk,^  prohibiting  licensed  retailers  of  intoxicants 
from  selling  between  six  o'clock  p.  m.  and  6  o'clock  a.  m.  ;  ^  compelling 
the  removal  from  within  city  limits  of  a  steam  engine  which  is  not  in  it- 
self a  nuisance  ;  ^  requiring  a  railroad  company  to  keep  a.Jiagman  by  day 
and  a  red  lantern  by  night  at  a  particular  street  crossing,  which  was  not 
necessarily  dangerous  ;  °  prohibiting  the  sale  without  license  at  temporary 
stands  in  the  pubhc  street,  of  lemonade,  ice  cream,  cake,  cheese,  nuts, 
pies  and  fruits  ;  '^  imposing  a  fee  or  tax  of  five  cents  on  every  sale  of  hay 
or  country  produce ;  ^  prohibiting  a  gas  company  from  opening  a  paved 
street  in  order  to  connect  a  main  pipe  with  the  opposite  side  of  the  street ;  ^ 
requiring  owners  and  exhibitors  at  theaters  to  pay  the  city  constable  a 
fee  for  attendance  ;  i*^  prohibiting  producers  from  vending  vegetables  upon 
the  streets  without  an  annual  license  costing  twenty-five  dollars  ;  ^^  for- 
bidding sales  of  goods  by  store  keepers  on  Sunday,  and  exempting 
Hebrews  from  its  provisions  ;  ^^  imposing  a  license  fee  onhucksters;  ^^  for- 
bidding porters,  hackmen  and  hotel  runners  from  approaching  within 
twenty  feet  of  depot,  unless  so  requested  by  a  passenger,  —  the  regula- 
tion being  in  contravention  of  arrangements  made  by  the  railroad  com- 
pany for  the  delivery  of  baggage  ;  ^'^  refusing  to  supply  water  to  premises 
on  apphcation  of  the  owner,  on  the  ground  that  the  tenant  was  in  ar- 
rears for  water  furnished  him  while  occupying  premises  of  another  land- 
lord ;i^  prohibiting  auctioneers  from  selhng, except  to  the  highest  bidder  ;!•' 
prohibiting  one  person  from  carrying  on  dangerous  business,  and  permit- 
ting another  to  do  so  ;  ^^  prohibiting  the  use  of  Babcock  jive  extinguishers 
under  any  and  all   circumstances  at  fires,  and  providing  that  the  chief 

1  Rulison  V.  Post,  70  111.  567.  '"  Waters  v.  Leech,  3  Ark.  110. 

2  Mayor     v.    Wiufield,  8     Humph.  "  St.  Paul  v.  Traeger,  25  Minu.  248; 
(Tenn  )  707.                                                      s.  c.  33  Ana.  Rep.  402. 

3  CorrlganiJ.  Gage,  68  Mo.  541.  ^^  Shreveport    v.  Levy,  26    La.  An. 
*  Ward     V.     Greenville,    8     Baxt.      671 ;  s.  c.  21  Am.  Rep.  553, 

(Tenn  )  228;  s.  c.  35  Am.  Rep.  700.  i3  Dunham  v.  Trustees,  5  Cow.  (N. 

6  Baltimore  v.  Radecke,  49  Md.  217;  Y.)  462. 

s.  c.  33  Am.  Rep.  239.  ^^  Napman  v.  People,  19  Mich.  352. 

6  Toledo  &c.  R.  Co.  v.  Jacksonville,  is  Dayton  v.  Quigley,  29  N.  J.  Eq. 

67  111.  38;  s.  c.  16  Am.  Rep.  611.  77. 

'  Barling  v.  West,  29  Wis.  307;  s.  c.  is  p^x  parte  Martin,  27  Ark.  467. 

9  Am.  Rep.  576.  J'  Mayor  v.  Thorn,  7  Paige  (N.  Y.), 

8  Kip  V.  I'aterson,  26  N.  L.  L.  208.  261. 

'  Commissioners  v.  Northern  Liber- 
ties Gas  Co.,  12  Pa.  St.  318. 

52  817 


1  Thomp.  Corp.  §  1025.]     by-laws. 

engineer  shall  send  to  jail  persons  found  working  them ;  ^  prohibiting  the 
slaughtering  of  animals  on  one's  own  premises  unless  the  building  is  de- 
voted to  that  purpose  ;  ^  providing  that  the  city  sexton,  whose  fees  are 
paid  out  of  the  estates  of  deceased  persons,  shall  expend  five  hundred 
dollars  on  the  pubhc  burying  ground,  and  bury  paupers  free  of  charge ;  ^ 
compelling  the  owner  of  property  to  destroy  or  remove  it,  the  same  not 
shown  to  be  a  mmance ;  "*  prescribing  a  penalty  of  not  less  than  one  nor 
more  than  five  hundred  dollars  for  every  hour  that  a  person  shall  keep 
his  ivagon  within  the  limits  of  the  market.^ 

§  1025.  Illustrations  of  Municipal  By-laws  Held  not  Un- 
reasonable. —  The  subject  may  also  be  illustrated  by  a  collection  of 
cases  in  which  municipal  by-laws  have  been  challenged  as  being  unrea- 
sonable, but  in  which  the  courts  have  disallowed  the  challenge,  and  held 
them  reasonable.  For  some  of  these  the  writer  is  indebted  to  a  learned 
note  of  Judge  Dillon,*^  but  for  a  greater  number  of  them  to  the  learned 
and  extensive  note  of  Mr.  Freeman  in  34  American  Decisions,  634.  The 
following  municipal  by-laws  have  been  held  not  unreasonable:  For- 
bidding the  placing  or  carrying  of  signboards  on  the  sidewalks ;  '  for- 
bidding preac/io^g^,  lecturing,  etc.,  on  a  public  common ;  ^  imposing  an 
annual  license  of  $500  on  express  companies,  whose  business  extends 
beyond  the  limits  of  the  State,  and  $100  on  companies  whose  business  is 
conducted  within  the  State  ;  ^  prohibiting  railroad  trains  from  standing 
across  a  public  street  for  more  than  two  minutes  at  a  time  ;  ^^^  forbidding 
wagons  loaded  with  perishable  produce  to  stand  in  the  market  place  for 
more  than  twenty  minutes  between  certain  hours  ;  ^^  prohibiting  persons 
from  driving  wagons  and  carts  on  a  trot  or  gallop  in  the  streets  ;12  prohibit- 
ing persons  who  are  not  lessees  of  butchers'  stalls  from  offering  for  sale 
fresh  meat  in  less  quantities  than  one  quarter ;  ^^  prohibiting  the  owners  of 
lots  on  the  lake  front  from  removing  sand  therefrom  ;  ^*  prohibiting  the 
building  of  awnings;  ^^  prohibiting  res^aitmwfe  from  being  kept  open  after 

^  Teutonia  Ins.  Co.  v.  O'Connor,  27  eral  constitution,  as  being  a  regula- 

La.  An.  371.  tion  of  commerce  among   the   States. 

2  Wreford  v.  People,  14  Mich.  41.  See  Weltou  v.  Missouri,  91  U.  S.  275. 

3  Beroujohn  v.  Mobile,  27   Ala.  58.  ^"  State  v.  Jersey  City,  37  N.  J.  L. 
*  Fieri  v.  Mayor,  42  Miss.  493.  348. 

5  Com.  V.  Wilkins,  121  Mass.  356.  "  Com.  v.  Brooks,  109  Mass.  355. 

«  Dill.  Mun.  Corp.  (4th  ed.),  §  319,         ^^  cora.     v.     Worcester,    3     Pick, 

note.  (Mass.)   461. 

'  Com.??.  McCafferty,  145  Mass.  384.         i^  st.  Louis  v.  Weber,  44  Mo.  547. 

Com.  V.  Davis,  140  Mass.  485.  "  Clasoa  v.   Milwaukee,     30    Wis. 

9  Southern  Express  Co.  v.    Mobile,  316. 
49  Ala.  404.     It   is  thought  that   this  ^^  Pedricki?.  Bailey,  12  Gray  (Mass.), 

by-law  would  be  void,  under  the  Fed-  161. 
818 


REQUISITES    AND    VALIDITY.       [1  Thomp.  Corp.    §  1025. 

ten  o'clock  p.  m. ;  ^  imposing  a  fine  on  the  owner  of  s,  ferocious  dog^  which 
shall  bite  any  person,  etc.  \^  prohibiting  drivers  of  liackney  coaches  from 
standing  their  carriages  within  thirtj'-five  feet  of  the  front  doors  of  places 
of  public  amusement ;  ^  fixing  the  price  at  which  private  persons  may 
,  be  permitted  to  tap  a  ^mhlic  sewer ;  ^  fixing  market  hours  at  from  dawn 
to  9  o'clock  a.  m.,  and  providing  that  fresh  beef  shall  not  be  sold  at 
any  other  than  the  market  place  during  such  hours,  in  quantities  or  por- 
tions smaller  than  a  quarter ;  ^  requiring  railroad  companies  to  station 
Jlagmen  at  street  crossings  and  to  use  lighted  lanterns  at  night ;  ^  pro- 
hibiting cattle  from  being  allowed  to  run  at  large  within  the  corporate 
limits  ;  '  prohibiting  the  keeping  of  swine  within  such  limits  ;  ^  levj'ing 
a  tax  of  $150  on  every  retailer  of  spirituous  liquors;  ^  compelling  boats 
loaded  with  vegetables  or  putrid  substances,  coming  from  places  infected 
with  malignant  or  contagious  diseases,  to  anchor  in  the  river  until  ex- 
amined by  the  cit}'  physician  ;  ^*^  forbidding  the  keeping  of  gunpoivder^ 
except  in  certain  quantities,  within  the  corporate  limits,  and  pro\idiug 
that  it  shall  be  kept  in  copper  canisters,  and  imposing  a  fine  of  not  less 
than  fifty  nor  more  than  five  hundred  dollars  for  the  violation  of  the  or- 
dinance ;  ^^  requiring  a  license  fee  of  $500  from  retailers  of  ardent  spirits;  ^^ 
punishing 'yaf/m«fs;  ^^  forbidding  sales  of  merchandise  after  9  o'clock  a. 
m,  on  Sundatj ;  ^'^  requiring  saloons  to  close  at  9  o'clock  p.  m.  ;  ^^  imposing 
a  penalty  on  retail  grocers  for  having  spirituous  liquors  on  their  premises 
without  a  license ;  ^^  authorizing  the  mayor  to  grant  licenses  to  sell  and 
dehver  milk,  and  declaring  the  act  of  selling  milk  without  such  license  a 
misdemeanor ;  i"  preventing  the  establishment  of  new  burial  grounds 
within  the  city ;  ^^  requiring  all  places  where  intoxicants  are  sold  to  be 
closed  at  half-past  ten  p.  m.  ;  ^^  authorizing  commissioners  to  vacate  or 
discontinue  leasing  or  hiring  marAei  stalls;  ^^  prescribing  streets  as  routes 

1  State  V.  Freeman,  38  N.  H.  426.  "  Williams  v.  Augusta,  4  Ga.  509. 

2  Com.   V.  Steffee,    7   Bush    (Ky.),  12  perdue  u.  Ellis,  18  Ga.  586. 
161.  13  St.  Louis  V.  Bentz,  11  Mo.  61. 

3  Cora.     V.     Robertson,     5     Cush.  "  St.  Louis  v.  Cafferata,  24  Mo.  94. 
(Mass.)  438.  i«  Smith  v.  Mayor,  3  Head  (Teun.), 

*  Fisher  «.  Harrisburg,  2  Grant  Cas.  245. 

(Pa.)  291.  16  Council  v.  Ahrens,  4   Strobh.   L. 

fi  Bowling  Green  V.  Carson,  10  Bush  (S.  C.)  211. 

(Ky.),  04.  17  People  v.    MulhoUand,  82   N.   Y. 

6  Delaware     &c.     R.    Co.   v.    East  324. 

Orange,  41  N.  J.  L.  127.  i^  Charleston  v.    Baptist   Church,  4 

'  Com.u.  Bean,  14  Gray  (Mass.),  52.  Strobh.  L.  (S.  C.)  306. 

8  Com.  V.  Patch,  97  Mass.  22 L  i*  State  v.  Welch,  36  Conn.  215. 

»  Mayor    v.     Bcasley,     1     Humph.  20  Charleston  v.  Goldsmith,  2  Speer 

(Tenn.)  232;  s.  c.  34  Am.  Dec.  646.  (S.  C),  428. 

1"  Dubois  V.  Augusta,  Dudley  (Ga.), 
30. 

819 


1  Thomp.  Corp.  §  1026.]     by-laws. 

of  travel  for  omnibusses,  and  providing  for  their  exclusion  from  other 
streets  ;  ^  requiring  drawbridges  crossing  a  river  to  be  closed  every  ten 
minutes  for  the  passage  of  persons  and  vehicles,  and  making  it  unlawful 
for  navigators  to  attempt  to  pass  after  the  signal  has  been  displayed  that 
the  bridge  is  being  closed  ;  ^  providing  that  any  person  who  shall  un- 
necessaril}''  obstruct  or  impede  the  running  of  street  cars,  by  standing 
his  team  across  the  track,  or  otherwise  shall  be  liable  to  a  fine  ;  ^  re- 
quiring Jiackmen  standing  their  hacks  at  or  near  a  railway  station  to 
obey  the  directions  of  police  officers  ;  *  prohibiting  persons  without  a  li- 
cense from  carrying  offal  or  Jiouse  dirt  through  any  of  the  streets.^ 

§  1026.  By-laws  Touching  the  Admission  of  Persons  to  the 
Freedom  of  a  Place.  —  It  will  be  necessary,  at  the  outset,  for  the 
reader  to  have  some  idea  of  what  is  understood  to  be  the  meaning 
of  admitting  a  person  to  the  freedom  of  a  corporation.  Many 
of  the  corporations  spoken  of  in  the  early  English  books  of  re- 
ports were  trade -guilds,  which  had  come  down  from  the  middle  ages, 
or  which  had  been  modeled  after  the  guilds  of  those  periods. 
These  guilds  enjoyed  certain  powers,  either  by  royal  charter  or  by  pre- 
scription which  presumed  the  existence  of  a  charter.  Among  these 
powers  was  the  power  of  admitting  members  to  their /reedom,  that  is  to 
the  enjo}Tnent  of  their  franchises  or  privileges.  The  chief  pri\alege  of 
one  of  these  trade  corporations  appears  to  have  been  the  privilege  of  pur- 
suing the  particular  art,  craft  or  trade  with  which  the  company  was 
concerned.  In  many  cases  the  prerequisite  to  the  right  to  be  admitted 
to  such  freedom  was  a  service  for  the  period  of  seven  years  as  an  ap- 
prentice, under  a  freeman  of  the  particular  company,  to  learn  the  trade, 
art  or  mystery  of  the  company.  Thus,  in  the  case  of  the  tailors  of  Ips- 
wich, there  was  a  by-law  that  "  none  should  work  at  his  trade  until  he 
had  presented  himself  to  the  company  of  tailors,"  and  "  should  prove  that 
he  had  served  seven  years  at  the  least,  as  an  apprentice,  and  before  he 
should  be  admitted  b}^  them  to  be  a  sufficient  workman."  This  by-law 
was  held  to  be  void,  as  being  against  law.  It  was  against  the  statute  of  5 
Eliz.  relating  to  apprenticeships,  and  was  a  further  restraint  of  trade  than 
had  been  created  by  that  statute.^  In  the  case  of  the  company  or  frater- 
nity of  freemasons,  rough  masons,  wallers,  paviours,  plaisterers,  platers, 
and  brick-layers,  of  the  city  of  Durham,  there  was  a  by-law  to  the  gen- 
eral effect  that  no  person  should  be  admitted  a  freeman  of  the  company 

1  Com.  V.  Stodder,  2  Cush.  (Mass.)  *  St.  Paul  v.  Smith,  27  Minn.  364. 
662.                                                                       5  Re  Vandine,  6  Picii.  (Mass.)  187; 

2  Chicago  V.  McGinn,  51  111.  266.  s.  c.  17  Am.  Dec.  351. 

3  State  V.  Foley,  31  Iowa,  627;  s.  c.  ^  Case  of  the  Tailors  of  Ipswich,  11 
7  Am.  Kep.  166.  Coke,  53. 

820 


REQUISITES  AND  VALIDITY.     [1  Thomp.  Corp.  §  1028. 

until  he  should  have  beeu  called,  at  three  several  meetings  of  the  mayor 
and  certain  aldermen  of  the  city,  and  the  wardens  and  stewards  of  the 
several  companies  within  the  city,  before  his  admittance,  and  that  he 
be  approved  of  by  them  and  b}^  the  majority  of  them.  This  was  held, 
in  a  judgment  given  b}'-  Lord  Mansfield,  in  which  a  great  many  objec- 
tions were  stated  and  answered,  to  be  a  good  by-law.^ 

§  1027.  By-Law  Compelling  Elected  Members  to  Wear  Liv- 
ery and  Pay  Initiation  Fee  or  a  Forfeiture. —  A  by-law  of  the 
Vintner's  Company  was,  in  substance,  that  the  company  might  elect 
such  of  the  yeomanry  of  then-  members  as  should  seem  most  meet  and 
convenient  to  them  into  the  livery  of  then-  company,  and  that  every 
person  so  elected  should  pay  to  the  company  for  his  admission  into  the 
livery,  the  sum  of  £31  13s.,  4(1.,  and  on  his  refusal  to  accept  the  same 
and  to  pay  the  fee,  should  forfeit  the  sum  of  £25.  This  by-law  was,  in 
several  cases  adjudged  to  be  reasonable  and  valid. ^  To  the  answer 
that  this  by-law  was  grievous  to  the  subject,  the  court  resolved: 
*'  Was  the  same  more  or  less,  it  could  not  make  the  by-law  void,  for  it 
is  to  bind  only  the  members  of  the  corporation ;  and  when  a  man  will 
agi-ee  to  be  of  a  company,  he  doth  thereby  submit  himself  to  the  laws 
thereof,  and  we  are  not  to  take  notice  of  the  extravagancy  of  the  charges 
they  lay  upon  themselves.  And  it  is  convenient  that  the  company  have 
such  power  to  keep  up  their  reputation  and  the  honor  of  the  city  of 
London;  and  so  allowed  the  retm-n  to  be  good."  ^  Lord  Mansfield, 
however,  was  of  opinion  that  a  plea  of  nil  debit  might  be  supported  by 
evidence,  if  the  defendant  was  really  unfit  to  take  the  livery,  and  this 
he  said  "holds  as  to  any  reasonable  excuse,"  but  the  judges  were  agreed 
that  the  court  would  not  intend,  for  the  purpose  of  defeating  the  by-law, 
that  the  defendant  was  an  improper  person  to  receive  the  livery.  Mr. 
Justice  Dennisonsaid:  "  It  is  objected  that  a  person  elected  may  be  a 
beggar.  But  we  can  never  intend  that  they  would  choose  persons  not 
meet  and  convenient ;  and  if  this  be  done  nil  debit  will  bring  that  ques- 
tion before  the  court.  .  .  .  This  is  an  ancient  by-law,  and  nothing 
urureasonable  appears  upon  the  face  of  it. "  ^ 

§  1028.  Must  not  be  in  Restraint  of  Trade.  —  As  a  general 
rule,  by-laws  which  operate  in  restraint  of  trade  are  void,  as 

1  Green  v.  Mayor  of  Durham,  1  ^  Taverner's  Case,  Sir  T.  Raym. 
Burr.  127.  446. 

2  Vintner's  Co.  v.  Passey,  1  Burr.  *  Vintner's  Co.  v.  Passey,  1  Burr. 
235;  Taverner's  Case,   Sir  T.    Raym.  235,  239,  240. 

446. 

821 


1  Thorn  p.  Corp.  §  1028. J     by-laws. 

against  public  policy ;  ^  uud  this  is  true  of  mtinicipal  ordinances^ 
which,  as  already  seen,  stand  on  the  same  general  footing  as  the 
by-laws  of  private  corporations.^  Ou  the  same  principle,  munic- 
ipal by-laws  tending  to  create  monopolies,  or  to  vest  in  particu- 
lar persons  the  sale  and  exclusive  right  to  carry  on  particular 
kinds  of  business,  are  void.-^     By-laws  prohibiting  an  inhabitant 


1  Sayre  v.  Louisville  &c.  Asso.,  1 
Duv.  (Ky.)  143;  s.  c.  85  Am.  Dec. 
613;  Re  Butchers'  Beueflcial  Asso.,  35 
Pa.  St.  151 ;  Moore  v.  Bauk  of  Com- 
merce, 52  Mo.  377;  Clark  v.  Le 
Cren,  9  Barn.  &  Ores.  52;  Chouteau 
Spring  Co.  v.  Harris,  20  Mo.  383; 
Quinier  v.  Marblehead  &c.  Co.,  10 
Mass.  476. 

2  St.  Paulw.  Traeger,  25  Minn.  248; 
State  V.  Fisher,  52  Mo.  174;  St.  Louis 
V.  Grone,  40  Mo.  574;  Hayes  v.  Apple- 
ton,  24  Wis.  543.  It  has  been  so  held 
of  anordinance  restraining  a  dealer  in 
groceries  from  selling  vegetables  at 
his  place  of  business  during  market 
hours.  Caldwell  v.  Alton,  33  111.  410. 
It  is  upon  this  ground  that  the  Ameri- 
can courts  proceed,  which  deny  the 
right  to  municipal  councils  to  estab- 
lish that  species  of  tax  known  in 
Europe  as  an  octroi,  that  is,  a  tax  laid 
upon  the  producers  of  country  pro- 
duce who  bring  it  into  the  city  for 
sale,  —  instances  of  which  have  been 
already  given.  Ante,  §  1017.  The 
principle  does  not  extend  so  far  as  to 
invalidate  an  ordinance  requiring  the 
taking  out  of  a  license  by  persons  en- 
gaged in  transporting  coal  in  wagons 
from  point  to  point  within  a  city 
(Gartside  v.  East  St.  Louis,  43  111. 
47);  nor  an  ordinance  prohibiting  all 
hawking  and  peddling  about  the  street 
of  meat,  game  and  poultry  (Shelton  v. 
Mobile,  30  Ala.  540) ;  nor  an  ordi- 
nance providing  that  no  person  should 
keep  a  butcher''s  stall  or  vend  fresh 
meats  in  less  quantities  than  the  quar- 
ter, without  paying  a  license  tax  of 
$200.     St.    Paul   V.    Colter,    12  Minn. 

822 


41.  And  so,  the  keeping  of  markets 
within  certain  prescribed  limits  may 
be  forbidden.  State  v.  Gisch,  31  La. 
An.  544. 

3  Gale  V.  Kalamazoo,  23  Mich.  344; 
s.  c.  9  Am.  Rep.  80;  Logan  v.  Pyne,  43 
Iowa,  524;  s.  c.  22  Am.  Rep.  261 ;  Chi- 
cago V.  Rumpff,  45  111.  90:  Tugman  v. 
Chicago,  78  111.  45.  It  has  been  said, 
but  the  conclusion  must  be  doubted, 
that  the  power  to  grant  or  refuse 
licenseSf  will  enable  the  corporation 
to  grant  an  exclusive  license.  Bur- 
lington Ferry  v.  Davis,  48  Iowa,  133. 
See  Norwich  Gaslight  Co.  v.  Norwich 
City  Gas  Co.,  21  Conn.  19;  ante,  §  647. 
In  the  case  of  ferries,  gaslight  com- 
panies, street  car  companies  and  the 
like,  where  the  undertaking  involves 
a  large  expenditure  of  money  and  the 
chances  of  pecuniary  success  are 
doubtful,  there  may  be  gi'eat  propriety 
in  conferring  upon  the  adventurers, 
who  are  willing  to  risk  their  capital  in 
the  enterprise,  an  exclusive  franchise 
for  a  limited  period  of  time ;  but  it  is 
believed  that  the  power  to  make  the 
franchise  exclusive  does  not  exist  in  a 
municipal  corporation,  unless  it  is  ex- 
pressly granted  by  the  State ;  and,  as 
already  seen,  in  some  of  the  States 
the  legislatures  are  prohibited  by  the 
constitution  from  granting  such  fran- 
chises. Ante,  §  647.  The  better  opin- 
ion is  that  a  power  to  license  is  not  a 
power  to  prohibit,  but  merely  a  power 
to  reyulate  and  to  tax.  Youngblood  v. 
Sexton,  32  Mich.  406 ;  s.  c.  20  Am.  Rep. 
654;  Kip  v.  Paterson,  26  N.  J.  L. 
298;  Leavenworth  v.  Booth,  15  K.tu. 
627;     East    St.    Louis    v.    Wehrung, 


REQUISITES  AND  VALIDITY.      [1  Thomp.  Corp.  §  1029. 

of  the  city  not  offering  for  sale  the  produce  of  his  own  farm, 
from  occupying  designated  market  stands  for  the  sale  of  such 
produce,  are  valid. ^ 

§  1029.  The  Ancient  Law  on  tliis  Subject.  — The  leading  case 
upon  this  subject  appears  to  be  the  case  of  the  Tailors  of  Ipswich, ^ 
where,  upon  the  facts  which  seem  not  necessary  to  be  stated,  it  was 
held  that  a  bj^-law  of  a  corporation  preventing  a  person  from  working 
at  his  trade  of  tailor,  who  had  not  served  an  apprenticeship  of  seven 
years,  was  void.  The  report  recites  that:  "  This  case,  upon  argument 
at  the  bar  and  bench,  divers  points  were  resolved:  1.  That  at  the  com- 
mon law  no  man  could  be  prohibited  from  working  in  any  lawful  trade, 
for  the  law  abhors  idleness,  the  mother  of  aU  evil,  otium  omnium 
vitiorum  mater,  especially  in  young  men,  who  ought  in  their  youth 
(which  is  their  seed  time),  to  learn  lawful  sciences  and  trades,  which 
are  profitable  to  the  commonwealth,  and  whereof  they  might  reap  the 
fruit  in  their  old  age,  for  idle  in  youth,  poor  in  age ;  and  therefore  the 
common  law  abhors  all  monopolies  which  prohibit  any  from  working  in 
a  lawful  trade ;  and  that  appears  in  2  H.  5.  5  6.  A  dyer  was  bound 
that  he  should  not  use  the  dyer's  craft  for  two  years,  and  there  Hull 
(a  judge)  held,  that  the  bond  was  against  the  common  law,  and  by 
G — d  if  the  plaintiff  was  here  he  would  go  to  prison  till  he  paid  a  fine 
to  the  King.  So,  and  for  the  same  reason,  if  any  husbandman  is  bound 
that  he  shall  not  sow  his  land,  the  bond  is  against  the  common  law. 
And  vide  7  Ed.  3  65  6.  And  if  he  who  takes  upon  him  to  work  is  un- 
skiUful,  his  ignorance  is  a   sufficient  punishment  to  him ;  for  imperitia 

46   111.   392;    Addison  v.  Saulnier,   19  able  ordinances  prohibiting  sales  of 

Cal.   82;  Carters.  Dow,  16  Wis.  298;  marketable  articles  elsewhere  than  in 

Welch  u.  Hotchkiss,  39  Conn.  140;  s.  c.  the    public    markets    during     market 

12  Am.  Hep.  38:^.;  State  v.  Hoboken,  33  hours.     Buffalo  v.  Webster,  10  Wend. 

N.  J.  L.  280;  North  Hudson  K.  Co.  v.  (N.  Y.)  100;  Bush  v.  Seabury,  8  Johns. 

Hoboken,  41  N.  J.  L.  71;  Jolmston  v.  (N.  Y.)  418;  Dunhan  v.  Rochester,  5 

Macon,  62  Ga.  645;  Johnson  u.  Phila-  Cow.  (N.  Y.)   462;  Bowling  Green  v. 

delphia,  60  Pa.  St.  445;    Goshen    v.  Carson,  10  Bush  (Ky.),  64;  St.  Louis 

Kern,  63  Ind.  468;  Ash   u.  People,    11  v.   Jackson,  25   Mo.  37;   St.  Louis  v. 

Mich.  347;  Chilvers  w.  People,  Id.  43;  Weber,  44  Mo.  547;  Le  Claire  v.  Daven- 

People  ».  Mayor,  7  How.  Pr.  (N.  Y.)  port,    13    Iowa,    210;    Davenport    v. 

81 ;  St.  Louis  v.  Bircher,  7  Mo.  App.  Kelly,  7  Iowa,  102.     Contra:  Caldwell 

169;  St.  Louis V.  Boatmen's  Insurance  v.  Alton,  33   111.  416;  Bloomington  w. 

Co.,  47  Mo.  150;  St.    Louis  v.  Marine  Wahl,  46  111.  489;  Bethune  v.  Hughes, 

Ins.  Co.,  47  Mo.  163 ;  New  York  v.  Sec-  28  Ga.  560. 

ond  Avenue  K.  Co.,  32  N.  Y.  261.     The  i  Re  Nightingale,  11  Pick.  (Mass.) 

power  conferred  upon   a  corporation  168.     And  see  Com.   v.  Rice,  9  Mete, 

by  its  charter  to  regulate  markets,  car-  (Mass.)  253. 
ries  with  it  the  power  to  enact  reason-  ^  n  Coke,  53. 

823 


1  Thomp.  Corp.  §  1029.]     by-laws. 

est  maxima  meclianicorum  poena,  et  quiUbet  qucerit  in  qualibet  arte 
peritos :  And  if  any  one  takes  upon  him  to  worlc,  and  spoils  it,  an 
action  on  the  case  lies  against  him.  And  the  statute  of  5  Eliz.  4,  which 
prohibits  every  person  from  using  or  exercising  any  craft,  mystery  or 
occupation,  unless  he  has  been  an  apprentice  by  the  space  of  seven 
years,  was  not  enacted  only  to  the  intent  that  workmen  should  be  skill- 
ful, but  also  that  youth  should  not  be  nourished  in  idleness,  but 
brought  up  and  educated  in  lawful  sciences  and  trades.  And  thereby 
it  appears  that  without  an  act  of  parliament,  none  can  be  in  any  manner 
restrained  from  working  in  any  lawful  trade.  Also  the  common  law 
doth  not  prohibit  any  person  from  using  several  arts  or  mysteries  at  his 
pleasure,  nevio  j^^'oJubetur  plures  negotiationen  sive  artes  ezercere,  until  it 
was  prohibited  by  act  of  parliament  of  37  Ed.  3  cap.  6.  scil.  That 
the  artificers  and  people  of  mystery  hold  themselves  every  one  to  one 
mystery,  and  that  none  use  other  mystery  than  that  which  he  has 
chosen ;  but  this  restraint  of  trade  and  traffic  was  immediately  found 
prejudicial  to  the  commonwealth,  and  therefore  at  the  next  parliament 
it  was  enacted,  that  the  people  should  be  as  free  as  they  were  at  any 
time  before  the  said  ordinance.  2.  That  the  said  restraint  of  the  de- 
fendant, for  more  than  the  said  act  of  5  Eliz.  has  made,  was  against 
law,  and  therefore  for  as  much  as  the  statute  has  not  restrained  him 
who  has  served  as  an  apprentice  for  seven  years  from  exercising  the  trade 
of  a  tailor,  the  said  ordinance  cannot  prohibit  him  from  exercising  his 
trade,  till  he  has  presented  himself  before  them,  or  till  they  allow  him 
to  be  a  workman ;  for  these  are  against  the  liberty  and  freedom  of  the 
subject,  and  are  a  means  of  extortion  in  drawing  money  from  them, 
either  by  delay  or  some  other  subtle  device,  or  of  oppression  of 
young  tradesmen,  by  the  old  and  rich  of  the  same  trade,  not  permitting 
them  to  work  in  their  trade  freely,  and  all  this  is  against  the  common 
law,  and  the  commonwealth ;  but  ordinances  for  the  good  order  and 
government  of  men  of  trades  and  mysteries  are  good,  but  not  to  restrain 
any  one  in  his  lawful  mystery.  3.  It  was  resolved  that  the  said  branch 
of  the  act  of  5  Eliz.  is  intended  of  a  public  use  and  exercise  of  a  trade 
to  all  who  will  come,  and  not  of  him  who  is  a  private  cook,  tailor, 
brewer,  baker,  etc. ,  in  the  house  of  any  for  the  use  of  a  family ;  and 
therefore  if  the  said  ordinance  had  been  good  and  consonant  to  law, 
such  a  private  exercise  and  use  had  not  been  within  it,  for  every  one 
may  work  in  such  a  private  manner,  although  he  has  never  been  an  ap- 
prentice in  the  trade.  4.  It  was  resolved  that  the  statute  of  19  H.  7.  7. 
doth  not  corroborate  any  of  the  ordinances  made  by  any  corporation 
which  are  so  allowed  and  approved  as  the  statute  speaks,  but  leaves 
them  to  be  affirmed  as  good,  or  disaffirmed  as  unlawful  by  the  law,  the 
sole  benefit  which  the  incorporation  obtains  by  such  allowance  is,  that 
824 


REQUISITES   AND   VALIDITY.       [1  Thomp.  Coip.   §  1030. 

they  shall  not  incur  the  penalty  of  £40  mentioned  in  the  act,  if  they  put  in 
use  any  ordinances  which  are  against  the  king's  prerogative,  or  the  com- 
mon profit  of  the  people,  etc.  And  judgment  was  given  quod  querentes 
nihil  caperent  per  billam."  -  -  -  -  A  good  many  cases  are  found 
touchino-  the  vahdity  of  the  by-laws  of  ancient  trade  corporations,  which 
restrained,  to  a  greater  or  less  degree,  the  right  of  their  members  or 
others  to  pursue  the  trade,  art,  or  craft  of  the  corporation.  Thus,  in 
an  action  of  debt  upon  a  by-law  of  a  corporation,  known  as  master 
wardens  and  assistants  of  silk  throusters,  which  provided  that  no  man 
should  exceed  160  spindles  that  was  no  assistant,  and  that  no  man  who 
was  an  assistant  should  have  more  than  240  spindles  under  pain  of 
3£  10s,  the  by-law  was  held  not  to  be  bad,  as  being  unreasonable  or  in 
restraint  of  trade. ^  But  the  case  does  not  seem  to  have  clearly  pre- 
sented the  question. 

§  1030.  By-Laws  Establishing  Combinations  among  Work- 
men to  Maintain  Prices. —  It  seems  that  a  by-law  of  an  incor- 
porated association  of  workmen,  having  the  effect  of  maintaining 
reasonable  prices  for  the  work  performed  by  the  members  of  the 
association,  but  without  interfering  with  the  freedom  of  contract 
of  the  individual  members,  or  interposing  the  mere  will  of  the 
association  for  the  views  of  the  individual  in  determining  what 
price  is  reasonable, —  would  be  unobjectionable,  and  would  not 
be  set  aside  as  unreasonable,  or  opposed  to  sound  morals  or  pub- 
lic policy.^ 

1  Silk  Throusters  e.  Fremantee,  2  of  injuring  another  is  a  combination 
Keb.  309.  of  a  different  nature,  directed  person- 

2  See  the  reasoning  oif  Bullitt,  J.,  ally  against  the  party  to  be  injured; 
in  Sayre  u.  Louisville  &c.  Assc,  1  and  the  law  allowing  them  to  combine 
Duv.  (Ky)  143;  s.  c.  85  Am.  Dec.  613.  for  the  purpose  of  obtaining  a  lawful 
The  learned  judge  quoted,  with  seem-  benefit  to  themselves,  gives  no  sauc- 
ing approval,  the  following  observa-  tion  to  combinations  which  have  for 
tions  of  Mr.  Justice  Erie  to  a  jury:  their  immediate  purpose  the  hurt  of 
"  The  law  is  clear  that  workmen  have  another.  The  rights  of  workmen  are 
a  right  to  combine  for  their  own  pro-  conceded;  but  the  exercise  of  free 
tection,  and  to  obtain  such  wages  will  and  freedom  of  action,  within  the 
as  they  choose  to  agree  to  de-  limits  of  the  law,  is  also  secured 
niand,  .  .  .  but  I  consider  the  law  equally  to  the  masters.  The  intention 
to  be  clear  so  far  only  as,  while  the  of  the  law  is  at  present  to  allow  either 
purpose  of  the  combination  is  to  ob-  of  them  to  follow  the  dictates  of  their 
tain  a  benefit  for  tiie  parties  who  com-  own  will,  with  respect  to  their  own 
baie,— a  benefit  which,  by  law,  they  actions  and  their  own  property ;  and 
can  claim.  I  make  that  remark  be-  either,  I  believe,  has  a  right  to  study 
cause  a  combination  for  the  purpose  to  promote  his  own  advantage,   or  to 

825 


IThomp.  Corp.  §  1031]      by-laws. 

§  1031.  Regulating  or  Restraining  Transfers  of  Shares.  — 

Closely  allied  to  the  foregoing  is  a  class  of  by-laws  established 
by  joint  stock  corporations,  regulating  and  sometimes  restraining, 
transfers  of  shares  of  the  corporate  stock.  As  such  shares  are 
personal  property,  and  as  the  right  to  sell  property  is  a  necessary 
incident  of  its  ownership,  a  by-law  which  should  absolutely  re- 
strain the  right  of  a  shareholder  to  dispose  of  and  transfer  his 
shares  would  be  void  as  against  common  right,  as  being  opposed 
to  the  law  of  the  land,  and  also  as  being  in  restraint  of  trade. 
But  by-laws  which  merely  ?'ep'M?«<e  such  transfers,  ov  even  restrain 
them,  so  far  as  necessary  to  secure  the  rights  of  the  corporation, 
and  which  do  not  otherwise  operate  unreasonably  or  in  restraint 
of  trade,  are  generally  upheld.  Where  the  charter  of  a  bank 
authorizes  its  board  of  directors  to  make  rules  regulating  trans- 


combine  with  others  to  promote  their 
mutual  advantage."  Reg.  v.  Row- 
lands, 17  Q.  B.  671,  686,  note  a;  s.  c. 
79  Eng.  Com.  L.  685,  note  a.  Mr. 
Justice  Bullitt  understood  the  doctrine 
of  this  case  to  be  that,  as  a  workman 
who  is  bound  by  no  contract  may  law- 
fully demand  any  wages  that  he  may 
choose,  any  number  of  workmen  may 
lawfully  combine  for  the  same  pur- 
pose ;  and  he  regarded  the  reasoning 
of  Chief  Justice  Shaw  in  Com.  v. 
Hunt,  4:  Met.  (Mass.)  HI ;  s.  c.  38  Am. 
Dec.  346,  as  leading  to  the  same  con- 
clusion, though  the  precise  point  was 
not  decided.  That  long  and  tedious 
decision  holds,  among  other  things, 
that  the  purpose  of  a  society,  organ- 
ized under  an  agreement  not  to  work 
for  any  person  who  should  employ 
any  journeyman  or  other  person  not  a 
member  of  such  society,  after  notice 
given  him  to  discharge  such  workman, 
is  not  necessarily  unlawful.  In  Bo  wen 
V.  Matheson,  14  Allen  (Mass.),  499, 
503,  this  last  case  is  cited  in  support 
of  the  conclusion  that  an  agreement 
between  members  of  a  society  not  to 
ship  sailors  at  less  than  a  specified  rate 
of  wages,  is  not  criminal.  The  case 
of  People  V.  Fisher,  14  Wend.  (N.  Y.) 
826 


19;  s.  c.  28  Am.  Dec.  501,  holding, 
under  a  statute  of  that  State,  that  all 
combinations  of  workmen  to  raise 
wages  are  necessarily  injurious  to 
ti'ade  and  indictable  as  misdemeanors, 
has  generally  been  regarded  as  de- 
pending for  its  support  alone  on  the 
statute  and  as  expounding  a  doctrine 
which  is  not  to  be  transplanted  into 
other  jurisdictions  except  by  legisla- 
tion. The  sound  view  seems  to  be 
that  such  a  combination  is  not  unlaw- 
ful or  opposed  to  public  policy,  unless 
its  effect  is  to  enhance  prices  to  anun- 
reasonable  extent  (Sayre  v.  Louis- 
ville &c.  Asso.,  supra) ;  or  unless  it  is 
attempted  to  accomplish  such  results 
by  unlawful  means.  Com.  v.  Hunt, 
supra;  Snowu.  Wheeler,  113  Mass.  179, 
186.  Moreover,  where  an  association 
Is  formed  for  such  a  purpose,  and  its 
powers  are  afterwards  abused  by  its 
members,  only  those  so  abusing  them 
are  responsible.  Com.  v.  Hunt,  supra; 
Carew  v.  Rutherford.  106  Mass.  1,  10. 
As  to  conspiracies  to  control  work- 
men, see  People  v.  Fisher,  14  Wend. 
(N.  Y.)  1;  s.  c.  28  Am.  Dec.  501,  and 
especially  note  28  Am.  Dec.  507,  where 
the  subject  is  discussed  at  length. 


REQUISITES    AND   VALIDITY.       ]1  ThoiUp.  Coip.    §   1033. 

fers  of  its  stock,  a  by-law  adopted  by  them,  forbidding  the 
transfer  of  stock  so  long  as  the  owner  is  indebted  to  the  bank,  is 
valid,  although  inconsistent  with  the  general  law  of  the  State 
governing  the  transfer  of  property.^  On  the  other  hand,  a  by- 
law of  a  company,  the  shares  of  the  stock  of  which  are  personal 
and  assignable  property,  requiring  transfers  to  be  made  only  at 
its  office  personally,  or  by  attorney  with  consent  of  the  president 
thereof,  has  been  held  contrary  to  the  general  laws  of  INIassa- 
chusetts  respecting  the  transfer  of  the  right  of  personal  property.^ 
Accordingly,  an  assignment  of  shares  by  the  vendor's  deed,  ac- 
companied by  a  delivery  of  the  certificates  to  the  vendee,  with- 
out any  transfer  on  the  books  of  the  corporation,  was  valid,  not 
only  between  vendor  and  vendee,  but  against  a  creditor  of  the 
vendor,  who  attached  the  shares  before  he  or  the  treasurer  had 
notice  of  the  transfer.^ 

§  1032.  Creating  a  Lieu  upon  Shares. —  According  to  the 
weight  of  authority,  a  by-law  creating  a  lien  on  the  shares  of  a 
member,  for  debts  due  by  him  to  the  corporation,  is  valid  and 
binding,*  though  not  as  against  innocent  purchasers  for  value.'' 

§  1033.  Releasing  Shareholders  from  their  Ohligation  of 
Payment. — The  capital  stock  of  a  corporation  being  a  trust  fund 

1  Mechanics'  Bank  v.  Merchants'  61  Mo.  319;  Farmers'  &c.  Bank  v. 
Bank,  45  Mo.  513;  s.  c.  100  Am.  Dec,  Wasson,  48  la.  339;  Planters'  &c.  Ins. 
388;  cited  and  approved  in  Spurlock  Co.  v.  Selma  Savings  Bank,  63  Ala.  585; 
V.  Pacific  11.  Co.,  61  Mo.  326;  distin-  Lockwood  v.  Mechanics'  National 
guished  in  Carroll  v.  Mullanphy  Sav-  Bank,  9  R.  I.  308;  Young  v.  Vough,  23 
ings  Bank,  8  Mo.  App.  253.  Farmers'  N.  J.  Eq.  325;  Bank  of  Holly  Springs 
&c.  Bank  v.  Wasson,  48  Iowa,  339;  v.  Pinson,  58  Miss.  421;  Pendergast ». 
Chout'au  Spring  Co.u.  Harris,  20  Mo.  Bank  of  Stockton,  2  Sawyer  (U.  S.), 
383;  Moore  v.  Bank  of  Commerce,  52  108;  Knight  v.  Old  National  Bank,  3 
Mo.   377;   Quiner  v.   Marblehead  &c.  Cliff.  (U.  S.)  429. 

Co.    10  Mass.  476.  ^  Anglo-California  Bank  v.  Grang- 

2  Sargent  v.  Franklin  Ins.  Co.,  8  ers'  Bank,  63  Cal.  359;  Driscoll  v. 
Pick.  (Mass.)  90;  s.  c.  19  Am.  Dec.  West  Bradley  »S;c.  Co.,  59  N.  Y.  96; 
30(5,  Conklin  v.  Second  National  Bank,  45 

3  Sargent  v.  Essex  Corp.,  9  Pick.  N.  Y.  655;  Merciiants'  Banku.  Shouse, 
(Mass.)  202;  Sargent  v.  Franklin  Ins.  102  Pa.  St.  488;  Carroll  v.  Mullanphy 
Co.,  8  Pick.  (Mass.)  90;  s.  c.  19  Am.  Savings  Bank,  8  Mo.  App.  249;  Pilot 
Dec.  306.  u.  Johnson,  33  La.   An.  1286;    Bullard 

*  People  V.  Crockett,  9  Cal.  112;  v.  Bank,  18  Wall.  (U.  S.)  589;  Bank 
Mechanics'  Bank  v.  Merchants'  Bank,      v.  Lanier,  11   Wall.  (U.  S.)  369. 


45  Mo.  513;  Spurlock  v,  Pacihc  R.  Co., 


827 


1  Thomp.  Corp.  §  1034.]     by-laws. 

for  the  security  of  its  creditors,  and  the  suras  remaining  un- 
paid by  the  holders  of  the  shares  of  such  stock  in  respect  of  their 
shares  being  a  part  of  such  trust  fund, —  it  follows  that  a  by- 
law of  a  manufacturing  corporation,  allowing  the  stockholders, 
on  paying  30  per  cent,  of  their  shares,  to  forfeit  their  stock  is 
void  as  against  creditors.^  Where  a  creditor,  who  was  a  trustee 
of  the  corporation,  openly  protested  against  such  by-law,  though 
he  accepted  money  raised  under  it,  and  was  present  at  a  subse- 
quent meeting  of  the  trustees,  when  the  application  of  the  money 
was  directed,  and  to  which  he  assented,  —  it  was  held  that  this 
was  not  a  ratificalion  by  him  of  the  by-law.^  A  by-law  of  such 
a  corporation,  that  any  stockholder  paying  50  per  cent,  of  his 
shares  shall  be  discharged  frotu  all  future  calls  on  his  subscrip- 
tion, except  by  way  of  forfeiture,  has  been  held  valid  ;  and  those 
who  had  complied  with  the  terms  of  such  by-law,  before  the  dis- 
solution of  the  corporation,  were  held  to  be  discharged  from  all 
responsibility  to  creditors.^ 

§  1034.  Restricting  the  Right  to  Sue  in  the  Courts. —  The 

right  to  appeal  to  the  courts  of  justice  for  the  redress  of  injuries 
is  a  right  which  is  open  to  all  persons  by  the  principles  of  the 
common  law,  and  it  is  an  established  principle  of  that  law  that 
parties  cannot,  by  a  mere  agreement,  either  confer  jurisdiction 
upon  the  courts,  or  oust  them  of  their  jurisdiction  over  the  sub- 
ject-matter of  particular  actions.*  Accordingly,  it  has  been  held 
that  a  by-law  of  an  insurance  company,  providing  that  any  suit 
on  the  policy  should  be  brought  in  a  certain  countij  is  not  bind- 
ing on  the  assured,^  though  it  is  held  otherwise  in  respect  of  a 
by-law  creating,  so  to  speak,  a  statute  of  limitation  in  respect  of 
the  particular  demand,  that  is,  prescribing  that  suits  to  enforce 
it  must  be   brought   within   a   certain  time,  the  time  not  being 

^  Slee  V.  Bloom,  19  Johns.  (N.  Y.)  ciple,  a  custom   that  a  party    having 

450;  s.  c.  10  Am.  Dec.  273.  a  chiira  due  upon  contract  may   not 

2  IJnd.  pursue  the  remedies  provided  by  law  to 

3  Slee  ».  Bloom,  19  Johns.  (N.  Y.)  collect  it  is  not  a  good  custom.   Spears 
456;  s.  c.  10  Am.  Dec.  273.  v.  Ward,  48  Ind.  641 ;  Manson  v.  Grand 

<  Insurance  Company  v.  Morse,  20  Lodge,  30  Miun.  509. 

Wall.  (U.  S.)  445;    Scott    v.    Avery,  5  *  Nute  v.  Hamilton   &c.  Ins.   Co.,  6 

II.  L.  Cas.  811.     On  the   same  prin-  Gray  (Mass.),  174. 
828 


REQUISITES  AND  VALIDITY.     [1  Thomp.  Corp.  §  1034. 

unreasonably  short}  For  like  reasons,  it  has  been  held  that  the 
holder  of  a  relief  fund  certificate  in  a  mutual  benefit  society  is 
not  bound  to  exhaust,  within  the  society,  the  remedies  provided 
by  its  constitution  and  by-laws,  before  resorting  to  the  judicial 
courts  to  assert  the  rights  given  him  by  such  certificate. ^  But 
the  power  is  generally  conceded  to  mutual  benefit  societies  to 
provide,  by  by-laws,  for  the  redress  of  grievances ;  and  the  de- 
cision of  controversies  arising  in  respect  of  rights  in  the 
particular  society  before  the  judicatories  of  the  society, 
and  by  prescribed  methods  of  procedure,  before  invok- 
ing the  power  of  the  courts.^  Indeed,  as  ah-eady  seen,  this 
principle  extends  so  far,  not  only  in  respect  of  these  societies, 
but  in  respect  of  religious  societies,  merchants'  exchanges,  and 
all  other  corporations  established  for  mutual  benefit  or  for  merely 
ideal  purposes,  and  not  merely  for  the  carrying  on  of  business 
by  means  of  a  joint  stock,  as  to  require  members  of  such  socie- 
ties, who  have  grievances  in  respect  of  their  rights  therein,  to 
exhaust  the  remedies  provided  by  the  rules  of  the  society  before 
the  corporate  judicatories,  before  the  judicial  courts  will  open 
their  doors  to  them.*  Some  courts  have  gone  so  far  as  to  hold, 
but  upon  grounds  which  must  be  regarded  as  doubtful,  that  such 
a  society  may  prohibit  actions  at  law  altogether,  by  their  mem- 
bers in  respect  of  rights  in  the  society,  and  may  make  its  own 
decisions  conclusive.^  But  it  will  appear  that  these  decisions, 
when  analyzed,  assert  no  other  principle  than  that,  where  such  a 
society,  proceeding  without  fraud,  within  the  limits  of  its  charter, 
by  the  methods  prescribed  by  its  rules  of  procedure,  the  same 
beinof  consistent  with  the  principles  of  the  common  law,  adjudi- 
cates in  respect  of  the  rights  of  a  member  within  the  society, — 
such  adjudication  is  final,  and  not  subject  to  review   by  the  judi- 

1  Amesbury  v.   Bowditch    &c.  Ins.  man,   31   Hun  (N.   Y.),  49;  Bauer  v. 

Co.,  6   Gray  (Mass.),   590;  Wilson  v.  Samson  Lodge,   102  Ind.  262;   s.  c.  13 

iEtna  Ins.   Co.,    27   Vt.   98;    Gray  v.  Am.  &  Eng.  Corp.  Cas.  618. 

Hartford  Fire  Ins.  Co.,  1  Blatchf .  (U.  "  Ante,  §§8il,  912. 

S.)  280.  ^  Anacosta  Tribe   v.   Murbach,    13 

3  Supreme  Council  v.  Garrigus,  104  Md.  91 ;  s.  c.  71  Am.  Dec.  625;  Osceola 

Ind.  133.  Tribe    v.   Schmidt,   57   Md.  98;  Black 

3  Lafond    v.   Deems,  81  N.  Y.  508;  and  White  Srai  I  lis' Society  ?;.  Vandyke, 

White  V.   Brownell,  2   Daly   (N.  Y.),  2  Whart.  (Pa.)  309;  s.  c  30  Am.  Dec. 

329;  Harrington  V.  Workingmeu's  &c.  263. 
Asso  ,  70  Ga.  340;    Poultney   v.  Bach- 

829 


1  Thomp.  Corp.  §  1036.]     by-laws. 

cial  courts.^  If,  however,  the  by-laws  of  the  society  make  no 
provision  for  a  tribunal  to  decide  controversies  arising  between 
the  society  and  its  members,  and  a  member  is  injured  by  the  fail- 
ure of  the  society  lo  fulfill  its  contract  to  pay  benefits,  he  may 
maintain  an  action  at  law  against  it  for  a  redress  of  the  injury.  * 

§  1035.  Compelling  Members  to  Submit  their  Disputes  to 
Arbitration.  —  Upon  the  foregoing  grounds,  it  has  been  held  that 
a  by-law  of  an  incorporated  merchants'  exchange,  which  com- 
pelled its  members  to  submit  their  disputes  to  arbitration,  is 
unreasonable  and  void ;  since  it  has  the  effect  of  contracting 
aAvay  the  right  which  every  person  has  of  seeking  redress  of 
grievances  in  the  judicial  courts,  according  to  the  law  of  the 
land.^  Upon  the  same  principle,  it  has  been  held  in  early  cases 
that  by-laws  prohibiting  members'  of  municipal  corporations 
from  pursuing  their  legal  remedies  beyond  the  jurisdiction  of 
the  corporation  are  void;  since  no  power  less  than  that  of  the 
legislature  can  deprive  the  subject  or  citizen  of  his  right  to  legal 
redress.*  In  an  old  case  in  Dyer^  the  facts  were  that  Middleton, 
a  citizen  and  haberdasher  of  London,  sued  Osborne,  another 
citizen  and  lately  his  journeyman,  in  debt  on  a  bond,  and  was 
condemned,  for  which  suit  and  costs  he  would  not  stand  to  arbi- 
tration and  by  order  of  Sir  Lionel  Ducat  and  Sir  Rowland  Hardy, 
Knights,  aldermen  of  said  city,  he  was  disfranchised,  upon  which 
he  sued  for  restoration  to  his  freedom  in  the  Queen's  Bench,  and 
was  restored.  Somewhat  in  line  with  these  decisions,  it  has 
been  held  that  a  clause  in  the  constitution  of  an  unincorporated 
association  requiring  the  members  to  submit  their  controversies 
to  arbitration,  has  oidy  the  force  and  effect  of  a  private  agree- 
ment and  like  such  an  agreement  is  revocable.^ 

§  1036.  Power  to  Enforce  by  Pecuniary  Fines. —  In  general, 
it  may  be  said  that  corporations  have  the  power  to  enforce  their 

1  Ante,  §  914,  et  seq.  ^  Middleton's  Case,  Dyer,  333a. 

2  Dolan  V.  Court  Good  Samaritan,  ^  Heath  v.  New  York  Gold  Ex- 
128  Mass.  437.  change,  7  Abb.  Pr.  (N.  Y.)  (n.  s.)  251 ; 

3  State  V.  Merchants'  Exchange,  2  s.  c.  38  How.  Pr.  (N.  Y.)  168;  and  see 
Mo.  App.  96,  99.  Savannah  Cotton  Exchange   v.  State, 

*  Player  v.  Archer,  1  Sid.  121;  Bal-      54  Ga.  C68. 
lardv.  Bennett,  2  Burr.  778. 
830 


REQUISITES  AND  VALIDITY.     [1  Thomp.  Corp.  §  1036. 

by-laws  by  pecuniary  fines,  provided  the  fines  are  certain  and  not 
unreasonable  in  amount,  and  do  not  amount  to  a  forfeiture  of 
property.^  It  is  observed  in  an  English  work  of  reputation: 
*'  With  respect  to  the  mode  of  enforcing  by-laws  of  corporations  it 
has  already  been  observed,  that  the  power  of  enforcing  hy penalties 
is  part  of  the  power  of  making  by-laws,  which  is  incidental  to 
all  corporations,  to  the  development  of  the  objects  of  whose  con- 
stitution such  power  is  necessary;  and  in  general  the  rule  is, 
that  a  by-law,  without  an  express  act  of  parliament,  can  onhj  be 
enforced  by  a  pecuniary  penalty,  which  must  be  certain  ;  ^  the 
exception  to  the  generality  of  the  rule  being  the  cases  where  by- 
laws have  been  allowed  as  being  authorized  by  a  custom,  ex  gratia 
in  the  city  of  London,  although  they  purport  to  give  power  of 
imprisonment  by  way  of  enforcing  them."  ^  In  an  authoritative 
American  work  it  is  said ;  "  The  power  to  make  by-laws  necessa- 
rily supposes  the  power  to  enforce  them  by  pecuniary  penalties, 
competent  and  proportionable  to  the  offense."*  An  old  case, 
which  questioned  the  validity  of  a  by-law  of  the  city  of  London 
in  respect  of  trade  in  woolen  goods,  states  the  rule  and  the  reason 
of  it,  thus :  "  Also  the  penalty  inflicted  on  the  offender  be  he 
citizen  or  stranger,  was  lawful,  the  offense  being  committed 
within  the  city,  the  same  being  competent  and  proportionable  to 
the  offense;  and  without  a  penalty  the  ordinance  would  be  in 
vain:  oderunt  peccare  7nali  formidine  poenoe .^ '  ^  It  has  always 
been  understood  in  this  country  to  be  the  law,  that  a  corporation 
may  make  a  reasonable  and  valid  by-law,  and  annex   a   fine  or 

1  Cahill  r?.  Kalamazoo  Mut.  Ina.  and  Austen,  that  a  constitution  cannot 
Co.,  2  Doug.  (Micli.)  1^4^;  s.  c.  43  Am.  be  made  on  pain  of  forfeiture  of 
Dec.  457,  462.  goods,  therefore  it  ought  to  be  on  a 

2  Citing  Bosworth  v.  Burgcn,  7  reasonable  pecuniary  pain  or  not  at 
Mod.  459;  s.  c.  Lutw.  1324;  Leathly  t).  all."  s.  c.  3  Leon.  2(J5.  To  the  same 
Webster,  Sayer,  252.  effect  see  Mobile  v.  v.    Yuille,  3    Ala. 

3  Grant  Corp.  84.  137;  s.  c.  36  Am.  Dec.  441.  In  Rex  v. 
<  Ang.  &  A.  Corp.,  §  360.  Newdigate,  Comb.  10,  it  was  "  re- 
*  The    Chamberlain    of    London's      solved  that  the  city  of  London  cannot 

Case,  5  Co.  Hep.  636.     In  the  City  of  set  a  fine,  etc.,  for  the  non-perforra- 

London's  Case,  8  Co.  Rep.  241,  253,  a  ance  of  a  by-law."    But  this  seems 

similar  doctrine  is  laid  down.    "Aeon-  clearly  not  to  be  law.     But  this  doc- 

stitution  cannot  be  made  on  pain  of  trine  was  overthrown,  as  above  seen, 

imprisonment;     and    tlie    case    cited  and  has   never    been  the    law   in  this 

before,  of  Trin.  41  Eliz.  inter  Waltliam  country. 

831 


IThomp.  Corp.  §  1037.]     by-laws. 

penalty  to  its  non-performance,  which  fine  or  penalty  may  be 
recovered  by  an  action  of  debt.  Indeed,  this  is  the  foundation 
of  all  recoveries  of  fines  in  the  police  courts  of  American  towns 
and  cities.  Although  the  preceding  has  some  of  the  incidents  of 
a  criminal  proceeding,  yet  for  many  purposes  it  is  regarded 
merely  as  an  action  for  debt  at  common  law,  to  recover  a  penalty 
annexed  by  a  by-law  to  the  doing  or  omitting  of  a  particular  act. 

§  1037.  Cannot  be  Enforced  by  a  Forfeiture  of  Property.  — 

An  exception  to  the  foregoing  rule  is  that  a  corporate  by-law 
cannot  be  enforced  by  a  forfeiture  of  the  property  of  a  default- 
ing member.^  Accordingly,  it  was  said  that  a  municipal  corpo- 
ration cannot  ordain  the  seizure  and  sale  of  a  falling  warehouse, 
constituting  an  obstruction  in  a  public  river,  in  case  the  owner 
refuses  to  remove  it,  under  a  clause  in  its  charter  giving  it  power 
to  pass  by-laws  to  remove  such  obstructions,  and  to  enforce  the 
same  by  penalties  not  exceeding  a  certain  sum.^  But  this  prin- 
ciple, when  stated  with  reference  to  municipal  corporations,  must 
be  understood  with  the  qualification  that  it  has  been  found 
necessary  for  the  preservation  of  the  public  health  from  the  ca- 
lamities which  would  spring  from  epidemics,  to  vest  in  boards  of 
health  or  other  municipal  or  quasi-iwumci^aX  bodies,  the  power 
to  condemn  as  nuisances  and  to  remove  or  destroy  property 
the  existence  of  which  is  plainly  dangerous  to  the  public  health. 
This  power  rests  on  the  footing  of  the  abatement  of  public  nui- 
sances, and  not  on  the  footing  of  imposing  forfeitures  for  the 
non-performance  of  corporate  laws.  A  by-law  of  an  incorpo- 
rated society  of  tradesmen  to  the  effect  that  every  freeman  using 
or  not  using  said  art,  mystery  or  trade,  should  pay  yearly  to  the 
company  eight  shillings,  to  be  paid  quarterly,  and  that  every 
journeyman  of  the  company  should  pay  to  the  company  four 
shillings,  to  bo  paid  quarterly,  and  that  every  person  refusing  so 
to  pay  should  forfeit  twice  the  sum  named,  has  been  held  bad, 
inasmuch  as  it  did  not  appear  that  any  rightful  expenditure  of 

1  Kirk  V.  Nowill,  1  T.  R.  118.    Com-  Stuyvesant  v.  Mayor  &c.  of  New  York, 

pare  Mayor  &c.   of  New  York  v.  Orel-  7  Cow.  (N.  Y.)  588. 

renan,12  Johns.  (N.  Y.)  122;  Dunham  2  jiart  v.  Albany,  9  Wend.  (N.  Y.) 

V.    Rochester,    5   Cow.    (N.  Y.)  462;  571;     s.    c.    24     Am.    Dec.    165,    per 


Edmonds,  senator. 


832 


REQUISITES    AND    VALIDITY.       [1  TllOmp.  Coip.    §  1037. 

the  company  required  such  a  contribution. ^  But  this  principle 
does  not  extend  so  far  as  to  involve  a  provision  in  a  policy  of 
mutual  insurance^  that  it  shall  become  void,  in  case  default  is 
made  in  the  payment  of  assessments  on  the  premium  owned  for 
the  period  of  thirty  days.  This  is  a  good  condition,  because  it 
derives  its  force  from  the  mutual  consent  of  the  parties,  and  is 
not  in  invitum?  Nor  does  it  extend  so  far  as  to  invalidate  those 
by-laws  of  niutual  benefit  societies,  which  provide  for  a  suspen- 
sion from  membership,  or  a  forfeiture  of  membership  and  of  the 
benefit  certificate  of  the  member,  upon  the  non-payment  of 
dues.'^  The  reason  is  that  members  may  contract  among  them- 
selves for  a  forfeiture,  the  same  not  being  opposed  to  express 
law  or  to  public  policy  ;  and  that  in  schemes  of  mutual  insur- 
ance the  integrity  of  the  fund  and  the  safety  of  the  scheme  de- 
pend upon  each  member  complying  with  the  rules  by  making; 
the  prescribed  i^ayments.  Upon  like  grounds,  the  following  by- 
law by  a  mutual  insurance  company  was  held  valid:  "Every 
member  of  this  company  shall  be  and  hereby  is  bound  and 
obliged  to  pay  his  portion  of  all  losses  and  expenses  happenino- 
and  accruing  in  said  company.  And  if  any  member  shall,  for 
the  space  of  thirty  days  after  the  publication  of  notice  as  hereto- 
fore directed,  neglect  or  refuse  to  pay  the  sura  assessed  upon 
him,  her,  or  them,  as  his,  her,  or  their,  proportion  of  any  loss 
as  aforesaid,  in  such  case  the  directors  may  sue  for  and  recover 
the  whole  amount  of  his,  her  or  their,  deposit  note  or  notes, 
with  costs  of  suit ;  and  the  money  thus  collected  shall  remain  in 
the  treasury  of  said  company,  subject  to  the  payment  of  such 
losses  and  expenses  as  have  accrued  or  may  thereafter  accrue ; 
and  the  balance,  if  any  remain,  shall  be  returned  to  the  party 
from  whom  it  was  collected,  on  demand,  after  ninety  days  from 
the  expiration  of  the  term  for  which  assurance  was  made." 
The  court  reasoned  that  it  could  not  be  deemed  a  forfeiture  that 
a  party  was  compelled  to  pay  his  note  sooner  than  he  would  oth- 
erwise be  liable  to  pay  it,  or  to  pay  a  larger  amount  than  would 
otherwise  be  required.  "The  by-law,"  said  Felch,  J.,  "does 
not  purport  to  compel  him  to   pay  more  than  the  amount;   but 

1  London  Tobacco  Pipe  Makers  Co.  2  Beadle  v.  Chenango  &c.  Ins.  Co., 

V.  Woodroffe,    7  Burn.  &   Cress.    838,      3  Hill  (N.  Y.),  161. 
853.  3  pfj.^1^  Title  21. 

53  833 


1  Thomp.  Corp.  §  1038.]      by-laws. 

to  enforce  the  collection  of  the  whole,  to  be  held  in  the  treasury, 
for  the  piwment  of  assessments  due  and  to  be  thereafter  made,  ^^ 
the  balance,  if  any  remain  after  the  payment  of  such  assess- 
ments, to  be  returned  to  him  after  the  policy  shall  have  expired. 
But  when  was  the  note  payable?  By  its  very  terms  it  was  pay- 
able in  such  portions  and  at  such  times  as  the  directors  of  the 
company,  agreeably  to  their  act  of  incorporation,  might  require. 
Under  the  charter  the  whole  premium  might  have  been  required 
in  advance.  If  the  directors  require  the  whole  amount  to  be 
paid  at  once,  in  case  of  delinquency  in  the  payment  of  any  in- 
stallment, it  seems  to  me  to  be  precisely  in  accordance  with  the 
terms  of  the  contract ;  and  surely  that  cannot  be  deemed  a  for- 
feiture which  provides  for  the  collection  of  the  sum  agreed  to  be 
paid  precisely  according  to  the  terms  of  that  agreement."  ^ 

§  1038.  Nor  by  a  Forfeiture  of  Shares.  —  On  the  same  prin- 
ciple, it  is  not  competent  for  a  corporation,  unless  the  power  is 
expressly  given  in  its  charter,  to  enforce  a  by-law  by  the  penalty 
of  a  forfeiture  of  the  shares  of  a  member.^  Thus,  under  a  char- 
ter provision  giving  a  corporation  power  "  to  make  by-laws,  not 
inconsistent  with  any  existing  law,  for  the  management  of  its 
property,  the  regulation  of  its  affairs,  and  the  ti^nsfer  of  its 
stock,"  it  is  not  competent  for  the  corporation  to  enact  a  by-law 
declaring  that  the  stock  of  its  members  shall  be  forfeited  for 
default  in  the  payment  of  calls.^  In  this  last  case  the  doctrine 
was  thus  stated  by  Nelson,  C.  J.:  "The  corporation  possesses 
the  power  to  make  by-laws  not  inconsistent  with  any  existing  law, 
for  the  management  of  its  property,  the  regulation  of  its  affairs, 
and  the  transfer  of  its  stock. 4  This  is  the  broadest  general  power 
conferred  upon  it;  but  it  is  not  new,  and  would  have  existed  as 
incidental.     When  taken  as  incidental  it  mu^t  be  exercised  in  con- 

1  Cahill  V.  Kalamazoo  Mut.  Ins.  back  v.  Salt  Springs  National  Bank, 
Co.,  2  Doug.  (Mich.)  124,  126;  a.  c.  53  Barb.  (N.  Y.)  495,  500,  Re  Long  Ls- 
43  Am.  Dec.  457,  4C2.  land  11.  Co.,  19  Wend.  (N.  Y.)   37;   s. 

2  That  a  by-hiw  of  a  corporation  c.  32  Am.  Dec.  429. 

cannot  impose  a  forfeiture   of  shares  »  Re  Long  Island  R.  Co.,  19  Wend, 

of  stock  or   of  goods,  or  of  any  cor-  (N.  Y.)  37;  s.  c.  32  Am.  Dec.  429. 

porate  interests  as  a  penalty  for  its  ^  Citing  the  statute,  1   Rey.     Stats, 

breach  was  held  in  Master  Stevedore's  N.  Y.  602;  §  1,  sub-sec.  G. 
Assoc.  V.  Walsh,  2  Daly,  1, 14;  Rosen- 
834 


REQUISITES    AND    VALIDITY.       [1  TllOmp.  Coip.    §   1039. 

formity  to  the  general  law  of  the  land,  that  being  the  rule  to 
regulate  the  proceedings  of  artificial  bodies,  as  well  as  the  con- 
duct of  natural  persons,  independently  of  express  provisions  of 
the  charters  of  those  companies  to  the  contrary.  This  general 
law  has  ascertained  the  rights  of  person  and  of  property  of  the 
<jitizen,  and  established  modes  of  proceeding  in  case  of  a  viola- 
tion of  them;  and  corporate  bodies  must  conform  to  them,  in 
seeking  redress,  the  same  as  individuals.  The  former  can  no 
more  take  the  remedy  into  their  own  hands  than  can  the  latter. 
So  strict  has  this  salutary  principle  of  subjection  been  held  in 
England,  that  even  a  by-law  in  pursuance  of  an  express  power  in 
a  charter  granted  hy  the  king,  is  void,  if  contrary  to  the  common 
law  or  act  of  parliament.^  Thus,  a  by-law  imposing  a  forfeiture 
of  goods  is  void,  though  the  letters-patent  authorized  it;  and  a 
power  granted  to  a  corporation  of  dyers  to  search,  and  if  they 
ibuiid  cloth  dyed  with  logwood  to  seize  it  as  forfeited,  was  ad- 
judged void  as  contrary  to  Magna  Charta.  On  this  same  princi- 
ple, by-laws  in  restraint  of  trade  are  adjudged  void.^  "  So,  a  by- 
law that  may  be  lawful  cannot  be  enforced  by  an  extraordinary 
penalty,  such  as  imprisonment  or  forfeiture  of  goods,  or  by  dis- 
tress and  sale  of  goods  ;  for,  by  the  general  hiw  of  the  kingdom, 
no  man  is  to  be  imprisoned,  or  dispossessed  of  his  goods  and 
chattels  nisi  per  legale  judicium  jiarium  suorum,  vel  per  legem 
ierrcE  ;  and  if  such  penalties  were  allowed,  corporations  would  be 
enabled  to  set  up  private  particular  laws  in  contravention  of  the 
law  of  the  land,  which  is  against  the  nature  and  essence  of  a  by- 
law."^ 

§  1039.   Otherwise    where    Power   Expressly  Conferred    by 

Charter The  power  of  a  corporation  to  declare  a  forfeiture  of 

its  stock  for  the  non-payment  of  calls  or  assessments,  is  upheld 
where  the  power  is  expressly  given  by  charter.     No  decision,  so 

1  Citing  1  Kyd  Corp.  109;  Will.  Compton,  7  Dowl.  &  Ry.  601;  1  B  ic. 
Corp.  95;  Ang.  &  A.  Corp.  180;  City  of  Abr.  547;  Ang.  &  A.  Corp.  184;  Will. 
London's  Case,  8  Coke    Rep,    241;    2      Corp.  142. 

Inst.  47;   Kirk  v.  Nowill,  1  T.  R.  118.  3  Re  Long  Island  R.  Co.,  19  Wend. 

2  Citing  Tailors  of  Ipswich  Case,  (N.  Y  )  37;  s.  c.  32  Am.  Dec.  429,  433; 
11  Coke  Rep.  63,  Harrisons.  Godman,  citing  to  the  last  observation,  Clark's 
IBurr.  12;  Woo'ley  v.  Idle,  4  Burr.  Case,  .5  Coke  Rop.  04;  Will.  Corp.  98; 
1951;    Chamberhiiu     of     London     r.  1  Bac.  Ahr.  551. 

885 


IThomp.  Corp.  §  1040.]     by-laws. 

far  as  the  writer  is  aware,  goes  to  the  length  of  holding  that  an 
act  of  the  legislature,  conferring  upon  a  corporation  such  a  power, 
is  unconstitutional,  as  being  in  conflict  with  any  provisions  of  our 
American  constitutions  which  have  been  drawn  from  Magna 
Charta.i 

§  1040.   The  Fine   or  Penalty    Must    be    Certain.  —  "  The 

penalty  must  be  a  sum  certain,  and  not  left  to  the  arbitrary  as- 
sessment of  the  governing  board  of  the  company  under  the  cir- 
cumstances of  the  particular  case,  even  though  the  utmost  limit 
of  the  same  be  fixed  ;  for  this  would  be  allowing  a  party  to  as- 
sess his  own  damages."  ^  Thus,  where  the  City  of  Mobile  passed 
an  ordinance  providing  for  the  licensing  of  the  business  of  bak- 
ers, prescribing  the  character  of  the  bread  and  the  price  of  the 
loaves,  etc.,  and  annexed  to  its  violation  a  fine  not  exceeding  ^50^ 
it  was  said  :  "  The  by-law  in  this  case  being  not  for  a  sura  cer- 
tain, but  for  such  sum,  not  exceeding  $50,  as  the  corporation 
court  might  think  proper  to  impose  as  a  fine,  cannot  be  sup- 
ported." ^  But  in  a  subsequent  case  in  the  same  State,  a  by-law 
imposing  a  fine  not  exceeding  $50  for  quarreling,  wrestling, 
fighting,  etc.,  was  held  good,  the  court  saying:  "  A  reasonable 
discretion  is  given,  to  be  exercised  within  certain  limits  ;  and  we 
can  see  no  objection  which  could  be  urged  to  such  a  by-law, 
which  could  not,  with  equal  propriety,  be  made  to  any  law  in- 
vesting courts  or  juries  with  discretion  in  apportioning  the  fine 
to  the  offense,  being  restricted  within  reasonable  bounds.  The 
power  of  making  just  discriminations,  so  as  to  advance  the  ends 
of  justice,  and  mete  out  to  every  violation  of  the  law  a  punish- 
ment proportioned  to  its  demerits,  should  reside  somewhere ;  and 
since  the  charter  invests  the  corporation  with  the  power  to  pass 
such  by-law,  and  to  create  proper  sanctions,  we  do  not  conceive 
that  the  law  in  question  is  at  all  unreasonable,  or  uncertain,  in 

1  Cases  construing  this  power  where  80;  lustone  v.   Frankfort  Bridge  Co., 

conferred  by  statute:  Jenkins  v.  Union  2  Bibb  (Ky.),576;  s.  c.  5  Am.  Dec.  638. 

Turnp.  Co.,  1  Caines  Cas.  (N.  Y.)  86;  2  Ang.  &  A.  Corp.,  §  360;   Wood  v. 

Union  Turnp.  Co.  r.  Jenkins,  1  Caines  Searl,  J.   Bridg.  139,  141;    Scarniug's 

Rep.  381;  Goshen  &c.  Turnp.  v.  Hur-  Case,  3    Leon.  8;  Mobile    v.  Yuille,  3 

tin,  9  Johns.    (N.  Y.)  218;  s.  c.  6  Am.  Ala.  137;  s.  c.  36  Am.  Dec.  441. 

Dec.  273;  Andover   &c.  Turnp.  Co.  v.  ^  Mobile  v.  Yuille,  supra. 
Gould,  6  Mass.  40;  s.  c.  4  Am.  Dec. 
836 


REQUISITES    AND    VALIDITY.       [1  Thomp.  Coi'p,    §    1041. 

that  sense  which  renders  it  void.  "  ^  This  must  be  accepted  as 
the  previiihng  view,  especially  as  regards  the  by-laws  of  munici- 
pal corporations.  It  is  believed  that  no  very  recent  case  can  be 
found  which  has  held  a  corporate  by-law  void  for  uncertainty, 
where  it  goes  no  further  than  to  fix  the  maximum  of  the  penalty, 
^uch  a  by-law  should  be  construed  as  fixing  the  penalty  at  the 
maximum,  and  committing  to  the  corporate  judicatory  the  power 
of  mitigation,  according  to  circumstances.  On  this  principle  a 
by-law  with  a  penalty  oi  five  pounds  or  less,  at  the  discretion  and 
pleasure  of  the  master  and  wardens,  so  that  it  be  not  less  than 
forty  shillings,  has  been  held  not  void  for  uncertainty  in  respect 
of  the  amount  of  the  penalty.^  Baron  Parke  said:  "  In  the  ab- 
sence of  any  other  authority  to  the  contrary,  we  do  not  see  any 
objection  to  this  mode  of  fixing  the  penalty.  It  is  a  certain  pen- 
alty of  five  pounds,  with  a,  poiaer  of  mitigation  not  below  two 
pounds;  and  we  do  not  think  this  is  unreasonable."  ^ 

§   1041.  Making  the  Corporation  a  Judge  in  its  Own  Case. — 

Nor  is  the  view  thrown  out  in  one  or  two  ancient  cases  *  tliat  the 
fixing  of  the  penalty  at  a  maximum  with  the  power  of  makinsr  it 
less  according  to  circumstances,  has  the  effect  of  making  the  cor- 
poration  a  judge  in  its  own  case,  in  the  sense  which  is  opposed  to 
the  principles  of  the  common  law.  Every  corporation  in  the  en- 
forcement of  its  by-laws,  must  necessarily  be  in  the  first  instance 
a  judge  in  its  own  case,  in  the  sense  of  these  old  cases;  because 
it  must  necessarily  determine,  by  some  sort  of  a  proceeding  judi- 
cial in  its  nature,  whether  or  not  the  by-law  has  been  infringed, 
before  it  can  impose  the  penalty  thereby  given.  Such  a  princi- 
ple would  deny,  not  only  to  municipal  corporations,  but  also  to 
mutual  benefit  societies,  religious  societies,  merchants'  exchanges, 
social  clubs,  and  many  other  private  corporations  and  societies, 
the  power  to  enforce  through  their  constituted  judicatories,  their 

1  Huntsville  v.  riiclps,  27  Ala.  55,  a  sum  not  exceeding  forty  shillings, 
58;  overruling  on  this  point  Mobile  v.  and  it  was  held  to  be  had;  but  Baron 
Yuille,  3  Ala.  137;  s.  c.  36  Am.  Dec.  Parke  pointed  out,  in  Piper  u.  Chappell, 
441.  that  it  might  have  been  held  bad  apon 

2  Piper  V.  Chappell,  14  Mees.  &  W.  other  objections. 

€24    (explaining   Wood    v.    Searl,    J.  ^  Piper  v.  Cliappell,  14  Mees.  &  W". 

Bridg.  141).     In  the  case  in  .J.  Bridg.      624,649. 

the  penalty  assessed  by  the  by-law  was  ^  See  the  preceding  section. 

837 


1  Thomp,  Cor[).  §  10-1:2.]     by-laws. 

valid  rules  and  regulations,  subject  to  the  superintendence  of  the 
judicial  courts.  The  view  thrown  out  in  the  passage  from 
Angcll  and  Ames  and  other  works  on  corporations  that  the  by-law 
ffivinfi"  a  discretion  to  tlie  cori)oratioa  as  to  the  amount  of  the  fine, 
makes  the  corporation  a  judge  in  its  own  case,  was  tlius  disposed 
of  by  the  Supreme  Court  of  Alabama:  "  That  the  corporation 
is  made  the  judge  in  its  own  case  is  no  objection,  since  it  applies 
equally  whether  the  penalty  is  for  a  specific  sum,  or  fixed  within 
certain  limits.  The  question  whether  the  ordinance  has  been 
violated,  is  to  be  determined,  in  either  case,  by  the  corpora- 
tion." ^  In  a  case  in  the  Court  of  Common  Pleas  of  the  City  of 
New  York,  in  which  Daly,  F.  J.,  wrote  the  opinion  of  the  court 
with  his  customary  learning  and  discrimination,  these  principles 
were  recognized,  and  a  by-law  of  a  corporation  of  which  the  de- 
fendant was  a  member  called  *'  The  Master  Stevedores'  Associa- 
tion," to  the  effect  that  if  any  member,  after  an  investigation  by 
a  committee,  should  be  found  guilty  of  working  for  less  than 
the  prices  fixed,  he  should  forfeit  to  the  association  twenty-five 
per  cent,  of  the  amount  of  such  bill  as  fixed  by  the  association, 
which  penalty  might  be  collected  in  the  name  of  the  corporation 
by  due  process  of  law, —  was  held  not  void  for  uncertainty,  with- 
in the  foregoing  rule.  While  the  court  recognized  the  principle 
that  a  by-law  of  a  corporation  cannot  be  enforced  by  a  forfeiture 
of  goods,  that  being  contrary  to  Magna  Charla^  they  nevertheless 
regarded  this  by-law  as  not  establishing  a  forfeiture  but  a  pecu- 
niary penalty  merely,  which  was  sufficiently  certain.^ 

§  1043.   Views  as  to  the  Proper  Measure  of  such  Fines.  — 

In  a  recent  excellent  work  on  the  subject  of  building  associa- 
tions the  following  suggestions  occur:  "  The  proper  measure  of 
fines  is  the  real  damage  the  building  association  sustains  from  the 
failure  of  a  member  to  pay  his  dues,  which  damage  is  really 
equal  to  the  interest  on  the  amount,  together  with  the  proportion 
coming  to  it  from  the  then  attainable  premiums  upon  the  sale  of 
money.  The  fine  should  be  slightly  in  excess  of  this,  so  as  to 
make  it  more  profitable  to  the  member  to  pay  promptly  than  to 

1  Huntsville  v.  Phelps,  supra.  ^  Master  Stevedores'  Association  r. 

Walsh,  2  Daly  (N.  Y.),  1,   14. 

838 


REQUISITES    AND    VALIDITY.       [1  TllOmp.  Coip.    §   1043. 

lag  behind.      ...     A  fine  of  from  one  to  two  per  cent,  per 
month  would,  in  nearly  all  cases,  be  sufficient  and  just."  ^ 

§  1043.  Illustrations:  By-Laws  of  Building  Associations  Im- 
posing Excessive  Fines.  —  This  prijaciple  has  been  appUed  to  build- 
ing associations,  so  as  to  invahdate  by-laws  of  such  associations  which 
impose  excessive  fines  upon  their  members  for  the  non-payment  of  their 
monttily  dues.  Treating  of  this  subject,  in  view  of  a  statute  of  that 
State,  the  Supreme  Court  of  Ohio  have  said:  "It  is  to  be  regretted 
that  the  legislature  was  not  more  specific  in  making  the  grant  of  power 
thus  intended  to  be  conferred.  .  .  .  That  there  are  hmits,  however, 
beyond  which  the  corporation  by  its  by-laws  cannot  go,  is  undoubted : 
1.  The  amount  of  the  fine  must  be  reasonable.  2.  It  can  be  imposed 
only  by  way  of  punishment  for  some  delinquency  in  the  performance  of 
a  duty  which  the  member  may  owe  to  the  corporation  by  reason  of  his 
membership.  3.  It  is  unreasonable,  and  therefore  we  assume  that  the 
legislature  did  not  intend  that  more  than  one  fine  should  be  imposed  for 
the  same  delinquency."  ^  -  -  -  -  A  by-law  of  a  building  associa- 
tion in  Pennsylvania  prescribed  that  "  each  and  every  stockholder  or 
trustee  who  shall  neglect  or  refuse  to  pay  his  monthly  dues  or  interest 
as  often  as  the  same  shall  become  due  and  payable,  shall  forfeit  and  pay 
the  additional  sum  of  ten  cents  monthly  on  each  and  every  dollar  due 
by  him."  It  was  held  that  this  by-law  was  unreasonable  and  extor- 
tionate, and  thereby  void.  The  court,  speaking  through  Green,  J., 
said:  "It  is  clear  the  ten  cents  penalty  or  forfeiture  is  to  be  paid 
monthly.  This  being  so,  it  is  to  be  repeated  every  month  during  which 
the  amount  due  remains  unpaid.  The  effect  of  this  would  be  that,  if, 
at  the  end  of  December  in  any  year,  the  member  was  indebted  fifty  dol- 
lars to  the  association,  and  remained  so  throughout  the  year  following, 
he  would  then  owe  as  a  fine  twelve  times  the  original  penalty  on  that  one 
default ;  in  other  words,  one  hundred  and  twenty  per  cent,  upon  the 
principal  sum  for  wliich  default  was  made.  In  addition  to  this,  he 
would  also  owe  the  full  interest  he  might  be  paying  on  the  amount  ex- 
pressed in  his  obUgation,  no  matter  how  usurious  that  interest  might  be. 
Still  further,  as  the  balance  is  to  be  struck  at  the  end  of  each  month, 
the   member  would  owe  at  that  time  all  that  he  owed  at  the  end  of  the 

1  Endlich  Build.  Asso.,§  413;  citing  ^  Hageraan  v.    Ohio  &c.  Asso.,  25 

Ocmulgee   &c.  Asso.,  v.  Tliomson,  52  Oh.    St.    186,   202;    quoted   with  ap- 

Ga.  427.    The  above  lauguage  \v<as  ap-  proval  in  Lynn  v.  Freemansburg  &c. 

proved    by    the     Supreme    Court    of  Asso.,    117  Pa.  St.  1 ;  s.  c.  2  Am.  St. 

Pennsylvania  in   Lynn   v.  Freemans-  Rep.  G39. 
burg  &c.  Asso..  117  Pa.  St.  1 ;  s.  c.  2 
Am.  St.  Kcp.  (;39,  (;43. 

839 


1  Thomp.  Coi'i).  §  1044:.]      by-laws. 

preceding  month,  and,  in  addition  thereto,  the  interest  and  penalty  for 
the  cuiTt'nt  mouth,  besides  the  dues  ;  and  the  account  would  be  made 
up  by  charging  him  witli  ten  per  cent,  upon  the  principal,  the  interest 
and  the  line  due  at  the  end  of  the  preceding  month,  and  adding  them 
to  the  dues  and  interest  of  the  current  month.  If  another  default  was 
then  made,  the  same  process  would  be  repeated  at  the  end  of  each  suc- 
ceeding month  during  the  continuance  of  the  defaults.  It  is  needless 
to  enter  into  a  detailed  computation  to  show  what  the  aggregate  result 
of  such  a  process  would  be  in  any  given  case.  That  it  is  um-easonable, 
extortionate,  and  oppressive  to  the  last  degree,  must  be  at  once  con- 
ceded. If  the  monthl}^  penalty  were  a  hundred  per  cent.  Instead  of  ten, 
it  would  only  be  a  difference  in  degree  not  in  character.  Of  course,  if 
there  is  an  unlimited  right  to  impose,  by  means  of  a  by-law,  any  amount 
of  fine  or  penalty  which  the  association  may  please  to  ordain,  and  the 
law  is  powerless  to  interfere,  the  results  must  be  accepted,  no  matter 
how  unjust  or  oppressive  they  may  be.  But  we  do  not  so  understand 
the  law  upon  this  subject."  ^ 

§  1044.  Imposing  Fine  for  IS'on-Acceptance  of  a  Corporate 
Office.  —  A  bj'-law  "that  if  any  person  who  shall  be  chosen  to  be 
warden  shall  refuse  to  accept  the  office  and  take  the  oath,  he  shall  for- 
feit 6Z.  lo.s.  4cZ.,"  has  been  held  a  good  by-law.  The  words  any  person, 
are  understood  to  mean  any  person  eligible  by  the  tex*ms  of  the  charter 
to  the  office  of  warden.  It  is  therefore  not  a  good  objection  to  such  a 
by-law  that  the  word  persons  is  indefinite. ^  The  propriety  of  such  a 
fine  was  upheld  by  strong  reasoning  in  an  earlier  case,  in  which  the  validity 
of  a  by-law  of  the  corporation  of  London  imposing  a  penalty  for  refus- 
ing to  take  the  office  of  sheriff  without  reasonable  excuse  was  held  good. 
It  was  reasoned  that,  as  the  corporation  was  bound  to  nominate  such 
officers  every  year  under  penalty  of  a  forfeiture  of  its  charter,  some 
member  must  of  necessity  take  the  office  ;  and  it  is  manifestly  a  thing 
necessary,  of  common  right,  that  there  should  be  a  coercive  power  in 
every  corporation  to  compel  their  own  members  to  submit  to  their  con- 
stitution ;  and  it  will  be  a  forfeiture  of  that  charter,  if  the  office  of  sheriff 
is  not  yearly  supphed ;  and  therefore,  to  prevent  this  mischief,  it  is  of 
necessity  that  they  should  make  by-laws  concerning  it ;  and  now,  the 
sheriffwick  of  Middlesex  being,  by  the  King's  grant,  annexed  to  the 
corporation,  it  must  be  executed  by  the  members  thereof,  and  be  sub- 
ject to  their  by-laws.     .     .     .    The  excuse  which  this  b3'-law  gives  is  for 

1  Lynn  v.  Freemansburg  &c.  Asso.,  v.  Woodroiife,  7  Barn.  &  Cress.  838, 
117  Pa.  St.  1;  s.  c.  2  Am.  St.  Kep.  G39.      852  (overruling  Mayor   of  Oxford  v. 

2  London  Tobacco  Pipe  Makers  Co.      Wildgoose,  3  Lev.  293). 

840 


REQUISITES    AND    VALIDITY.       [1  Thomp.  Corp.    §   1047. 

the  ease  of  the  members  of  this  corporation ;  otherwise  nothing  but  an  in- 
vincible incapacity  could  have  excused  a  citizen  who  was  elected  sheriff  .1 

§  1045.  Imposing  Fines  for  Non- Attendance  at  Corporate 
Meetings.  —  A  by-law  of  an  incorporated  guild  of  tradesmen  which 
ipaposed  a  fine  on  every  master  woi'kman  or  assistant  who  should  not 
attend  the  courts  to  be  holden,  has  been  held  to  be  a  valid  by-law,  — 
Lord  Tenterden,  C.  J.,  saying:  "To  the  subject-matter  of  these  by- 
laws no  legal  exception  can  be  made.  Attendance  at  corporate  assem- 
blies, and  acceptance  of  a  coi-porate  office,  is  a  duty  each  member  owes 
to  the  corporation  to  which  he  belongs."  '^ 

§   1046.  By-laws  Regulating  the  Conduct    of  Members.  — 

By-laws  pegulating  the  conduct  of  members  of  the  corporation  or 
society,  and  providing  for  trial,  suspension  and  expulsion  for 
misconduct  are  upheld  by  the  court,  when  they  do  not  violate 
any  of  the  fundamental  rules  of  right  imbedded  in  the  common 
law,  or  the  constitutional  or  statute  law  of  the  State.  Indeed  it 
is  the  primary  office  and  conception  of  a  corporate  by-law  that 
it  is  a  rule  for  the  conduct  of  the  members  among  themselves  ; 
a  subject  which  has  been  considered  in  the  next  preceding  chap- 
ter.-^ 

§  1047.  Disinclination  of  the  Courts  to  Interfere  with  the 
By-laws  of  Societies. — The  by-laws  of  those  corporations  which 
might  be  classed  under  the  general  designation  of  private  societies, 
to  distinguish  them  from  municipal  or  other  public  corporations 
on  the  one  hand,  and  from  strictly  joint  stock  or  pecuniary  cor- 
porations on  the  other,  are  regarded  as  standing  in  the  nature  of 
contracts  among  the  members,  —  engagements  which  they  have 
voluntarily  entered  into  for  their  own  government.  When  these 
engagements  are  not  opposed  to  express  legal  prohibition,  or 
contrary  to  public  policy,  the  courts  manifest  the  same  disinclina- 
tion to  interfere  with  them  which  they  manifest  toward  interfering 
with  other  contracts.  This  is  especially  true  of  societies  organ- 
ized for  ideal  purposes,  for  the  advancement  of  religion,  morals, 

^  Rex    V.    Larwood,     Carth.     306.      v.   Woodroffe,  7  Barn.  &  Cress.  838, 
See  also   London   City   v,  Vanacker,      852. 
Carth.  480,  48;j.  3  piint  v.  Pierce,  99  Mass.  68,  70;  a. 

2  London  Tobacco  Pipe  Makers  Co.      c.  96  Am.  Dec.  691 ;  ante,  §  849,  et  seq. 

841 


1  Thomp.  Corp.  §  1018.]      uy-laws. 

or  for  social  purposes,  or  for  the  amusement  of  their  members. 
It  reaches,  on  the  one  hand,  as  far  as  chambers  of  commerce  and 
merchants'  exchanges,  and  on  the  other,  takes  in  merely  social 
clubs,  incorporated  or  unincorporated,^  If  such  by-laws  prove 
to  be  inconvenient  or  embarrassing,  this,  it  has  been  said,  fur- 
nishes no  excuse  to  the  members  for  disobeying  them,  although  it 
may  suggest  the  expediency  of  altering  them.^ 

§  1048.  Valid  in  Part  and  Void  in  Part.  —  As  in  the  case 
of  a  statute  of  the  State,  and  in  conformity  with  a  rule  elsewhere 
explained,^  if  a  by-law  consists  of  several  distinct  and  severable 
parts,  some  of  which  are  unauthorized  and  void,  this  does  not  affect 
the  validity  of  the  other  parts.  In  other  words,  a  by-law,  like  a 
statute,  may  be  valid  in  part  and  void  in  part,  and  the  bad  may  be 
rejected,  where  it  is  so  far  disassociated  from  the  good  as  to  lead 
to  the  conclusion  that  the  good  might  have  been  enacted  without 
the  bad.*  But  where  the  bad  and  the  good  are  so  connected  as 
to  lead  to  the  conclusion  that  the  good  portion  would  not  have 
been  enacted  without  the  bad,  the  bad  portion  vitiates  the  whole 
and  the  whole  must  fall.^  "  Where  a  parcel  of  by-laws  come 
before  us  together,  some  good  and  some  bad,  they  may  be 
severed;  but  not  so  where  the  sense  is  entire."^  "Where  a 
by-law  is  entire,  each  part  having  a  general  influence  over 
the  rest,  if  one  part  is  void,  the  whole  is  void;  but  where 
a  by-law  consists  of  several  distinct  and  independent  parts, 
thoush  one  or  more  of  them  is  void,  the  rest  are  valid.  And 
this  rule  is  applicable  to  the  different  clauses   of  the  same  by- 

1  See  Loubat    v.    Leroy,    15    Abb.  of  the  General  Term  seems  not  to  be 

New   Cas.  (N.  Y.)   1,  and  note,  p.  44;  reported). 

Olery  v.  Brown,  51  How.  Pr.  (N.  Y.)  ^  Weatherly  v.  Medical  &c.  Society, 

92;  People  v.  St.    George's    Society,  76  Ala.  567. 

28  Mich.   261;  Savannah   Cotton  Ex-  ^  Ante,  §658. 

change  v.  State,  54  Ga.  668;  Dawkins  *  Shelton  v.   Mobile,   30   Ala.  540; 

u.  Antrobus,  17  Ch.  Div.  615;  Hussey  s.   c.  68  Am.   Dec.    143;  Amesbury  v. 

V.    Gallagher,    61    Ga.  86;  People    v.  Bowditch   Mutual    Ins.  Co.,    6   Gray 

Board  of  Trade,  80  111.  134;  Lafond  v.  (Mass.),  596;  Cleve  v.  Financial  Corp., 

Deems,  81  N.  Y.  507,   affirming  judg-  L.   R.  16  Eq.  363;  Rogers  v.   Jones,  1 

mentof    General  Term   reversing  the  V^i'end.  (N.  Y.)  237,  260. 

judgment    of    the    Special    Term,  re-  ^  Ante,  §  658. 

ported  in  1  Abb.  N.  C.  (N.  Y.)  318  and  ^  Stationers  of  London  v.  Salisbury, 

52  How  Pr.  (N.  Y.)  41   (the   decision  Comb.   221,  222,  per  Lord  Holt,  C.  J. 
842 


REQUISITES    AND    VALIDITY.        [1  TllOmp.  Coup.    §   1048. 

law;  for  where  it  consists  of  several  particulars,  it  is,  to  all  pur- 
poses, as  several  by-laws,  though  the  provisions  are  thrown 
together  under  the  form  of  one."  ^  As  already  seen,^  a  corporate 
by-law  sustains  the  dual  character  of  a  law,  for  the  government 
of  the  members  and  the  corporate  concerns,  and  of  a  contract 
into  which  the  members  have  voluntarily  entered.  The  princi- 
ple that  it  may  be  void  in  part  and  valid  in  part,  has  not  only  an 
analogy  in  respect  of  the  constitutionality  of  acts  of  the  legis- 
lature, but  also  an  analogy  in  respect  of  the  validity  of  private 
contracts.^ 


1  Amesbury  v.  Bowditch  Mutual 
Fire  Ins.  Co.,  6  Gray  (Mass.),  596, 
607. 

2  Ante,  §§  930,  940. 

3  In  Page  v.  Monks,  5  Gray 
(Mass.),  492,  495,  it  is  said:  "A  con- 
tract is  not  necessarily  void,  or 
wliolly  inoperative,  because  it  consists 
in  part  of  promises  and  engagements 
for  tlie  breach  and  disregarding  of 
whicli  the  statute  neither  affords  nor 
allows  any  remedy  by  an  action  at 
law.  In  such  cases,  whether  any  of 
those  promises  or  engagements  can  be 
enforced,  must  depend  on  the  manner 
and  extent  of  their  connection  and 
combination  with  the  rest.  If  the 
contract  is  in  its  nature  entire,  and  its 
parts  are  incapable  of  separation  or 
division,  then,  though  some  of  its 
stipulations  are  not,  if  others  of  them 
are  affected  by  the  statute,  no  action 
can  be  brought  or  maintained  upon  it. 
But  it  is  otherwise  if  the  parts  are 
severable."  In  like  manner,  in  Rand 
0.  Mather,  11  Cush.  (Mass.)  1 ;  s.  c.  59 
Am.  Dec.  \?A,  131,  it  is  said  by  Met- 
calf,  J. :  "On  principle,  and  according 
to  numerous  modern  adjudications, 
the  true  doctrine  is  this:  if  any  part 
of  an  agreement  is  valid,  it  will  avail 
pro  tanto,  though  another  part  of  it 
may  be  prohibited  by  statute;  pro- 
vided the  statute  does  not,  either  ex- 
pressly or  by  necessary  im|)lication, 
render  the  whole  void-,  and  provided 


furthermore,  that  the  sound  part  can 
be  separated  from  the  unsound,  and 
be  enforced  without  injustice  to  the 
defendant."  Eastern  E.  Co.  v.  Bene- 
dict, 15  Gray  (Mass.),  289,  292;  Allen 
V.  Leonard,  16  Gray  (Mass.),  202; 
Haynes  v.  Nice,  100  Mass.  327,  329; 
Friend  v.  Pettingill,  116  Mass.  515, 
517.  See  cases  overruled  in  Loomis 
V.  Newhall,  15  Pick.  (Mass.)  159, 
where  the  contrary  was  decided  on  the 
authority  of  Lexington  v.  Clark,  2 
Ventr.  223,  and  Chater  v.  Becket,  7  T. 
R.  201.  Further  cases  expounding 
and  illustrating  this  doctrine:  Wood 
V.  Benson,  2  Cromp.  &  J.  94;  s.  c.  2 
Tyrw.  93;  Newmm  v.  Newman,  4 
Maule  &  S.  66;  Bank  of  Australasia 
V.  Breilat,  6  Moore  P.  C.  152;  Bishop 
of  Chester  v.  Freeland,  Ley,  71,  79; 
Norton  v.  Simmes,  Hob.  14;  Kerrison 
V.  Cole,  8  East,  231,  236 ;  Doe  v.  Pitch- 
er, 6  Taunt.  359,369;  Mouys  v.  Leake, 
8  T.  R.  411;  Gaslvell  v.  King,  II  East, 
165;  Wiggs  V.  Shuttleworth,  13  Id. 
87;  Howe  v.  Synge,  15  Id.  440;  Green- 
wood V.  Bishop  of  London,  5  Taunt. 
727.  Application  of  the  doctrine  to 
ca.'^cs  affected  by  the  statute  of  frauds : 
Rand  u.  Mather,  11  Cash.  (Mass.)  1; 
59  Am.  Dec.  131;  Page  v.  Monks,  5 
Gray  (Mass.),  492;  Mayfleld  v.  Wads- 
ley,  3  Barn.  &  Cres.  357;  Ex  parte 
Littlejohn,  3  Mont.  D.  &  De  G.  182; 
Wood  V.  Benson,  2  Cromp.  &  J.  94; 
s.  c.  2  Tyrwh.  93.     In    the  following 

843 


1  Thomp,  Corp.  §  1050. J      uv-laws. 

§  1049.  Establishing-  a  Quorum  of  the  Board  of  Directoi-s.— 

In  New  York,  wliei-e  the  charter  of  a  canal  corporation  with  banking 
powers,  provided  that  "  the  corporate  powers  of  the  company  shall  be 
exercised  by  a  board  of  directors,  to  consist  of  twenty-three  persons, 
who  shall  elect  a  president  annually  from  their  body,  and  possess  the 
other  privileges  and  powers  conferred  by  law;"  and  among  the  other 
powers  expressly  enumerated,  was  the  power  ' '  to  adopt,  establish  and 
carry  into  execution  such  by-laws,  etc.,  as  shall  by  its  president  and 
du-ectors,  be  judged  necessary  or  convenient  for  the  said  corporation  in 
respect  to  its  canal  and  banking  operations ; ' '  and  the  charter  was  silent 
on  the  question  what  number  of  directors  should  constitute  a  quorum 
for  the  transaction  of  business, —  a  by-law  which  enacted  that  "  five  di- 
rectors, of  whom  the  president  shall  always  be  one,  or  in  his  absence 
seven  directors,  shall  form  a  quorum  for  the  transaction  of  the  ordinary 
business  of  the  compan}',"  was  held  valid.' 

§  1050.  Regulating  Corporate  Elections. — No  reason  is  per- 
ceived why  a  corporation  may  not  make  reasonable  by-laws 
regulating  the  conduct  of  corporate  elections,  where  the  mode 
of  conducting  such  elections  is  not  pointed  out  in  the  charter  or 
in  any  other  applicatory  statute,  and  many  statutes  expressly 
confer  the  power  to  make  such  laws.^  Accordingly,  it  has  been 
held  that  a  corporation  empowered  by  charter  "  to  make  laws, 
etc.,  and  to  do  all  things  needful  for  the  good  government  and 
support  of  the  congregation,"  may  make  a  by-law  giving  the 
president  thereof  the  power  of  appointing  inspectors  of  the  elec- 
tion of  corporate  officers.^  It  has  also  been  held  that  a  by-law 
that    no    tickets    shall    be    counted,    "  if,    besides    the    names, 

cases,  proceeding  with  reference  to  197;  s.  c.  32  Am.  Dec.  348;  Woodruflf 
the  statute  of  frauds,  it  was  held  that  v.  Hinraan,  11  Vt.  592;  s.  c.  34  Am.  Dec. 
the  different  parts  of  the  agreement  712.  Upon  a  similar  principle,  a  con- 
could  not  be  separated:  Cook  v.  veyance  in  part  to  hinder,  delay  or 
Toombs,  2  Anstr.  420;  Mechelen  v.  defraud  creditors,  is  void  in  toto. 
Wallace,  7  Ad.  &  El.  49;  Vaughn  v.  McNichol -y.  Richter,  13  Mo.  App.515; 
Hancock,  3  C.  B.  766;  Irvine  ».  Stone,  Cordes  v.  Straszer,  8  Mo.  App.  61;  St. 
6  Cush.  (Mass.)  508.  This  principle  Louis  Coffin  Co.  v.  Rubelman,  15  Mo. 
does  not  apply  in  the  case  of  a  con-  App.  280. 

tract  founded  upon  an  indivisible  con-  i  Hoyt  v.  Shelden,  3  Bosw.  (N.  Y.) 

sideration,  a  part  of  which  is  illegal:  267;  Hoyt  v.  Thompson,  19  N.  Y.  207; 

in  such  a  case  the  entire  contract  is  aw^e,  §  3811. 
void.     Filson  v.  Heimes,  5  Pa.  St.  452;  2  ^^te,  §§737,  740,  745. 

s.c.  47  Am.  Dec.  422;  Bredin's  Appeal,  "  Com.  v.  Woelper,    3   Serg.  &   R. 

92Pa.St.247;  Shawu.  Spooner,  9  N.H.  (Pa.)  29;  s.  c.  8  Am.  Dec.  628. 
844 


REQUISITES    AND    VALIDITY.       [1  ThoiUp.  Coi'p.    §  1053. 

there  are  other  things  upon  the  tickets,"  is  valid,  the  charter 
directing  that  all  elections  shall  be  by  ballot.  And  under  such 
a  by-law,  tickets  on  which  an  eagle  was  engraved  were  held  not 
to  be  legally  admissible ;  ^  and,  though  the  question  is  subject  to 
doubt  and  conflict  in  the  absence  of  statutory  directions, ^  it  has 
been  held  that  a  corporation,  whose  object  is  to  acquire  property, 
may  legally  make  a  by-law  authorizing  the  stockholders  to  vote 
by  proxy  at  their  meetings.^ 

§  1051.  Forbidding  Secret  Societies  in  Colleges. —  An  in- 
corporated college  has  authority  to  forbid  its  students  from 
joining  secret  societies,  although  such  societies  are  incorporated 
by  the  legislature.* 

§  1052.  Instances  of  By-Laws  which,  have  been  Held 
Valid. —  By-laws  of  corporations  containing  various  provisions  not 
deemed  unreasonable  or  contrary  to  law  and  under  various  charters, 
o^overning  statutes,  circumstances  and  limitations  which  cannot  be  fully 
entered  into  in  this  paragraph, —  have  been  upheld,  regulating  the  man- 
ner of  holding  meetings  and  electing  corporate  officers  ;  ^  requiring  the 
officer  or  agent  having  charge  of  the  corporate  funds  to  give  bond  for 
the  faithful  performance  of  his  duties ;  ^  by  an  incorporated  hoard  of 
underwriters,  binding  the  members  to  uniformity  in  rates  of  insurance  ;' 
by  an  incorporated  board  of  trade,  providing  for  the  payment  of  storage 
by  the  buyer  of  grain  in  bulk ;  ^  requiring  the  clerk  of  the  corporation 
to  be  sworn  ;^  of  a  banking  company,  requiring  its  cashier  to  give  bond 

1  JMd.  ham,   I  Paige  (N.  Y.).  590;  Peoples. 

*  Ante,  ^722.  Twaddell,  18   Hun    (N.     Y.),    427,— 
3  State  V.   Tudor,  5  Day    (Conn.),      which  last  cases  hold  that  the  right 

329;  s.  c.  5  Am.  Dec.  162.  to  vote  by  proxy  must  be  autliorized 

*  People  V.  Wheaton College,  40  111.      by  the  legislature. 

180.  ^  Savings  Bank  v.    Hunt,  72    Mo. 

5  Re  Long  Island  R.  Co.,  19  Wend.  597;  s.  c.  37  Am.  Rep.  449. 

(N.  Y.)  37;  s.  c.   32    Am.  Dec.   429;  '  People  v.   Board  of  Fire  Under- 

Kearney  v.   Andrews,  10  N.  J.  Eq.  70;  writers,  54  How.  Pr.  (N.  Y.)  228,  2<0. 

Taylor  v.  Griswold,  14   N.  J.  L.  222,  *  Goddard  u.  Merchants' Exchange, 

226;  8.  c.  27  Am.  Dec.  33.     Authoriz-  9  Mo.  App.  290;  s.  c.  affirmed,  78  Mo. 

ing  the  members  to  vote  at  corporate  609. 

elections  by  proxy:  State  v.  Tudor,  5  »  Hastings  v.  Blue  Hill  Turnp.,    9 

Day   (Conn.),  329;  s.  c.   5  Am.   Dec.  Pick.    (Mass.)   80.     But  the  corpora- 

162;  People   v.  Crossley,   69  111.  195;  tion   cannot  avail    themselves  of  his 

ante,  §722.     But  see  Taylor  u.   Oris-  omission  to  take  the  oath  in  defense 

wold   14  N  J   L.  222;  Philips  u.  Wick-  of  an  action  against  them;  and  if  such 

845 


1  Thonip.  Corp.  §  1053.]     by-laws. 

■mth  security  in  the  sum  of  $20,000 ;  ^  of  an  incorporafed  asylum,  re- 
quiring the  inmates  not  to  leave  the  premises  without  permission  from 
the  governor  or  one  of  his  assistants,  and  prohibiting  them  from  indulg- 
ing in  contentious,  boisterous  or  disorderly  conversation  at  the  table,  on 
pain  of  expulsion,  has  been  held  reasonable  and  valid  ;  2  of  a  benevo- 
lent association,  providing,  as  a  penalty  for  the  non-payment  of  dues, 
that  the  dehnquent  should  forfeit  his  rights  to  any  benefits  while  in 
arrears,  and  for  a  period  of  three  months  after  the  payment  of  arrears  ;  ^ 
of  an  incorporated  city  passenger  railway  company,  prohibiting  pas- 
sengers from  getting  on  and  off  the  cars  by  the  front  platform  ;  *  and, 
generally,  the  regulations  of  carriers  of  passengers  intended  to  protect 
the  company  from  fraud  and  to  promote  the  safety  of  the  passengers, 
are  upheld  when  reasonable.^ 

§  1053.  Conclusion  of  Title  One.  —  We  have  in  this  title 
considered  the  manner  in  which  corporate  charters  and  fran- 
chises are  conferred  by  the  legislature,  and  the  constitutional 
restraints  under  which  the  legislatures  act  in  making  such  grants. 
We  have  considered  the  usual  modes  of  organizing  corporations 
under  special  charters  and  under  general  laws.  We  have  gone 
forward  and  examined  the  methods  by  which  corporations  are 
consolidated  with  each  other,  and  by  which  they  are  reorganized 
after  mortgage  foreclosures  or  after  the  expiration  of  their  char- 
ters. We  have  conducted  the  process  of  organizing  a  corporation 
down  to  the  election  of  its  officers  and  the  establishment  of  its 
by-laws.  In  treating  of  these  subjects,  we  have  considered  many 
incidental  questions  which  seemed  appropriate  to  be  considered 

by-law  provide  that  the  clerk  shall  be  i  Savings    Bank   v.    Hunt,  72  Mo. 

chosen  yearly,   and  also  that  he  shall  597;  s.  c.  37  Am.  Rep.  449. 

continue  in  office  till  another  shall  be  2  people  v.   Sailor's  Snug  Harbor, 

choseu  and  qualified,  aod  the  person  54  Barb.  (N.  Y.)  532. 

first  chosen  and  qualified  is  re-elected  3  Cartan  w.    Father    Matthew     &c. 

the  next  year,  he  bontinues  to  be  clerk  Soc,  3  Daly  (N.  Y.),  20. 

under    the    first    election,    till  he   is  •*  Baltimore   &c.  R.  Co.  v.   Wllkin- 

qualifled  under  the  second.     Ibid.     A  son,  30  Md.  224. 

by-law  requiring  the  proceedings  of  ^  Commonwealth  v.  Power,  7  Mete. 

each  day  to  bo  drawn  up  by  the  secre-  (Mass.)  59G;  Walker  v.  Dry  Dock  &c. 

tary  is  satisfied  where  they  are  drawn  R.   Co.,  33  How.  (N.  Y.)  Pr.  327  (that 

up  by  a  secretary  pro  tem.,  acting  in  coupon  tickets  are  not  good  unless 

the  absence  of  the  regular  secretary,  torn  off  by  the  conductor). 

Price  V.   Grand  Rapids  &c.  R.  Co.,  18 

Ind.  137. 

846 


REQUISITES    AND    VALIDITY.        [1  Thomp.  Corp.    §   1053. 

in  connection  with  the  leading  subjects  under  consideration. 
This  discussion  closes  the  first  title,  according  to  the  plan  on 
which  this  work  has  been  projected.  Although  we  have  consid- 
ered in  this  title  the  rights  of  members  of  corporations  in 
many  relations,  yet  we  have  scarcely  touched  upon  those  rights 
ih  respect  of  members  oi  joint-stock  corporations.  That  subject 
stands  alone  in  the  law  of  corporations —  peculiar  to  itself;  and 
it  will  be  considered  in  the  next  three  title. 

847 


TITLE  TWO.    CAPITAL  STOCK  AND  SUBSCRIP- 
TIONS THERETO. 

Chapter 

19.  Nature    of    Capital  Stock  and  Shares  in 

General §§1059-1085 

20.  Who  May  Become  Shareholders  in  Cor- 

porations       §§1090-1133 

Article  I.     Natural  Persons §§1090-1098 

II.     Private  Corporations    ....  §§1102-1111 

III.      Municipal  Corporations     .      .      .  §§1115-1133 

21.  The  Contract  of  Subscription    ....      §§1136-12()2 
Article  I.     Theories  as    to    the   Nature   and 

Formation  of  the  Contract  .      .      §§1136  -  1195 
II.     Theories  as  to  the  Consideration.      §§1200  -  1213 

III.  Theories  as  to  the  Necessity  of 

Paying  the   Statutory  Deposit.       §§1216-  1232 

IV.  Theory  that  the  Full  Amount  of 

the  Capital  must  be  Subscribed.      §§1235  -  1242 
V.     Other  Theories  and  Holdings     .      §§1245-1262 

22.  Alteration  of  the  Contract §§1267-1299 

23.  Conditional  Stock  Subscriptions      .      .      .  §§1305-1356 
Article  I.     Validity  of  Conditional  Subscrip- 
tions      §§1305  -  1328 

II.     Effect  of  Conditions  in  Subscrip- 
tions     §§1332  -  1345 

III.      Interpretation  of  l^articular  Con- 
ditions             §§1349  -  1356 

24.  Effect  of  Fraud  on  Stock  Subscriptions    .      §§1360-1506 
Article  I.     General  Principles       ....      §§1360-1379 

II.     What  Frauds  M'ill  and  what  will 

not  Avoid  the  Contract      .      .      §§1382  -  1418 
III.     Remedies  of  the  Defrauded  Share- 
holder Agiunst  the  Company    .      §§1424  -  1434 

849 


1  Thomp.  Corp.]  titlu:  two. 

Article  IV.      Time    witliin  wliicli  a    Rescission 

must  be  Churned      ....      §§1438-1456 
V.     Remedies    Against    tlic     Persons 

Guilty  of  the  Fraud      .      .      .      §§1460  -  1487 
VI.     Fraudulent  Issues  and  Over-Issues      §§1490  -  1506 

25.  The  Surrender  of  Shares  and  Eelease  of 

Shareholders §§1511-1557 

26.  Payment  of  Shares §§1562-1697 

Article  I.  In  General §§1562-1600 

II.  In  Property §§1604-1638 

III.  In  what  Kind  of  Property      .      .  §§1642-1661 

IV.  New  Doctrine  that  a  Corporation 

can   Give   Away    its   Unissued 

Shares §§1665  -  1676 

V.     Rights  of  Bona  Fide  Purchasers  of 

Unpaid  Shares §§1680-1687 

VI.     Miscellaneous  Holdings     .      .      .      §§1691-1697 

27.  Assessments  and  Calls §§1700-1757 

Article  I.     In  General §§1700-1721 

II.     Conditions  Precedent :    Full  Sub- 
scription—  Organization     .      .      §§1724-1743 
III.     Sufficiency  and  Notification  of  the 

Assessment §§1746  -  1757 

850 


SHARES  liV  GENERAL.     [1  Thomp.  Corp.  §  1060. 


CHAPTER    XIX. 


NATURE  OF  CAPITAL  STOCK  AND  SHARES  IN  GENERAL. 


Section 

1059.  Scope  of  this  chapter. 

1060.  Definitions  of  '<  capital  stock." 

1061.  Difference  between  actual  stock 

and  potential  stock. 

Distinction  between  capital 
stock  and  tangible  property. 

What  is  capital  stock,  viewed 
as  a  trust  fund  for  credit- 
ors. 

When  capital  includes  profits 
and  surplus. 

Shares  sometimes  inappropri- 
ately called  "  stock." 

Shares  are  personal  prop- 
erty. 

So  are  shares  in  unincorporated 
joiut-stock  companies. 

Not  goods,  wares  and  merchan- 
dise. 

1069.  Not  "  moneys." 

1070.  Are  choses  in  action. 

1071.  Shareholders  not  co-owners. 

1072.  Execution    against    interest  in 

corporate  property. 


1062. 


1063. 


1064. 


1065. 


1066. 


1067. 


1068. 


Section 

1073.  Shareholders  cannot  convey 
corporate  property  though  all 
join  in  the  deed. 

1074.  Incorporating  a  partnership: 
mode  of  succeeding  to  the 
partnership  assets. 

1075.  Cannot  act  for  the  corporation, 
or  bind  it  by  admissions. 

1076.  Not  in  a  trust  relation  towards 
the  corporation. 

1077.  Cannot  sue  the  directors  at  law. 

1078.  Not  responsible  for  its  torts. 

1079.  Not  in  privity  with  each  other. 

1080.  Not  necessary  parties  to  suits  in 
respect  of  corporate  rights. 

1081.  Not  affected  with  notice,  etc. 

1082.  To  what  extent  in  privity  with 
the  corpoi-ation. 

1083.  No  distinction  in  these  respects 
between  incorporxted  and  un- 
incorporated companies. 

1084.  A  comparison  between  shares  in 
a  partnership  and  shares  in  a 
company. 

1085.  Capital  stock   a  liability  of  the 

corporation. 

§  1059.  Scope  of  this  Chapter.  —  In  commencing  an  exten- 
sive di.scu.ssion  of  the  subject  of  corporate  stock  and  stockhold- 
ers, it  will  be  useful  to  give,  in  a  preliminary  chapter,  an  outline 
sketch  of  the  nature  of  corporate  stock  and  shares,. and  the  re- 
lation of  the  holders  of  such  shares  to  the  corporation  and  to 
each  other. 

§  1060.  Definitions  of  "  Capital  Stock."  —  It  has  been  said: 
*  The  word  '  capital '  applied  to  corporations,  is  often  used  inter- 

851 


1  Thump.  Corp.  §  1061.]     nature  of  capital  stock. 

changeubly  with  the  words  '  capittil  stock,'  and  both  are  fre- 
quently used  to  express  the  same  thing — the  property  and 
assets  of  the  corporation.  Strictly,  the  capital  stock  of  a  corpo- 
ration is  the  money  contributed  by  the  corporators  to  the  capital, 
and  is  usually  represented  by  shares,  issued  to  subscribers  to  the 
stock  on  the  initiation  of  the  corporate  enterprise."  ^  Another 
court  has  said:  *'  It  is  a  mistake  to  suppose  that  the  stock  of  an 
individual  consists  of  so  much  money  owned  by  him,  in  the  bank  ; 
the  money  in  the  bank  is  the  property  of  the  institution,  and  to 
the  ownership  of  which  the  stockholder  has  no  more  claim  than 
a  person  who  is  not  at  all  connected  with  the  bank.  The  stock- 
holder has  an  entire  and  perfect  ownership  over  his  own  stock, 
and  may  sell  and  transfer  it  to  whomsoever  he  pleases,  and  from 
doing  which  the  bank  has  no  power  to  restrain  him."  ^ 

§  1061.  Differeace  between  Actual  Stock  and  Potential 
Stock.  — It  has  been  pointed  out  in  a  well  reasoned  opinion  by 
Mr.  Justice  McLean,  that  mere  authorized  or  potential  stock  is 
improperly  called  stoclc  or  capital  stock,  until  it  is  actually  sub- 
scribed for  by  individuals.  He  said  :  "  The  corporate  powers  of 
the  company  were  conferred  for  the  express  })urpose  of  creating 
stock  as  a  means  of  constructino-  the  railroad.  As  well  might 
the  route  for  the  road  designated  be  called  a  railroad,  as  to  call 
the  corporate  means  of  creating  the  stock,  stock.  In  a  legal 
point  of  view,  it  is  important  to  call  things  by  their  right  names. 
This  is  especially  necessary  when  the  effect  of  the  exercise  of 
corporate  powers  is  to  be  determined.  Stock  can  be  created 
only  by  contract,  whether  it  be  in  the  simple  form  of  a  sub- 
scription, or  in  any  other  mode.  There  must  be  an  agree- 
ment to  take  the  stock,  and  nothing  short  of  this  can  create 
it.  This  imparts  to  the  stock  the  quality  of  property,  which 
before  it  did  not  possess.  It  is  called  capital  stock  in  ths 
charter,  because  the  corporate  capacity  to  create  it  is  given. 
The  term  stock,  as  used  in  the  charter,  before  it   is  taken  by 

^  Andrews,.!., in Christensenw.Eno,  2  Bj-jgiitwellu.  Mallory,  MS.  Cited 

106  N.  Y.  97,  100;  s.  c.  60  Am.  Rep.  429,  9  Yerg.  (Tenn.)  501 ;    Union   Bank   of 

431.     See  also  Burrall  v.  Bushwick  R.  Tennessee  v.   State,  9  Yerg.  (Tenn.) 

Co.,    75    N.  Y.   211,    212,   and    cases  501. 
cited. 

852 


SHARES  IN  GENERAL.      [1  Thomp.  Corp.  §  1063. 

subscription,  menus  nothing  more  than  a  power  in  the  directors 
to  receive  subscription  for  stock."  ^  Whether  the  legislature  in 
a  particular  statute  means  the  one  kind  or  the  other,  must,  of 
course,  depend  upon  the  sense  in  which  the  words  are  used,  as 
shown  by  the  context  and  determined  by  other  canons  of  inter- 
pretation. In  a  statute  relating  to  the  foreclosure  of  railway 
mortgages,^  which  authorizes  a  stockholder  to  acquire  the  same 
relative  interest  in  the  road,  sold  on  foreclosure,  as  he  had  be- 
fore, on  paying  a  sum  equal  to  such  proportion  of  the  price  and 
costs  as  his  stock  bears  to  "the  whole  capital  stock," — the 
words  "the  whole  capital  stock,"  mean  the  capital  stock  ac- 
tually subscribed  for  and  issued,  and  not  the  amount  named  in 
the  articles  of  association.^  So,  in  an  act  incorporating  a  rail- 
way company,*  and  providing  in  section  3,  that  the  company 
*'  shall  have  the  power  and  authority  to  borrow  money  in  any 
sum  or  sums  not  exceeding  in  amount  one-half  of  the  par  value 
of  the  capital  stock,"  the  par  value  of  the  capital  stock  is  the 
amount  of  paid  up  capital  only,  and  not  the  fuU  amount  of 
authorized  capital.^ 

§  1063.  Distmction  between  Capital  Stock  and  Tangible 
Property. —  The  term  "capital  stock,"  in  an  act  of  incorpo- 
ration, is  said  to  mean  the  amount  contributed  or  advanced  by 
the  stockholders  as  members  of  the  company,  and  does  not  refer 
to  the  tangible  property  of  the  corporation.^  In  a  case  in  the 
Supreme  Court  of  Missouri,  where  the  subject  was  .considered 
with  reference  to  an  exemption  from,  taxation^  this  distinction 
seems  to  have  been  wholly  lost  sight  of,  and  the  conception 
completely  reversed.  There,  the  tangible  property  of  a  corpo- 
ration is  said  to  be  its  stock,  within  the  meaning  of  the  language 
of  a  charter  which  exempts  the  stock  of  a  company  which  it 
creates  from  State  and  county  taxes;  and  lands  of  such  comi)any, 
thereafter  acquired   by  donation   from   the  State,  fall  into  the 

1  Sturgesu.  Stetson,  IBiss.  (U.  S.)  ^  Appeal  of  Lehigh  Ave.  R.  Co. 
246,248;  s.  c.lO  Myer  Fed.  Dec,  §142.  (Pa.),  24  Week.  Notes  Cas.  530 ;  18Atl. 

2  N.  Y.  Laws  of   1853,  ch.  502,  §  2.  Hepr.  498. 

3  Pratt  V.  Munson,  17  IIuu  (N.  Y.),  ^  State  v.  Morristown  Fire  Assoc., 
476.  23  N.  J.  L.  195.     See    also    BaiTy  v. 

■•  Penn.  Laws  1874,  p.  458,  iucor-  Merchant's  Exchange  Co.,  I  Sandf. 
porating  the  Lehigh  Avenue  R.  Co.  Ch.  (N.  Y.)  280. 

853 


1  Thomp.  Corp.  §  1062.]     nature  of  capital  stock. 

general  volume  of  the  company's  stock  and  merely  enhance  its 
value.  Such  lands  are  therefore  not  taxable,  under  a  general 
revenue  law  which  provides  for  the  taxation  of  "  all  property 
owned  by  incor[)orated  companies  over  and  above  their  capital 
stock."  Such  property  is  not  deemed  to  be  owned  by  the  com- 
pany over  and  above  its  capital  stock. ^  It  is  obvious  that  this 
ruling  entirely  ignores  the  clause  in  the  revenue  law  above  quoted. 
It  proceeds  upon  the  general  view  that  the  legislature  is  not  to 
be  deemed  to  have  intended  to  impose  a  double  taxation  upon  the 
same  property  without  having  said  so  in  express  words  ;  in  other 
words,  that  it  could  not  have  intended  to  tax  the  property  first 
through  its  representative  credit,  the  certificates  of  stock,  in  the 
hands  of  the  several  shareholders,  and  to  tax  it  again,  en  masse, 
as  so  much  tangible  property,  in  the  hands  of  the  artificial  be- 
ing, the  corporation;  but,  notwithstanding  these  decisions,  it  is 
plain  beyond  question  that  this  is  precisely  what  the  legislature 
did  intend.  No  other  possible  meaning  can  be  given  to  the  lan- 
guage in  the  revenue  law  thus  quoted.  That  language  supposes 
that  there  may  be  corporate  stock,  and  that  there  may  be  prop- 
erty other  than  corporate  stock;  and,  however  unjust  the  policy 
of  double  taxation  may  be,  it  scarcely  admits  of  doubt  that  that 
is  what  the  legislature  intended.  The  court,  however,  were  jus- 
tified in  saying  that  the  clause  was  obscure ;  and  one  can  quite 
agree  with  Holmes,  J.,  in  the  following  language  :  "  It  is  pretty 
evident  that  the  framor  of  that  act  did  not  have  present  in  his 
mind  any  clear  and  definite  ideas  of  the  subject  of  which  he  was 
speaking.  It  is  not  easy  to  see  how,  in  any  legal  sense,  a  cor- 
poration could  own  other  property  than  that  which  would  be 
represented  by  the  stock  in  the  hands  of  the  shareholders.  The 
shares  of  the  stock  might  be  above  or  below  par  value,  accord- 
ing to  the  amount  and  value  of  the  property  owned  by  the  cor- 
poration ;  and  it  is  to  be  presumed  that  shares  of  stock  would  be 
taxed,  if  subject  to  taxation,  in  proportion  to  their  value,  like 
other  kinds  ot"  property.  In  this  way  the  whole  property  would 
be  once  taxed  against  the  natural  persons  who  are  at  last  the  only 
real  owners  of  the  property  held  by  the  corporation  in  which 
they  are  the  stockholders.    It  would  seem  to  be  clear  that,  in  con- 

1  State    V.  Hannibal   &c.  R.  Co.,  37  Mo.  265. 
854 


SHARES  IN  GENERAL.      [1  Thomp.  Corp.  §  1063. 

templatioa  of  law,  there  cannot  be  any  other  property  of  this 
corporation,  over  and  above  the  stock  held  by  the  shareholders. 
This  conclusion  necessarrily  results  from  the  very  nature  and  con- 
stitution of  the  corporation.  We  are  of  opinion,  therefore,  that 
these  lands  were  not  taxable  in  the  county  of  Livingston  as  such 
other  property."^  It  is  perceived  that  this  decision  amounts  to 
this  :  that  whereas  a  corporation  can  have  no  property  over  and 
above  its  capital  stock,  a  clause  of  a  revenue  law  providing  for  the 
taxing  of  property  of  corporations,  "  over  and  above  their  cap- 
ital stock,"  is  nonsense  and  hence  inoperative.  This  seems 
equivalent  to  holding  that  a  law  is  void  because  there  is  no  sense 
in  it, —  a  rule  which  might,  with  equal  propriety,  be  applied  to 
some  judicial  decisions. 

§  1063.  What  is  Capital  Stock,  Viewed  as  a  Trust  Fund 
for  Creditors. —  We  shall  hereafter  have  occasion  to  examine 
the  doctrine  that  the  capital  stock  of  a  corporation  is,  in  the 
theory  of  courts  of  equity,  a  trust  fund  for  its  creditors. ^  The 
capital  stock  of  a  corporation,  which  is  subject  to  the  operation 
of  this  rule,  consists  of  all  the  stock  for  which  the  members 
have  subscribed.^  Treating  this  stock  as  money,  it  is  capable 
of  subdivision  into  three  funds:  1.  Money  which  has  been  sub- 
scribed as  a  part  of  the  capital  stock,  and  paid  in.  2.  Money 
thus  subscribed,  but  not  paid  in.*  3.  Money  thus  subscribed, 
and  paid  in,  but  afterwards  divided  among  the  members  before 
all  the  debts  of  the  corporation  are  paid.^     The  reason  why  the 

1  Ibid.  2G9.  Ward  v.   Griswoldville  Mfg.    Co.,   16 

2  Post,  §2841,e«seg.  Conn.   597;  Manu  v.   Pentz,  3   N.  Y. 

3  Adler  v.  Milwaukee  Patent  Brick  422;  Allen  v.  Montgomery  R.  Co.,  II 
Co.,  13  Wis.  57;  Hightower  v.  Thorn-  Ala.  437;  Spear  v.  Grant,  16  Mass.  9; 
ton,  8  Ga.  480;  s.  c.  52  Am.  Dec.  412;  Ilightower  v.  Thornton,  8  Ga.  48(5; 
Briggs  V.  Penniman,  8  Cow.  (N.  Y.)  s.  c.  52  Am.  Dec.  412;  Bassett  v.  St. 
387;  Allen  v.  Montgomery  R.  Co.,  11  Albans  Hotel  Co.,  47  Vt.  314;  Henry 
Ala.  437;  Slee  v.  Bloom,  19  Johns,  u.  Vermilion  &c.  R.  Co.,  17  Ohio,  187; 
(N.  Y.)  45G;  s.  c.  10  Am.  Dec.  273;  Payne  u.  BuUard,  23  Miss.  90;  Sanger 
Wood    V.    Dummer,  3    Mason,     308;  v.   Upton,  91  U.  S.  60. 

Mann  v.  Pentz,  3  N.  Y.  422;  Payne  v.  *  Wood  v.  Dummer,  3  Mason   (U. 

Bullard.  23  Miss.  90.  S.),  308  ;  Curran  v.  Arkansas,  15  How. 

-•  Slee  V.  Bloom,  19  Johns.  (N.  (U.  S.)  304;  Reid  v.  Eatonton  Man. 
Y.)  45G;  s.  c.  10  Am.  Dec.  273;  Briggs  Co.,  40  Ga.  98,  104;  Lewis  v.  Robert- 
V.    Penniman,    8   Cow.     (N.  Y.;387;       sou,  13  Sined.  &  M.  (Miss.)  5.58. 

855 


i  Thomp.  Corp.  §  10G5.]     nature  of  capital  stock. 

capital  stock  of  a  corporation  is  deemed  to  embrace  all  the  stock 
for  which  the  members  have  subscribed,  whether  paid  ia  or  not, 
is  that,  since  the  members  are  not,  in  general,  personally  liable 
for  the  debts  of  the  corporation,  this  fund  is  the  stake  held  out 
to  the  public,  upon  the  faith  of  which  the  company  obtains 
credit.^  Speaking  with  reference  to  this  relation  of  the  subject, 
it  has  been  said  :  "  The  capital  stock  of  a  corporation  is  the  fund 
which  has  accumulated  in  its  coffers  from  the  contributions 
of  its  members.  It  may  be  practically  identified  in  the  money, 
notes,  bonds,  securities  or  even  land  titles  wherein  the  contribu- 
tions have  been  invested.  It  includes  all  claims  against  share- 
holders for  their  unpaid  subscriptions.  All  these  elements,  or 
their  value,  to  the  authorized  extent,  represent  the  capital  stock 
or  working  capital  of  the  corporation,  in  like  manner  as  the 
goods  upon  the  merchant's  shelves  represent  his  stock  in  trade. 
They  constitute  the  trust  fund  —  the  stock.  Regarded  in  this 
character,  as  first  subject  to  the  claims  of  creditors,  the  share- 
holder owns  not  a  dollar  of  it.  He  owns  no  stock.  What  he 
owns  is  simply  a  right  or  share  in  the  proceeds  or  profits  of  the 
stock  proportioned  to  the  amount  of  his  contribution,  together 
with  an  ultimate  right  to  receive  back  his  contribution,  or  so  much 
as  may  remain  thereof,  upon  the  dissolution  or  closing  up  of  the 
corporation."  ^ 

§  1064.  When  Capital  Includes  Profits  and  Surplus. —  The 

profits  and  surplus  fund  of  a  bank,  whenever  they  may  have  ac- 
crued, are,  until  separated  from  the  capital  by  the  declaration  of 
a  dividend,  a  part  of  the  stock  itself,  and  will  pass  with  the 
stock  under  that  name  in  a  transfer  or  bequest.  ^ 

§   1065.  Shares  Sometimes  Inappropriately  Called  *'  Stock." 

—  Correctly  speaking,  the  aliquot  parts  of  the  capital  stock 
of  a  corporation  qualified  as  hereafter  stated,  are  termed  shares; 

1  See  the  reasoning  of  Dixon,  C  villa   Mfg.   Co.,    IG  Conn.    599;    post, 

J.,  in  Adler  v.  Milwaukee  Patent  Brick  §  2841  et  seq. 

Co.,  13  AVis.   GO;  see  also  Hightower  agent  v.   Hart,   10  Mo.    App.    143, 

V.  Thornton,  8  Ga.  495;    s.  c.  52  Am.  146,  opinion  by  Lewis,  P.  J. 
Dec.    412;    Allen    v.    Montgomery  11.  ^  phelps    v.  Farmers'  &c.  Bank,  26 

Co.,  11  Ala.  437;  Ward  v.  Griswold-  Conn.  269;  post,  §2174 

856 


SHAKES  IK  GENERAL.      [1  Tbomp.  Corp.  §  1066. 

and  this  is  the  expression  used  in  the  English  books.  American 
judges  and  writers,  however,  loosely  designate  the  interest  of 
each  shareholder  in  the  capital  of  the  company  as  his  stock;  and 
one  court  has  thought  this  designation  not  inappropriate.^ 

§  1066.  Shares  are  Personal  Property. —  Contrary  to  early 
opinion,^  it  is  now  generally  agreed  that  shares  of  stock  in  corpora- 
tions are  personal  property,  whether  they  are  declared  to  be  such 
by  statute  or  not,  and  whether  the  property  of  the  corporation 
itself  is  real  or  personal.^     The  reason  is  that  shares  in  an  in- 


^  People  V.  Commissioners  of 
Taxes,  23  N.  Y.  192,  220. 

2  Drybutter  v.  Bartholomew,  2  P. 
Wms.  127;  Townsend  v.  Ash,  3  Atk. 
336;  Buckeridge  v.  Ingram,  2  Ves.  Jr. 
G52;  Welles  u.  Cowles,  2  Conn.  567; 
Welles  V.  Cowles,  2d  case,  4  Conn. 
182;  Rex  V.  Chipping  Norton,  5  East, 
239;  Habergham  v.  Vincent,  2  Ves. 
Jr.  232 ;  Hurst  v.  Meason's  Estate,  4 
Watts  (Pa.),  346 ;  Price  v.  Price,  6  Dana 
(Kj'.),  107;  Copeland  v.  Copeland,  7 
Bush  (Ky.),  349.  In  some  of  these 
cases  it  does  not  appear  that  the  com- 
panies by  which  the  shares  were  issued 
were  any  more  ihnw  joint-stock  partner- 
ships, in  which  case,  according  to  the 
early  English  theory,  the  members 
would  be  partners^  and  each  member 
would  therefore  have  a  direct  propri- 
etary interest  in  the  land  of  the  com- 
pany; and  all  these  rulings  were  made 
with  reference  to  companies  owning 
lands.  Others  related  to  companies 
which  owned  lands  and  had  the  fran- 
chise of  receiving  tolls,  such  as  navi- 
gation companies,  turnpiiie  compa- 
nies and  tlie  like,  and  the  reasoning 
wastliat  the  rigiit  to  tolls  was  a  right 
issuing  out  of  laud,  and  hence  an  in- 
corporeal hereditament  and  therefore 
realty.  The  doctrine  thus  came  to  be 
extended  insensibly,  as  in  the  Ken- 
lucky  and  Connecticut  cases  just  cited, 
to  shares  in  incorporated  compa- 
nies—  owning  lauds  —  such  as  a  turn- 


pike company,  as  in  Welles  v.  Cowles, 
supra,  or  a  railroad  company,  as  in 
Price  V.  Price,  supra.  In  his  edition 
of  Cruise,  Prof.  Greenleaf  supposed 
that  shares  in  a  corporation  m  ght  be 
real  or  personal  property  accordingly 
as  the  property  of  the  corporation 
was  real  or  personal  property.  But 
all  these  authorities  overlook  an  ob- 
vious distinction,  which  later  decis- 
ions have  recognized,  which  will  be 
hereafter  stated.  In  Kentucky  and 
Connecticut  the  rule  laid  down  in  the 
cases  already  cited  is  said  to  have 
been  subsequently  repealed  by  statute. 
3  Russell  V.  Temple,  3  Dane  Abr.  108; 
Bligh  V.  Brent,  2  Younge  &  C.  (Exch.) 
268,  294;  Bradley  v.  Holdsworth,  3 
Mees.  &  W.  422;  Tregear  ??.  Etiwanda 
Water  Co.,  76  Cal.  537;  s.  c.  9  Am. 
St.  Rep.  245;  Seward  v.  Rising  Sun, 
79  lud.  351.  Duncuft  v.  Albrecht,  12 
Sim.  189;  Johns  v.  Johns,  I  Oh. 
St.  350;  Southwestern  R.  Co.  v. 
Thomason,  40  Ga.,  408;  Arnolds.  Rug- 
gles,  1  R.  I.  165;  Tippets  v.  Walker, 
4  Mass.  595,  596,  per  Parsons,  C.  J.; 
Allen  V.  Pegram,  16  la.  163,  173;  Ed- 
wards V.  Hall,  6  De  Gex  M.  &  G.  74,  91 ; 
following  Myers  v.  Perigul,  2  De  Gex 
M.  &  G.  599,  where  the  same  was 
held  in  respect  of  shares  of  an  unin- 
corporated joint-stock  company,  and 
overruling  Ware  v.  Cumberlege,  20 
Beav.  503;  s.  c.  24  L.  J.  Chan.  630;  I 
Jur.   (n.  s.)  745. 

857 


1  Thomp.  Corp.  §  IOCS.]     ^ATUKE  of  capital  stock. 

corporated  coinpuny  do  not  give  to  their  owner  any  right  in  the 
property  itself  of  the  company.  That  remains  in  the  artificial 
body  called  the  cori)oration.  It  merely  gives  him  a  right  to  his 
share  of  the  profits  of  the  corporation  while  it  is  a  going  con- 
cern, and  to  a  share  of  the  proceeds  of  its  assets  when  sold  for 
distribution  in  case  of  its  dissolution  and  winding  up.  The 
shareholders  are  neither  joint  tenants,  tenants-in-common,  nor 
coparceners,  in  respect  of  the  corporate  property.  Their 
shares  are  merely  choses  in  action  —  a  right  to  profits  and  divi- 
dends.^ 

§  10G7.  So  arc  Shares  in  Unincorporated  Joint-Stock  Com- 
panies.— It  is  now  settled  in  England  that  shares  in  joint-stock  com- 
panies, whether  incorporated  or  unincorporated,  are,  like  shares 
in  a  partnership,  personal  property.  Thus,  it  has  been  held  that 
shares  in  railroad  companies,'^  canal  companies,^  cost-book  min- 
ing companies,*  foreign  mining  companies,^  insurance  companies,^ 
are  not  interests  in  land  within  the  mortmain  acts.  So,  it  has 
been  held  that  shares  in  water-works  companies,'  cost-book 
mining  companies,^  banking  companies,^  and  railway  companies,^" 
are  not  interests  in  land  within  the  meaning  of  the  fourth  section 
of  the  statute  of  frauds. 

§  1068.  Not  Goods,  Wares  and  Merchandise..  —  Neither  are 
shares  of  joint-stock  companies  goods,  wares,  or  merchandise 
within  the  seventeenth  section  of  the  English  statute  of  frauds.^^ 
It  has  been  so  held  in  respect  of  banking  companies, ^^  railway  com- 

1  As  hereafter  seen,  shares  of  cor-  ^  powell  v.  Jessopp,  18  C.  B.  336; 
porate  stock  are  subject  to  execution  Walker  u.  Bartlett, /cL  8, 45;  Watson  w. 
and  attachment  (post,  §  2765),  as  per-  Spratley,  lOExch.  222;  contra  and  over- 
sonal  property.  i-uled,  Vice  v.  Anson,  7  Barn.  &  Cres. 

2  Linley  v.  Taylor,  1   Giff.  67;  s.  c.  409;  Boyce  v.  Greene,  Batty,  608. 

2  De  Gex  F.  &  J.  84.  ^  Humble  v.  Mitchell,  11  Ad.  &  El. 

3  Edwards  v.  Hall,  6   De  Gex  M.  &      205. 

G.  74.  1"  Duncuftv.  Albrecht,  12  Sim.  189; 

*  Hayter  v.  Tucker,  4  Kay  &  J.  243.  Bradley  v.  Holdsworth,  3  Mees.  &  W. 

5  Baker  v.  Sutton,  1  Keen,  234.  422. 

s  March  v.  Atty.-Gen.,  5  Beav.  433.  "  Watson  v.  Spratley,  10  Exch.  222. 

"  Bligh   V.  Brent,  2   Younge    &  C.  See  Colt  v.  Nettervill,  2  P.  Wms.  304. 

Exch.  268;   Weekley  v.   AVeekley,  Id.  ^  Humble  u.  Mitchell,  11   Ad.  &  El. 

281,  note.  205. 
858 


SHAKES  IN  GENERAL.      [1  Thomp.  Corp.  §  1070. 

panies,^  and  cost-book  mining  companies. ^  Nor  are  such  shares 
within  the  exception  in  the  English  stamp  acts,  exempting  agree- 
ments relating  to  the  sale  of  goods,  wares  and  merchandise  from 
stamp  duty.^  One  modern  American  case  is  met  with,  which 
holds,  but  without  citing  any  authority,  that  shares  of  corporate 
stock  are  goods,  wares  and  merchandise,  within  the  meaning  of 
the  statute  of  frauds,  so  as  to  require  a  note  or  memorandum  in 
writing  to  validate  a  sale  thereof.*  The  court  accordingly  held 
that  a  verbal  contract  by  which  A.  purchases  of  B.  a  one-fourtli 
interest  in  an  existing  corporation  is  void.^  This  decision  does 
not  of  course  impugn  the  well-known  rule  that  shares  of  cor- 
porate stock  may  be  transferred  hy  the  delivery  of  the  stock 
certificate,  which  is  the  symbolical  representative  of  the  sharehold- 
er's interest,  accompanied  with  a  power  of  attorney  in  blank, 
authorizing  the  attorney  in  fact  whose  name  shall  be  inserted 
therein  to  make  the  proper  transfer  upon  the  books  of  the 
company. 

§  1069.  Not  "  Moneys."  —  Shares  or  stock  are  not ' '  moneys  ' ' 
within  the  meaning  of  a  clause  in  a  will  creating  a  specific  be- 
quest.^ 

§  1070.  Are  Choses  in  Action.  — Judicial  opinion  has  char- 
acterized corporate  shares  as  choses  in  action.^  This  will  appear 
to  be  a  sound  conception  when  it  is  reflected  that  corporate 
shares  are  merely  contract  rights,  namely,  the  right  to  partici- 
pate in  the  election  of  the  corporate  officers,  to  be  eligible  to  the 
office  of  director  therein,  to  receive  dividends  of  its  profits,  and, 
after  its  debts  have  been  satisfied,  to  receive  a  proportional  share 
of  its  assets  on  its  being  wound  up.^ 

1  Tempest  v.  Kilner,  2  C.  B.  300;  '  Stanwood  v.  Stanwood,  17  Mass- 
Bowlby  u.  Bell,  3  /d.  284;  Duncuf t  v.  57;  Denton  v.  Livingston,  9  Johns. 
Albrecht,  12  Sim.  189.                                     (N.   Y.)    96;    Planters    &c.     Bank   v. 

2  Watson  u.  Spratley,  10  Exch.  222.      Leavens,   4    Ala.    753;    Slaymaker  v. 
»  Knight  U.Barber,  1  GMees.  &  W.      Bank  of   Gettysburg,  10  Pa.  St.  373; 

66.  Arnold  v.    Ruggles,  1  R.  I.  1G5. 

*  Fine  i;.  Hornsby,  2  Mo.  App.  61;  »  "  Shares,"  says  a  recent  writer  of 

Bernhardt  f.  Walls,  29  Md.  App.  206.  reputation,  "are  not  in  fact  chattels, 

5  Fine  V.  IIonisl>v,  svpra.  vrhile  the  certificates  are;    the  shares 

«  Collins  V.   Collins,    L.  R.  12   Eq.  are  merely  contract  rights."    1   Mor. 

455.  859 


1  Thomp.  Corp.  §  1073.]     jsatlke  of  capital  stock.. 

§  1071.  Shareholders  not  Co-Owners.  —  Shareholders  are 
not  joint  tenants,  or  in  any  other  sense  co-owners  of  the  corpo- 
rate property,  either  before  or  after  its  dissolution.  The  title 
to  it  rests  exclusively  in  the  legal  entity  called  the  corporation.! 
A  share  of  the  capital  stock  merely  gives  the  right  to  partake, 
according  to  the  amount  put  into  the  fund,  of  the  surplus  profits 
of  the  corporation,  and  ultimately,  on  the  dissolution  of  it,  of 
so  much  of  the  fund  thus  created  as  remains  unimpaired  and  is 
not  liable  for  debts  of  the  corporation.  A  subscriber  to  such 
capital  stock  does  not  become  the  owner  of  a  given  number  of 
the  shares,  in  such  a  sense  as  takes  the  shares  out  of  the  corpo- 
rate fund ;  the  fund  becomes  the  property  of  the  aggregate  body 
only.  It  can  only  issue  a  certificate  as  evidence  of  the  existence 
of  the  share  and  ownership.^  From  this  principle  several  im- 
portant consequences  follow,  which  will  be  separately  noted. 

§  1072.  Execution  against  Interest  in  Corporate  Prop- 
erty. —  His  interest  in  the  corporate  property  cannot  therefore 
be  seized  and  sold  under  judicial  process,  as  can  the  interest  of 
a  partner  or  tenant-in-common ;  ^  though,  as  hereafter  pointed 
out,  his  shares,  considered  in  themselves  as  chattels,  can  be  taken 
and  sold  under  execution  or  attachment.* 

§  1073.  Shareholders  cannot  Convey  Corporate  Property 
though  All  Join  in  the  Deed. —  As  the  shareholders  are  in  no 
direct  sense  proprietors  of  the  corporate  property  they  cannot 
convey  the  real  estate  of  the  corporation  though  all  join  in  the 
deed,^  though  effect  may  be  given  to  such  a  conveyance  in 
equity.** 

Priv.  Corp.,?  200.     See  also  the  obser-  3  Williamson  v.    Smoot,    7    Mart. 

vations  of  the  same  writer  at  §§  193  (La.)  31. 

and  225.  "  Post,  §  2765. 

1  Mickles  V.  Rochester  City  Bank,  ^  Wheelock  v.  Moulton,  15  Vt.  519. 
11  Paige  (N.  Y.),  118;  s.  c.  42  Am.  Dec.  The  same  has  been  held  in  England  in 
103;  Spurlock  v.  Missouri  Pacific  R.  respect  of  the  shares  of  an  unincor- 
Co.,  90  Mo.  200,  207;  Williamson  V.  porated  joint-stock  company.  Myers 
Smoot,  7  Mart.    (La.)  31.  v.  Perigal,  2  De  Gex  M.  &  G.  599  (ap- 

2  Burrall  v.  Bushwick  R.  Co.,  75  proved  in  Edwards  v.  Hall,  6  De  Gex 
N.  Y.  211.  M.  &G.  74,  92). 


G  Ante,  §  18. 


860 


SHARES  IN  GENERAi..     [1  Tliomp.  Corp.  §  1077. 

§  1074.  Incorporating  a  Partnership  :  3Iode  of  Succeeding 
to  the  Partnership  Assets. —  From  what  has  preceded  it  will  be 
understood  that  the  mere  fact  of  incorporating  a  partnership 
although  under  the  same  name,  does  not  invest  the  corporation 
with  the  property  of  the  firm ;  but  there  must  be  a  conveyance 
by  the  partners  to  the  new  artificial  entity.^ 

§  1075.  Cannot  Act  for  the  Corporation,  or  Bind  it  by  Ad- 
missions, etc. —  A  shareholder  cannot  bind  his  corporation  by 
his  acts  or  admissions,  in  the  mere  character  of  shareholder,^  — 
though  he  can  if  an  officer,  and  if  the  acts  or  admissions  are 
within  the  scope  of  his  agency.-^  He  cannot,  therefore,  release 
a  debt  due  to  the  corporation.* 

§  1076.  Not  in  a  Trust  Relation  towards  the  Corpora- 
tion.—  The  relation  of  trustee  and  cestui  que  trust,  or  of  debtor 
and  creditor,  or  of  partnership,  does  not  exist  between  the 
stockholders  of  an  incorporated  company  and  the  corporation 
itself.^  But  the  corporation  and  the  individual  shareholder  may 
deal  with  each  other  at  arm's  length  the  same  as  two  strangers 
may,  and  a  shareholder  may  contract  with  his  corporation,  and 
sue  or  be  sued  on  his  contracts.^  A  shareholder  may  become  a 
creditor  of  the  corporation  by  entering  into  a  contract  with  it;  ^ 
and,  on  the  other  hand,  the  corporation  is  regarded  as  a  trustee 
for  the  shareholder  for  the  limited  purpose  of  registering  a  trans- 
fer of  his  shares  on  the  corporate  books. ^  But,  as  hereafter 
seen,*'  the  directors  and  other  managing  officers  stand  in  a  fiduciary 
relation  not  only  to  the  corporation,  but  also  to  the  shareholders. 

§  1077.  Cannot  Sue  the  Directors  at  Law.  —  The  entire 
body  of  siiareholders  are  therefore  not,  in  the  intendment  of  the 

A  Carothers   v.  Alexander,  74  Tex.  *  Verplanck  r.  Mercantile  Ins.  Co., 

3095  «•  c.  12  S.  W.  Rep.  4.  1  Edw.  (N.  Y.)  84. 

2  Shay    V.   Tuolumne  Water  Co.,  6  «  Culbertson  v.  Wabash  Nav.  Co., 

Gal.  73.  4  McLean  (U.  S.),  544. 

»  Post,  §  3740.  '  Borland   v.   Haven,   37  Fed.  Rep. 

*  Harris  v.  Muskingum    Mfg.  Co.,  394. 
4  Blackf.    Cliid)  207.     Compare  Ber-  »  Pos<,  §  2486. 

ford  V.   New  York  Iron  Mine,  4  N.  Y.  »  Post,  §  3899,  ct  seq. 

Supp.  83(5 ;    5C  N.  Y.    Super.   Ct.    (24 
Jones  &  S.)  236. 

861 


1  Thomp.  Corp.  §  1080. J     nature  of  capital  stock. 

law,  the  corporation,  though  they  are  often  regarded  as  such  in 
the  eye  of  courts  of  equity,  which  look  through  the  forms  to  the 
substance  of  things.  From  this  it  follows  that  the  directors  of 
the  corporation  are  not  the  agents  of  the  aggregate  body  of 
stockholders,  in  the  theory  of  courts  of  the  common  law,  though 
they  are  trustees  for  them  in  the  theory  of  courts  of  equity.  Not 
being  such  agents,  a  stockholder  cannot  maintain  an  action 
against  them  for  their  negligence  or  malfeasance  in  the  conduct 
of  the  affairs  of  the  corporation  whereby  its  assets  have  been 
wasted  and  his  shares  have  been  rendered  worthless.^ 

§  1078.  Not  Responsible  for  Its  Torts.  —  The  shareholder  is 
neither  responsible  for  the  debtSj^nor  for  the  torts  of  the  corpo- 
ration.^ Nor  is  the  agept  of  the  corporation  his  agent,  and  be 
will  not  therefore  be  bound  by  the  fraudulent  representations  of 
the  latter.* 

§  1079.  Not  in  Privity  with  Each  Other.  —  Nor  are  stock- 
holders in  privity  with  each  other ;  nor  do  they,  in  the  absence 
of  special  engagements,  occupy  any  trust  relation  towards  each 
other ;  but  they  may  deal  with  each  other  at  arm's  length  just 
as  they  may  so  deal  with  the  corporation.^  Therefore,  the  un- 
authorized acts  of  one  shareholder  will  not,  in  the  absence  of 
special  circumstances,  be  imputed  to  the  others,  or  bind  them 
in  any  manner  to  their  detriment.* 

§  1080.  Not  Necessary  Parties  to  Suits  in  Respect  of  Cor- 
porate Rights. — In  the  absence  of  special  circumstances  here- 

1  Smith  V.  Hurd,  12  Mete.  (Mass.)  tion  of  its  road.  Atchison  &c.  R.  Co. 
371;  post,  §3980.  v.  Cochran,  43  Kan.  225;   s.  c.  23  Pac. 

2  Post,  §2815.  Rep.  151. 

3  Thus,  a  complaint  under  a  mill  act  *  The  fraudulent  representations  of 
(Mass.  Pub.  Stat.  1882,  ch.  190),  for  an  agent  of  the  corporation  concern- 
Uoioage,  etc.,  against  the  individuals  ing  the  value  of  the  stock  vpill  not 
of  a  corporation,  cannot  be  sustained  vitiate  a  sale  of  stock  by  a  stockhold- 
where  the  charter  subjects  them  to  no  er,  who  has  no  notice  of  the  fraud. 
personal  liability.  Norton  u.  Hodges,  Moffat  u.  Winslow,  7  Paige  (N.  Y.), 
100  Mass.  241.     So,  a  stockholder  of  a  124. 

railroad  company  is  not  liable  for  the  ^  Gillettu.  Bowen,  23  Fed.  Rep.  625. 

negligence   of   the  officers,  agents,   or  *  Western  Mining   &c.  Co.   v.  Pey- 

employes  of  the  company  in  the  opera-  tona  Canal  Coal  Co.,  8  W.  Va.  406. 
862 


SHARES    I\    GENERAL.       [1    Thoilip.  Corp.    §   1082. 

after  considered/  shareholders  cannot  be  parties,  either  plaintiff 
or  <lefendant,  in  actions  respecting  corporate  rights.  That 
is  to  say,  in  those  actions  where  the  corporation  itself  must 
regularly  prosecute  or  defend.  They  cannot  sue  individually  for 
the  conversion  of  corporate  property. ^  Nor  can  a  shareholder 
have  an  injunction  to  restrain  a  slander  of  the  title  of  the  cor 
poration  to  its  property.^  Nor,  in  the  absence  of  statutes,  can 
they  be  defendants  in  actions  at  law  against  the  corporation.*  It 
has  been  held  in  one  jurisdiction  that  a  shareholder  cannot  sue 
in  the  corporate  name  to  recover  his  individual  rights,  without 
the  assent  of  a  majority  of  the  corporation,  nor  carry  on  such  a 
suit  b}'  certiorari.^ 

§  1081.  Not  Affected  with  Notice,  etc — A  stockholder  is 
not,  simply  as  such,  bound  to  know  the  rules  and  regulations 
which  the  directors  may  prescribe  for  the  transaction  of  the 
business  of  the  corporation,  with  the  public  generally,  merely 
because  they  appear  recorded  on  the  minute  books  of  the  cor- 
poration.^ Nor  is  notice  to  an  officer  of  the  corporation  notice 
to  a  shareholder  in  such  a  sense  as  to  affect  his  rights.^  But  it 
has  been  held  that  subscribers  for  stock  in  a  corporation  must 
be  presumed  to  know  the  provisions  of  its  charter.^ 

§  1082.  To  What  Extent  in  Privity  with  the  Corporation. — 

But  for  certain  purposes,  he  is  in  privity  with  the  corporation, 

1  Post,  Ch.  89.  '  Thus,  it  has  been  held  that  where 

2  To.nlinson  v.  Bricklayer's  Union,  several  persons,  acting  together  as  a 
87  Ind.  308 ;  Langdou  v.  Hillside  Coal  society  under  the  name  of  a  certain 
&c.  Co.,  41  Fed.  Rep.  609.  "  grange,"   subscribe   for  stock  in  a 

3  Post,  Ch.  89.  corporation,  a  notice  by  a  creditor  of 
■*  Post,  Ch.  89.     A  stockholder  in  a      an     insolvent      corporation,  for    the 

corporation  is  no  party  in  a  suit  against  purpose  of  charging  the  mem- 
it,  although  his  individual  property  is  bers  of  the  grange  as  stockhold- 
attached  in  the  suit,  and  a  copy  of  the  ers,  given  to  the  master  or  pre- 
writ  is  left  with  him;  and  he  may  im-  siding  officer  of  the  grange,  is  not 
peach  the  judgment  recovered  therein,  notice  under  Kan.  Gen.  Stat.  1889, 
when  introduced  against  him.  Whit-  §  1 192,  to  the  members  of  the  grange, 
man  v.  Cox,  26  Me.  335.  Wells  v.   Robb,  43    Kan.  201;  s.  c,  23 

s  Silk   Mfg.  Co.  V.  Campbell,  27  N.  Pac.  Rep.  148. 
J.  L.  539.  »  Wight  v.    Shelby    R.    Co.,  16   B. 

«  Pearsall  v.  Western  Uu.  Tel.  Co.,  Mon.  (Ky.)  4. 
44  Hun   (N.  Y.),  532;  ».  c.  9   N.  Y.  St. 
Rep.  132. 

863 


I  Thomp.  Corp.  §  1083.]     nature  of  capital  stock. 

as  much  as  though  it  were  a  partnership,  and  he  were  a  member 
of  it.  Thus,  as  respects  his  h'ability  to  answer  ultimately  for 
the  debts  of  the  corporation,  a  judgment  against  the  corpora- 
tion, in  the  view  taken  by  several  of  the  courts,  concludes  him 
as  much  as  though  he  were  a  party  to  the  record ;  ^  though  the 
rule  seems  to  be  otherwise  in  New  York.^  It  has  been  held  that 
the  immunity  which  attends  the  acts  of  de  facto  officers,  does  not 
apply  to  the  acts  of  a  pretended  board  of  directors  of  a  corpo- 
ration which  has  never  been  organized  in  accordance  with  the 
law  of  its  creation,  as  respects  stockholders  of  the  pretended 
corporation  who  participate  actively  in  its  proceedings.^ 

§  1083.  T^o  Distinction  in  these  Respects  between  Incorpo- 
rated and  Unincorporated  Companies.  —  There  is  no  distinction 
in  substance  between  the  rights  of  a  shareholder  in  an  incorpo- 
rated and  an  unincorporated  joint-stock  company,  so  far  as  the  na- 
ture of  his  interest  in  the  property  is  concerned.  "  It  would  be 
unfortunate,"  said  Mr.  Baron  Martin,  "  if  it  were  found  to  be  so. 
It  would,  as  already  observed,  of  necessity  introduce  a  new  course 
of  dealing  from  what  has  hitherto  been  in  use  in  regard  to  this 
species  of  property,  which  would  be  inconvenient;  and  it  would 
make  a  distinction  between  shares  in  one  species  of  joint-stock 
companies  and  another,  which  persons  not  acquainted  with  the  law 
would  not  readily  appreciate  or  understand.     I  think,  however, 

1  Merrill  w.  Suffolk  Bank,  31  Me.  Iowa,  13.  The  Kansas  court,  in  Grund 
57;  Came  v.  Brigham,  39  Me.  35;  v.  Tucker,  5  Kan.  70,  hold  that  the 
Milliken  y.  Whitehouse,  49  Me.  529;  judgment  against  the  corporation  is 
Slee  V.  Bloom,  20  Johns.  (N.  Y.)  669;  prima  facie  evidence  against  thestock- 
s.  c.  10  Am.  Dec.  273;  Moss  v.  Oak-  holder.  It  was  not  necessary  to  go 
ley,  2  Hill  (N.  Y.),  265;  Belmont  beyond  this,  for  there  was  no  rebut- 
V.  Coleman,  1  Bosw.  (N.  Y.)  188;  ting  evidence  offered.  But  in  its 
Donworth  v.  Coolbaugh,  5  Iowa,  reasoning  the  court  follows  that  ia 
300;  Wilson  v.  Pittsburgh  &c.  Coal  Slee  v.  Bloom,  20  Johns.  (N.  Y.)  669, 
Co.,  43  Pa.  St.  424;  Grund  v.  Tucker,  which  is  to  the  effect  that  such  ajudg- 
5  Kan.  70.  Contra,  Moss  v.  McCul-  ment  is  conclusive.  Hawes  v.  Anglo- 
lough,  5  Hill  (N.  Y.),  131;  Strong  u.  Saxon  Co.,  101  Mass.  385,397;  Milli- 
Wheaton,  38  Barb  (N.  Y.)  616;  Miller  ken  v.  Whitehouse,  49  Me.  527;  Don- 
V.  White,  50  N.  Y.  137;  McMahon  v.  worth  v.  Coolbaugh,  5  Iowa,  300.  See 
Macy,    51    N.    Y.  155.     See  Moss   v.  post,  §  S282,et  seq. 

Averell,   10  N.    Y.   449;    Belmont    v.  -  McMalion  v.  Macy,  51  N.  Y.  155. 

Coleman,  21   N.  Y.   96;  s.  c.    1  Bosw.  ^  Miller  v.  Ewer,  27  Me.  509,  634. 
(N.  Y.)   188;  Hampson  v.    Weare,  4 
864 


SHARES  IX  gent:ral.     [1  Thomp.  Corp.  §  1084. 

there  is  no  such  difference.  In  substance  and  reality,  the  inter- 
est of  the  shareholder  in  a  mining  unincorporated  company,  and 
in  an  incorporated  joint-stock  company,  is  exactly  the  same.  In 
both  it  is  an  interest  in  the  ultimate  profits.  In  neither  can  the 
shareholder  directly  intermeddle  or  deal  with  the  land;  and 
although  apparently  in  a  mining  company  the  interest  of  a  share- 
holder in  laud  seems  to  be  greater  than  in  ordinary  trading  Joint- 
stock  companies,  nevertheless  almost  all  trading  companies  have 
houses  or  land,  and  without  them  their  business  could  not  in 
general  be  carried  on,  as  was  observed  by  the  vice-chancellor 
in  Hilton  v.  Giraud.^  The  share  in  a  mining  company  consists 
of  an  interest  in  the  machinery,  the  capital,  the  skill  and  labor 
employed  upon  the  mine,  as  well  as  in  the  mine  itself.  The  em- 
ployment of  land,  may  be,  or  may  be  supposed  to  be,  greater 
in  degree  in  raining  companies,  but  the  nature  of  the  property 
in  the  share  is  the  same  as  in  the  shares  of  other  trading  part- 
nerships into  the  capital  of  which  land  or  the  use  of  it  does  not 
so  largely  enter."  ^ 

§  1084.  A  Comparison  between  Shares  in  a  Partnership  and 
Shares  in  a  **  Company."  —  Sir  Nathaniel  Lindley,  in  his  work 
on  Partnership,^  points  out  a  close  resemblance  between  shares 
in  a  simple  partnership  and  shares  in  what  in  England  is  called  a 
company,  which  is  understood  to  mean  a  joint-stock  company, 
which  may  be  either  incorporated  or  unincorporated.  He  says : 
*'  What  is  meant  by  the  share  of  a  partner  is  his  proportion  of 
the  partnership  assets  after  they  have  all  been  realized  upon  and 
converted  into  money,  and  all  the  debts  and  liabilities  have  been 
paid  and  discharged.*     This  it  is,  and  this  only,  which,  on  the 


1  1  De  Gex  &  S.  187.  Featherstonhaugh  v.  Fenwick,  17  Ves. 

2  Watson  V.  Spratlcy,  10  Exch.  222,  298;  Darby   v.    Darby,  3  Drew.   495, 
238;  ante,  §1007.  503.     To  which  the  learned  American 

8  2  Lind.  Part.  (4th  ed.)  661,  662.  editor.  Dr.  Ewell,  has  added  the  fol- 
*  In  support  of  this  proposition  he  lowing  citations  of  American  cases 
cites  the  following  cases,  all  of  which  which  seem  equally  applicable:  Smith 
support  his  text:  Doddlngton  w.  Hal-  w.  Evans,  37  Ind.  526;  Carter  v.  Brad- 
let,  1  Ves.  Sr.  497;  Croft  d.  Pyke,  3  P.  ley,  58  111.  101;  Hill  v.  Beach,  12  N. 
Wms.  180;  West  v.  Skip,  1  Ves.  Sr.  J.  Eq.  31;  Douglas  v.  Winslow,  20 
239;  Taylor  v.  Fields,  4  Ves.  396;  Me.  89;  Perry  v.  Holloway,  6  La.  Ann. 
Crawshayv.  Collins,  15  Ves.  218,  229;  265;  Simpsons.   Leech,    86  111.  286; 

865 


1  Thomp.  Corp.  §  1084.]     nature  of  capital  stock. 

death  of  a  jDartner,  passes  to  his  representatives  or  to  a  legatee 
of  his  share;  ^  which  under  the  old  law  was  considered  as  bona 
notahilia;'^  which  on  his  bankruptcy  passes  to  his  trustee;  ^  and 
which  the  sheriff  can  dispose  of  under  a  Ji.  fa.  issued  at  the 
suit  of  a  separate  creditor,*  or  under  an  extent  at  the  suit  of  the 
crown. ^  *  *  *  Speaking  generally,  a  share  in  a  company 
signifies  a  definite  portion  of  its  capital.  When  a  company  is 
formed,  a  sum  of  money  is  fixed  upon  and  is  called  its  capital ; 
this  sum  is  divided  into  a  number  of  equal  portions ;  each  of 
these  portions  is  a  share,  and  whether  the  sum  fixed  upon  is  ever 
all  subscribed  or  not,  and  whether  what  is  subscribed  is  employed 
profitably  or  the  contrary,  a  share  retains  its  original  meaning. 
A  share  in  a  company,  like  a  share  in  a  partnership,  is  in  truth  a 


Filley  v.  Phelps,  18  Conn.  294;  Staats 
V.  Bristow,  73  N.  Y.  264;  Schalck  u, 
/  Harmon,  6  Minn.  265,  269;  Re  Cor- 
bett,  5  Sawyer  (U.  S.),  206;  Hallu. 
Clagett,  48  Md.  223;  Coukling  v. 
Washington  University,  2  Md.  Chan. 
497;  Menagh  v.  Whitwell,  52  N.  Y. 
146;  Mayer  v.  Garber,  53  Iowa,  689; 
»■.  c.  6  N.  W.  Rep.  63.  See  also  Taft 
V.  Schwamb,  80  III.  289 ^  Chase  v. 
Scott,  33  Iowa,  309. 

1  Citing  Farquhar  v.  Hadden,  L.  R. 
7  Chan.  1. 

2  Citing  Ekins  v.  Brown,  1  Eccl.  & 
Adm.  Rep.  (Spink)  400;  Atty.-Gen.  v. 
Higgins,  2  Hurl.  &  N.  339. 

3  Citing  Smith  v.  Stokes,  1  East^ 
363. 

•*  Skipp  V.  Harwood,  2  Swanst.  586 ; 
Re  "Wait,  1  Jac.  &  W.  585 ;  Johnson 
V.  Evans,  7  Man.  &  G.  240;  Menagh  u. 
Whitwell,  52  N.  Y.  146;  Holmes  v. 
Mentze,  4  Ad.  &E1.  127;  s.  c.  5  Nev. 
&  M.  563;  4  Dowl.  300;  Sitler  v. 
Walker,  1  Freem.  Ch.  (Miss.)  77; 
Place  V.  Sweetzer,  16  Oh.  142;  James 
V.  Stratton,  32  111.  202;  Newhall 
?;.  Buckingham,  14  111.  405;  White 
V.  Jones,  38  Hi.  159;  Dow  v.  Say- 
word,  14  N.  H.  9;  s.c.  12  N.  H.271; 
Marston  v.  Dewberry,  21  La.  An.  518; 
Nixon  V.  Nash,  12  Oh.  St.  647;  Choppin 
866 


V.  Wilson,  27  La.  An.  444;  Saunders 
V.  Bartlett,  12  Heisk.  (Tenn.)  316; 
Wilson  V.  Strobach,  59  Ala.  488; 
Weaver  v.  Ashcroft,  50  Tex.  428;  Peo- 
ple's Bank  v.  Shryock,  48  Md.  427; 
Morgan  v.  Watmough,  5  Whart.  (Pa.) 
125;  Wiles  v.  Maddox,  26  Mo.  77; 
Thomas  v.  Lusk,  13  La.  An.  277; 
Nelson  v.  Conner,  3  La.  An.  456;  Lee 
V.  BuUard,  Id.  462;  Phillips  w.  Cook, 
24  Wend.  (N.  Y.)  389;  U.  S.  v.  Will- 
iams, 4  McLean  (U.  S.),  236;  Will- 
iams V.  Gage,  49  Miss.  777;  Brewster 
V.  Hammet,  4  Conn.  540;  Gibson  v. 
Stevens,  7  N.  H.  352;  Filley  v.  Phelps, 
18  Conn.  294 ;  Witter  v.  Richards,  10 
Conn.  37;  Jones  v.  Thompson,  12  Cal. 
191;  Fisk  V.  Herrick,  6  Mass.  271; 
Pierce  v.  Jackson,  6  Mass.  242;  Tap- 
pan  V.  Blaisdell,  5  N.  H.  190;  Knox  v. 
Summers,  4  Yeates  (Pa.),  477;  Mc- 
Carty  ■;;.  Emlen,  2  Yeates  (Pa.),  190; 
Knox  V.  Schepler,  2  Hill  (S.  C), 
595;  White  v.  Dougherty,  Mart.  &  Y. 
(Tenn.)  309;  Lyndon  v.  Gorham,  1 
Gall.  (U.  S.)  367;  Merrill  v.  Rinker, 
1  Bald.  (U.  S.)  528. 

5  Citing  Rex-y.  Sanderson,  Wightw. 
50;  Rex  v.  Rock,  2  Price,  198;  Rex 
V.  Hodge,  12  Price,  537;  Spears  v. 
Atty.-Gen.,  6  Clark  &  F.  180. 


SHARES    IN    GENERAL.       [1   Thomp.  Coi'p.    §   1085. 

definite  proportion  of  a  joint  estate  after  it  has  been  turned  into 
money  and  applied  as  far  as  may  be  necessary  in  payment  of  the 
joint  debts."  ^ 

^  §  1085.   Capital  Stock  a  Liability  of  the  Corporation.  —  The 

capital  stock  of  a  corporation  is  not  a  debt  due  by  the  shareholders 
to  the  corporation;  on  the  contrary,  the  shares  of  such  stock 
represent  a  liability  of  the  corporation  to  the  shareholders.  It 
follows  that  if  the  shareholder,  at  a  time  when  the  corporation 
is  insolvent  sell  his  shares  for  value  to  another  person  or  corpo- 
ration, and  the  transfer  is  properly  executed,  neither  the  former 
corporation  nor  its  receiver,  or  other  representative  of  it  or  its 
creditors,  can  maintain  a  suit  against  the  shareholder  for  the 
money  which  he  has  so  received  for  his  shares.  An  apology 
would  be  due  for  discussing  a  question  so  absurd,  if  it  had  not 
been  contested  in  an  important  case  by  able  counsel.  The  case 
was,  that  a  life  insurance  com[)any,  which  we  will  call  A,  being 
in  difficulties  and  insolvent,  transferred  its  assets  and  its  risks  to 
another  company  which  we  will  call  B,  upon  a  contract,  the  con- 
sideration of  which  was  twofold :  1 .  That  Company  B  should  re- 
insure the  risks  of  Company  A.  2.  That  Company  B  should  issue 
its  paid-up  shares  of  stock,  dollar  for  dollar,  to  all  the  share- 
holders of  Company  A  who  should  ai)ply  for  the  same  within 
twenty  days,  and  that  it  should  also  redeem  its  stock  so  issued 
by  paying  to  the  holders  of  it  its  par  value,  if  demanded  by  them 
within  twelve  months.  At  the  time  when  this  contract  was  made 
and  executed  as  between  the  two  companies,  Company  B  was 
also  insolvent,  though  it  was  at  the  time  a  going  concern.  One  of 
the  shareholders  of  Company  A  owned  shares  of  such  company  of 
the  par  value  of  $5500.  For  this  he  received,  under  the  terms  of 
the  contract,  paid-up  shares  of  Company  B  of  like  value,  and  after- 
ward, upon  his  request,  Company  B  redeemed  the  same  by  pnying 
him  $5500  therefor.     Subsequently  a  receiver  in  charge  of  the 

'  Citing  "Watson    v.    Spratley,    10  bciua;  whether   such    ownership  was 

Exch.  222;  Sparling  u.  Parker, 9  Beav.  capable   of    conferring    the    elective 

450.     The  question  of  the  nature   of  franchise.     The  case  is  valuable  for 

the  ownership  of  shareholders  in  un-  the  observations  of  two  of  the  judges 

incorporated    joint-stock    companies  upon  tlie   nature  of  such   ownership, 

came  before  the  Court  of  Session  of  Dove  v.    Young,    7  Macpherson,  304, 

Scotland  in  18(18,  the  precise  question  30G.     See  also  ante,  §§  3,  4,  5,  6,  1067. 

867 


1  Thomp.  Corp.  §  1085.]     natuue  of  capital  stock. 

affairs  of  Company  A  brought  an  action  against  this  shareholder 
to  recover  the  money  which  he  had  thus  received  from  Company 
B,  alleging  that  this  exchange  and  redemption  of  stock  was 
merely  a  contrivance  whereby  the  shareholders  of  Company  A 
appropriated  to  their  own  use  and  in  redemption  of  the  capital 
stock  of  Company  A,  a  portion  of  the  assets  of  such  company,  in 
fraud  of  its  creditors,  and  that  the  payments  made  by  Company 
B  in  redeeming  the  shares  of  stock  which,  in  pursuance  of  the 
contract,  it  hud  issued  to  the  shareholders  of  Company  A,  were 
made  out  of  the  funds  received  by  it  from  Company  A.  The 
validity  of  the  transfer  of  assets  had  been  conclusively  established 
in  another  proceeding,  and  was  not  controverted.  It  was  held 
that  the  receiver  could  not  recover,  and  this  upon  several  obvi- 
ous grounds.  The  contract  between  the  two  companies  could 
not  be  avoided  in  part ;  it  must  stand  or  fall  as  an  entirety.  As 
its  validity  was  not  drawn  in  question,  it  followed  that  there  was 
no  privity  between  the  plaintiff  and  the  defendant,  siuce  the  lat- 
ter had  ceased  to  be  a  shareholder  of  the  corporation  of  which 
the  plaintiff  was  receiver.  The  receiver,  as  the  representative 
of  Company  A,  had  no  right  to  recover  on  the  theory  that  the 
money  thus  paid  to  the  defendant  by  Company  B  was  a  part  of 
the  assets  of  Company  A  ;  since,  by  the  terms  of  a  valid  contract, 
Company  A  had  sold  and  tranferred  all  its  assets,  these  in- 
cluded, to  Company  B.  If,  therefore,  the  defendant  was  liable 
to  any  one  to  restore  the  money  he  had  thus  received,  he  was 
liable,  not  to  the  receiver  of  Company  A,  but  to  the  receiver  of 
Company  B.^ 

1  Bent  V.  Hart,  73  Mo.  641 ;  affirming  s.  c.  10  Mo.  App.  143.     Sherwood,  CT 
J.,  dissented. 
868 


WHO   MAY   BECOME    SHAREHOLDERS.       [1    Thomp.  Corp.   §  1090. 


CHAPTER    XX. 

WHO  MAY  BECOME   SHAREHOLDERS  IN  CORPORATIONS. 

Art.    I.  Natural  Persons,  §§  1090-1098. 

II.  Private  Corporations,  §§  1102-1111. 
III.  Municipal  Corporations,  §§  1115-1133. 

Article  I.  Natural  Persons. 

Section  Section 

1090.  Persons  capable  of  contracting.  1095.  Infants. 

1091.  By  what  law  the  subject  gov-  1096.  Married  women. 

erned.  1097.  Where  the  married  woman  has 

1092.  Alien  friends.  an  equitable  separate  estate. 

1093.  Ambassadors  of  foreign  coun-  1098.  Husband's  liability  for  calls  in 

tries.  respect  of  wife's  shares. 

1094.  Alien  enemies. 

§  1090.  Persons  Capable  of  Contracting. — A  subscription 
to  the  stock  of  a  corporation  being  a  contract,  the  general  rule 
13  that  no  one  can  become  a  subscriber  who  is  incapable  of 
contracting.^  The  legislature  may,  and  in  some  cases  American 
legislatures  have,  in  granting  special  charters  changed  this  rule 
as  to  particular  corporations,  by  enacting  that  married  women, 
for  example,  may  become  subscribers  to  their  capital  stock,  es- 
tablishing a  special  enabling  act  for  the  benefit  of  the  particu- 
lar company .2  Where  there  is  no  such  exception  to  the  general 
rule,  a  subscription,  valid  and  effective  for  all  purposes,  can  be 
made  by  a  person  under  disability,  only  through  the  intervention 
of  a  trustee  who  is  not  under  a  disability  ;  and  then  the  trustee 
becomes  in  legal  effect  the  shareholder,  and  answerable  per- 
sonally as  such,  subject  of  course  to  the  obligations  of  his  trust 
as  between  himself  and  the  beneficiary  therein.^     It  should  be 

i  Lind.  Comp.  L.  5th  ed.,  p.  36.  »  Post,  §3084. 

2  Post,  §1096. 

869 


1  Thomp.  Corp.  §  1094.]     who  may  become  shareholders. 

borno  in  mind  that  the  incapacity  of  persons  under  disability 
to  subscribe  for  shares  does  not  amount  to  a  disability  to  oivn 
shares,  where  the  title  to  shares  is  devolved  upon  them  in  any 
mode  permitted  by  lavv.^ 

§  1091.  By  what  Lavv  the  Subject  Governed. — The  ques- 
tion whether  a  person  in  any  given  case  is  competent  to  becorao 
a  subscriber  to  the  shares  of  a  corporation,  is  governed  by  tho 
general  law  of  the  State  or  country  creating  the  corporation; 
and  if  the  charter  or  governing  statute  of  the  corporation  con- 
tains a  special  enabling  act,  such  as  that  S[)oken  of  in  the  last 
section,  that  of  course  governs.  So  tliat,  it  may  be  affirmed 
with  confidence  that  the  question  is  governed  exclusively  by  the 
law  of  the  domicil  of  the  corporation. 

§  1092.  Alien  Friends. —  No  principle  of  the  common  law 
exists  which  prevents  an  alien  friend  from  becoming  a  share- 
holder in  a  corporation  ;  and  as  hereafter  seen,^  such  share- 
holder has  the  same  right  to  vote  at  a  corporate  election  as  a 
citizen  shareholder.^ 

§  1093.  Ambassadors  of  Foreign  Countries.  —  An  ambas- 
sador of  a  foreign  country  undoubtedly  has  the  same  capacity  to 
become  a  shareholder  that  is  possessed  by  any  other  alien  friend  ; 
though  while  accredited  and  received  as  such  ambassador, 
he  is  privileged  from  all  civil  actions,  and  he  consequently 
cannot  be  sued  for  assessments.* 

§  1094.  Alien  Enemies. —  Alien  enemies,  domiciled  in  their 
own  country,  cannot  become  shareholders  in  a  domestic  corpora- 

1  Post,  §§  1095,  2307,  3161,3162.  the  British  navigation  laws  and   the 

2  Post,  §  2936-  British  flag,  and  were  yet  owned  by 

3  It  has  been  held  that  a  ship  may  an  American  corporation;  and  so  the 
have  an  English  register,  though  some  steamship  China,  belonging  to  the 
of  the  members  of  the  company  which  Pacific  Mail  Steamship  Company 
owns  it  are  aliens  (Reg.  v.  Arnaud,  9  (shame  to  our  navigation  laws!) 
Ad.  &  El.  (n.  s.)  80G) ;  and  it  is  well  sails  under  the  British  flag, 
known  that  the  steamships  City  of  *  Magdalena  Steam  Nav.  Co.  v. 
New  York  and  City  of  Paris  originally  Martin,  2  El.  &  El.  94. 

had  British  registers  and  sailed  under 
870 


NATURAL  PERSONS.      [1  Tliomp.  Corp.  §  1095. 

tion,  while  the  war  lasts;  because,  on  a  principle  of  public  law, 
no  contract  can  take  place  between  them  and  citizens  of  the 
domestic  country,  since  such  a  contract  involves  the  making  of 
communications  across  lines  of  belligerent  occupancy,  which 
is  contrary  to  the  policy  of  war  and  hence  unlawful.  Such  being 
the  reason  of  the  rule,  it  extends  not  only  to  all  citizens  of  the  en- 
emy country  residing  therein,  but  also  to  all  other  persons  therein 
resident:  all  the  people  of  the  opposing  states  are  regarded 
as  enemies  without  regard  to  their  citizenship  or  disposition.^ 
Executory  contracts  which  are  of  such  a  nature  that  they  can- 
not be  carried  on  without  intercourse  across  the  belligerent  lines, 
are  dissolved  by  the  fact  of  war,  and  this  principle  works  disso- 
lutions of  partnerships,  since  partners  are  agents  for  the  firm 
and  for  each  other. "^  But  as  a  shareholder  is  not  in  privity  with 
the  corporation  within  the  principles  of  the  common  law — is  a 
distinct  person  from  it  and  from  the  other  shareholders,  with 
whom  he  may  deal  even  in  respect  of  corporate  rights  as  with 
stranofers,^  —  it  would  seem  to  follow  that  a  declaration  of  war 
will  not  have  the  effect  of  severing  the  relation  of  a  shareholder, 
where  the  corporation  is  domiciled  within  one  of  the  belligerent 
countries  and  the  shareholder  in  the  other;  though  it  will  sns- 
pend  any  legal  remedies  which  either  may  have  against  the  other. ^ 

§  1095.  Infants.  —  An  infant  may  become  a  shareholder, 
either  by  an  original  subscription  or  by  a  purchase,  but  subject 
to  his  right  to  repudiate  the  relation  either  during  his  infancy  or 
within  a  reasonable  time  after  coming  of  age  ;  ^  but  so  long  as  he 
elects  to  hold  on  to  the  shares,  he  must  pay  calls  like  other  share- 
holders :   he  cannot  keep  the  benefit  and  repudiate  the  burden.^ 

1  The  Peterhoff,   5   Wall.  (U.   S.)  2  Hanger  t;.  Abbott,  6  Wall.  (U.  S.) 

28;  Jecker   v.  Montgomery,  18  How.  532. 

(U.  S.)  110;  Lamar  v.  Browne,  92  U.  ^  ^^ite,  §1071. 

S.  187;  The  Flying  Scud,  G  Wall.  (U.  *  Liud.   Comp.    L.   5th  ed.,  p.    37; 

S.)  263;  Mrs.   Alexander's  Cotton,   2  Ex  parte  Boussmaker,  13  Ves.  71. 

WaU.   (U.  S.)  404;  Albrecht  v.  Suss-  *  Lind.  Comp.  L.  5th  ed.  p.  39;  Co. 

man,    Vcs.    &    B.   323;    Willison   v.  Lit.  3806;  Dublin  &c.  R.  Co.  v.  Black, 

Patteson,      7    Taunt.  440 :    Ex   parte  8  Exch.  181 ;  London  &c.  E.  Co.  v.  Mc- 

Boussmaker,  13  Vcs.  71;  Potts  V.Bell,  Michael,  5  Plxch.    114;  Newry  &c.  R. 

ST.   R.   548;    Houriet  v.   Morris,    3  Co.  v.  Coombe,  3  Exch.  5(!5. 

Camp.  303;  Bell  v.  Reid,  1    Maule  &  «  Lind.  Comp.   L.   5th  ed.,   p.   39; 

S.  72G.  Cork  &c.  R.  Co.  v.  Cazenove,  10  Ad.  & 

871 


1  Thomp.  Corp.  §  1097.]     who  may  become  shareholders. 

If  he  signs  the  memorandum  of  association  in  England,  he  there- 
by becomes  a  member  until  he  elects  to  disaffirm  ;^  and  while, 
in  case  of  a  transfer  being  made  to  him,  the  directors  have  the 
power  to  reject  him  as  a  shareholder  by  reason  of  his  infancy,^ 
yet  the  transfer  being  voidable  only,  and  not  ipso  facto  void, 
unless  they  do  this,  it  will  be  good.^ 

§  1096.  Married  Women So  many  statutory  changes  have 

taken  place  within  recent  years  in  respect  of  the  contractual 
powers  and  property  rights  of  married  women  that  it  is  difficult 
to  affirm  with  much  confidence  what  her  power  of  becoming  a 
shareholder  in  a  corporation  is,  except  in  those  jurisdictions 
where  the  legislature  has  substantially  removed  her  common-law 
disabilities,  as  has  been  done  in  Missouri,  Mississippi,  New  York 
and  several  other  States.  By  the  principles  of  the  common  law 
she  cannot  contract  as  a  principal,  with  a  few  limited  exceptions. 
Where  she  still  rests  under  the  common-law  disabilities,  she  can- 
not therefore  be  a  party  to  an  original  subscription  to  shares  or 
to  a  transfer  of  them,  so  as  to  be  answerable  as  a  shareholder.* 
She  therefore  cannot  be  one  of  the  five  subscribers  required  to 
join  in  an  application  for  an  incorporation  under  a  statute  of 
Pennsylvania,  as  the  statute  contemplates  only  persons  not  under 
disability.^  But  in  England  the  incorporation  of  a  company  is 
not  affected  by  the  fact  that  one  of  the  signers  of  the  memo- 
randum of  association  is  an  infant.'' 

§  1097.  Where  tbe  Married  Woman  has  an  Equitable 
Separate  Estate. — Where  the  married  woman  has  an  equitable 
separate  estate,  she  may  make  contracts  with  respect  to  that 
estate  as  if  she  were  sole,  to  the  extent  that  a  court  of  equity 
will  give  effect  to  such  contracts  by  making  them  a  charge  upon 

El.    (n.  8.)  935;  Leeds  &c.  R.  Co.  v.  to   other  persons  under  disability  is 

Fearuley,  4  Exch,   2G;  Loudon  &c.  R.  reserved  for  future  treatment:   post, 

Co.  V.  McMichael,  5  Exch.  114.  §3160,  et  seg. 

'Re  Nassau  Phosptiate  Co.,  2  Ch.  *  Lind.  Comp.  5th  ed.,  p.  41;  Wit- 

Div.  610.  ters  v.  Sowles,  38  Fed.  Rep.  700. 

2  Symons'  case,  L.  R.  5  Ch.  298;  ^  Re  Application  for  Charter  (Pa. 
post,  §         .  Exec.  Dept.),  27  W.  N.  C.  399. 

3  Lumsden's  case,  L.  R.  4  Ch.  31.  '^  Re  Nassau  Phosphate  Co.,  2  Ch. 
The  effect  of  transfers  to  infants  and  Div.  610. 

872 


NATURAL  PERSONS.     [I  Thomp.  Corp.  §  1097. 

her  separate  estate,  provided  that  was  the  intent  of  the  parties 
to  the  contract.^  The  separate  estate  here  spoken  of  is  care- 
fully to  be  distinguished  from  that  species  of  statutory  separate 
estate  which  is  often  held  to  be  a  legal  estate;  though  the 
difference  between  the  two  estates  relates  rather  to  the  mode 
of  enforcing  her  engagements  in  respect  of  them  than  other- 
wise. Where  she  has  an  equitable  separate  estate  she  can 
charge  it  with  a  debt  created  in  writing,  and  therefore  there 
would  seem  to  be  no  doubt  that  she  can  charge  it  by  her  written 
contract  of  subscription  to  the  shares  of  a  joint-stock  corpora- 
tion. Equity  would  give  effect  to  such  a  contract,  as  meaning- 
less and  illusory  unless  it  should  be  treated  as  a  charge  upon  her 
separate  estate.  Where  the  estate  is  a  statutory  legal  estate, 
she  may,  it  has  been  held,  become  a  stockholder  in  every  sense 
of  the  term. 2  Such  is  understood  to  be  the  estate  created  by 
the  English  Married  Woman's  Property  Act,  1882. ^  Here, 
unless  restrained  by  the  terms  of  the  instrument  creating  the 
estate,  she  can  deal  with  it  in  all  respects  as  Sifeme  sole.  "  She 
can,"  says  Sir  N.  Lindley,  *'  invest  it  in  shares  and  make  her- 
self liable  to  pay  for  them  and  to  pay  calls  upon  them  to  the 
extent  of  her  separate  estate,  and  on  the  winding  up  of  the  com- 
pany she  will  be  a  contributory  in  respect  of  her  shares  to  the  like 
extent.*  Her  husband  is  not  liable  in  respect  of  such  shares."  ^ 
This  act  contains  distinct  provisions  as  to  the  rights  of  a  married 
woman  as  a  shareholder, — enabling  her  to  compel  the  company 
to  register  fully  paid  up  shares  in  her  name ;  ^  providing  that 
shares  standing  in  her  sole  name  shall  be  deemed  to  belong  to 
her  for  her  separate  use  until  the  contrary  is  proved;  '  and 
leaving  her  alone  liable  after  marriage  for  calls  in  respect  of 
shares  held  before  marriage,  but  subject  to  the  qualification  stated 
in  the  next  section.^ 

1  Whitesides  V.Cannon,  23  Mo.  457;  ^Citing  §§  6  and  7  of  the  act; 
Lincoln  v.  Rowe,  51  Mo.  575;  Sharpe  also  Matthewman's  case,  L.  R.  3  Eq. 
V,  McPikc,  G2  Mo.  308;  Davis  v.  781 ;  Re  London  &c.  Bank,  18  Ch.  Div. 
Smith,  75  Mo.  225;  Bauk  v.    Collins,  581. 

Id.  281;    Martin  v.   Colburu,  88  Mo.  ^  Lind.  Comp.  L.  5th  ed.,  p.  41. 

231,  237.  6  i^^  §§  6,  7;  see  Reg.  v.  Carnatic 

2  Witters  v.  Sowles,  38  Fed.  Rep.  R.  Co.,  L.  R.  8  Q.  B.  299. 
700.  '  Ibid. 

3  45  &  4G  Vict.,  ch.  75.  s  jg^  ^  §  14 

873 


1  Thomp.  Corp.  §  llO'i.]     who  may  become  shareholders. 

§  109S.  Husband's  Liability  for  Calls  in  Respect  of 
Wife's  Shares.  —  By  the  principles  of  the  common  hiw  the 
husband  is  liable  for  calls  in  respect  of  shares  held  by  his  wife 
before  marriage.^  The  reason  is,  roughly  speaking,  that  he  gets 
the  shares,  —  at  least  he  has  the  power  of  reducing  them  into  his 
possession,  as  choses  in  action  belonging  to  her,  which  power  he 
exercises,  unless  there  is  a  marriage  settlement  providnig  other- 
wise. Statutes  seem  to  have  modified  this  rule  so  as  to  make  him 
liable  to  calls  made  on  his  wife's  shares,  whether  before  or  after 
marriage,  if  he  has  in  fact  obtained  by  the  marriage  property  of 
the  wife  to  the  value  of  such  calls. ^ 

Akticle  II.     Private   Couporations. 


Section 

1102.  One  corporation  cannot  become 

a  stockholder  in  anotlier. 

1103.  Keason  of  the  rule. 

1104.  Illustrations:    railroad   compa- 

nies. 

1105.  Further  illustrations:    banking 

companies. 

1106.  Other  illustrations. 

1107.  Cannot  subscribe   for    its   own 

stock. 


Section 

1108.  Limited  view  that  one  corpora- 

tion can  invest  in  the  shares 
of  another. 

1109.  Illustrations. 

1110.  Consequences  which  flow  from 

this  view. 

1111.  Undoing  such  transaction:  es- 

toppel—  laches. 


§  1102.  One  Corporation  cannot  Become  a  Stockholder  in 
Another.  —  It  may  perhaps  be  laid  down,  as  a  general  rule,  that 
a  corporation,  unless  expressly  empowered  to  do  so  by  its  gov- 
ernino-  statute,  cannot  subscribe  for  shares  of  stock  in  another 
corporation.^ 


1  Liud.  Comp.  L.  5th  ed.,  p.  42; 
citing  Luard's  case,  1  DeGex  F.  &  J. 
533;  Burlinson's  case,  3  DeGex  &  Sm. 
18;  Sadler's  case,  Id.  36;  Khlut's 
case.  Id.  210;  "White's  case,  Jrf.  157; 
Ex  parte  Hatcher,  12  Ch.  Div.  284. 

^  Lind.  Comp.  L.  5th  ed.,  p.  42;  Ex 
parte  Hatcher,  12  Ch.  Div.  284;  Bell's 
case,  4  App.  Cas.  550. 

3  Berry  v.  Yates,  24  Barb.  (N.  Y.) 
199,  210;  Mutual  Savings  Bank  v. 
Meriden  Agency  Co.,  24  Conn.  159; 
874 


Zabriskie  v.  Railroad  Co.,  23  How. 
(U.  S.)  381;  Hodges  u.  New  England 
Screw  Co.,  1  R.  I.  322;  s.  c.  Thomp. 
Off.  Corp.  260;  White  v.  Syracuse 
&c.  R.  Co.,  14  Barb.  (N.  Y.)  559; 
Connecticut  &c.  Ins.  Co.  v.  Railroad 
Co.,  41  Barb.  (N.  Y.)  9;  Talmage 
V.  Pell,  7  N.  Y.  348;  New  York  Ex- 
change Co.  V.  De  Wolf,  5  Bosw.  (N. 
Y.)  593;  Central  R.  Co.  v.  Collins, 
40  Ga.  582;  Hazlehurst  v.  Savan- 
nah   R.   Co.,  43  Ga.   13;   Sumner  v. 


PRIVATE    CORPORATIONS.       [1    Thomp.  Coi'p.    §   1104. 

§  1103.  Reason  of  the  Rule. —  The  reason  of  the  rule  is  that 
if  a  corporation  could,  by  buying  up  the  majority  of  the  stock 
of  another  corporation,  be  admitted  to  vote  as  a  shareholder  in 
the  meetings  of  such  other  corporation,  the  purchasmg  corpora- 
tion could  take  the  entire  management  of  the  business  of  the 
latter,  however  foreign  such  business  might  be  to  that  which  the 
purchasing  corporation  was  created  to  carry  on.  A  banking 
corporation  could  thus  become  the  operator  of  a  railroad  or  of  a 
manufacturing  business,  and  any  other  corporation  could  engage  in 
banking  by  obtaining  the  control  of  the  stock  of  an  incorporated 
bank.  "  Nor  would  this  result  follow  any  the  less  certainly,  if 
the  shares  of  stock  were  received  in  pledge  only  to  secure  the 
payment  of  a  debt,  provided  the  shares  were  transferred  on 
the  books  of  the  company  to  the  name  of  the  pledgee."  ^ 
The  reason  of  the  rule  was  well  stated  by  Mr.  Justice 
Walton:  «'  If  a  corporation  can  purchase  any  portion  of  the 
capital  stock  of  another  corporation,  it  can  purchase  the  whole, 
and  invest  all  its  funds  in  that  way,  and  thus  be  enabled  to 
engage  exclusively  in  a  business  entirely  foreign  to  the  purposes 
for  which  it  was  created.  A  banking  corporation  could  become 
a  manufacturing  corporation,  and  a  manufacturing  corporation 
could  become  a  banking  corporation.  This  the  law  will  not 
allow."  2 

§  1104.  Illustrations:  Railroad  Companies.—  In  conformity 
with  the  general  principles  thus  stated  ,it  has  been  held,  that  though  a  rail- 
road corporation  may  take  the  stock  of  another  railroad  corporation  by 
way  of  security  for  a  debt,  it  has  no  power  to  invest  its  corporate  funds  in 

Marcy,  3  Woodb.  &  M.  (U.  S.)  105;  sylvania  R.    Co.,    31   N.    J.    Eq.   475. 

Franklin  Co.     v.   Lewiston  Inst.,   68  Compare  the  following  English  cases: 

Me.  43;  s.  c.  28  Am.  Rep.  9;  Franklin  Great  Western  R.  Co.  v.  Metropolitan 

Bank  v.  Commercial  Bunk,  3(>  Oh.  St.  R.  Co.,  23  L.  J.  Ch.  382;  s.  c.  9  Jur. 

350;  Coppin  v.  Greenlees,  38  Oh.  St.  (n.  s.)   562;  Ex  parte  Contract  Corp. 

375;  s.  c.  43  Am.  Rep.  425;    McMillan  L.  R.,  3  Ch.  105;  Royal  Bank  of  India's 

c.  Carson  Hill  Union  Mining  Co.,  12  Case,  L.   R.  4  Ch.  252,257;   Mayor  v. 

Phila.    (I'a.)   404;     Valley   R.   Co.   v.  Baltimore  &c.  R.  Co.,  21  Md.  50. 

Lake  Erie  Iron  Co.,  46  Oh.  St.  44;  s-  ^  Franklin    Bank    v.    Commercial 

c.  1  L.  R.  A.  412;   People  v.  Chicago  Bank,  36  Oh.  St,   350;   s.  c.  38   Am. 

Gas  Trust  Co.,  130  III.  268;    s.   c.   8  Rep.  594,  opinion  by  Boynton,  J. 

L,  R.  A.  497;    17  Am.    St.  Rep.    319;  ^  Franklin  Co.   v.   Lewiston  Inst., 

Central  R.  Co.,  of  New  Jersey  v.  Penn-  08  Me.  43;  s.  c.  28  Am.  Rep.  9. 

875 


1  Thoiiip.  Corp.  §  1105.]     who  may  become  shareholders. 

the  purchase  of  such  stock.  1  -  -  -  -  A  railroad  company,  chartered 
for  the  pui'pose  of  building  and  maintaining  a  railroad  from  Savannah 
to  Macon,  with  general  powers  to  purchase  and  hold  personal  estate, 
of  any  character  whatever,  was  not  authorized  to  become  a  stockholder 
in  a  railroad  from  Savannah  to  Bainbridge.  Such  purchase  was  wholly 
beyond  the  purpose  of  its  charter. ^  .  -  -  -  A  railroad  company 
organized  under  the  general  railroad  law  of  Missouri  has  no  power  to 
purchase  the  notes  given  by  subscribers  to  the  stock  of  any  other  rail- 
road company  on  account  of  their  subscriptions  and  enforce  them 
against  such  subscribers.  Nor  does  the  fact  that  the  former  railroad 
company  has  purchased  the  road-bed  of  the  latter  with  the  intention  of 
completing  its  road  confer  upon  it  such  power.  ^ 

§  1105.  Further    Illustrations:     Banking     Companies. — A 

banking  corporation,  through  its  president,  subscribed  to  a  creamery, 
but  before  any  act  was  done  or  expenditure  made  on  the  faith  of  such 
subscription,  it  was  withdrawn.  It  was  held  that  it  was  simply  an 
executory  contract,  and  that  the  subscription  could  at  the  time  be  with- 
drawn, and  that  the  bank  was  not  liable.^  _  _  -  _  One  banking 
corporation  received  a  certificate  of  two  hundred  shares  of  the  capital 
stock  of  another  banking  corporation,  from  the  president  of  the  latter 
corporation,  as  security  for  a  loan  made  to  him  individually.  Subse- 
quently the  bank  making  the  loan  presented  the  certificate  for  the  shares 
to  the  corporation  whose  shares  they  were,  and  demanded  a  transfer 
of  them  to  it,  on  tlie  defendant's  books.  This  transfer  was  refused, 
and  the  lending  bank  sued  the  other  for  a  conversion  of  the  shares. 
The  governing  statute  prohibited  any  bank  from  holding  or  purchasing 
stock  in  another  corporation,  except  to  prevent  a  loss  upon  a  debt 
previously  contracted  in  good  faith.  It  was  held  that  the  action  was 
not  maintainable.^  _  .  .  .  The  trustees  of  a  savings  institution  in 
Maine  subscribed  for  fifty  thousand  dollars  of  the  capital  stock  of  the 
Continental  Mills,  a  manufacturing  company.  Having  no  money  to  pay 
for  the  shares,  the  savings  institution  procured  another  corporation  to 
advance  the  money  and  to  take  the  notes  of  the  savings  institution 
therefor,  with  a  certificate  of  the  stock  thus  subscribed  for  in  the  name 
of  the  savings  institution,  assigned  as  collateral  security  for  the  payment 

1  Millbank  ?;.  New  York&c.  R.  Co.,  ^  Holt   v.  Winficld   Bank,   25   Fed. 
64  How.  Pr.  (N.  Y.)  20.  Rep.  812. 

2  Central  K.   R.  Co.  v.  Collins,   40  *  Franklin     Bank    v.    Commercial 
Ga.  582.  Bank,   36   Oh.  St.   350;    s.  c.   38  Am. 

3  West  End  Narrow  Guago  R.  Co.  v.  Rep.  594. 
Dameron,  4  Mo.  App.  414. 

876 


PRIVATE  CORPORATIONS.     [1  Thomp.  Corp.  §  1107. 

of  the  notes.  In  an  action  by  the  corporation  which  had  thus  advanced 
the  money,  against  the  savings  institution,  it  was  held  that  the  action  of 
the  trustees  of  the  savings  institution  was  ultra  vires;  that  it  is  not 
<;ompetent  for  such  an  institution,  at  a  time  when  it  has  no  funds  for 
investment,  to  purchase  stocks,  or  other  property  not  needed  for  imme- 
diate use,  on  ci-edit,  and  thus  create  a  debt  binding  upon  the  institu- 
tion; that  the  corporation  making  the  advance  of  money,  having 
participated  in  the  illegal  transaction,  could  not  claim  the  privileges  of 
a  bona  fide  holder  of  commercial  paper ;  and  that  the  savings  institu- 
tion, having  received  no  benefit  from  the  transaction,  was  not  estopped 
to  set  up  the  defense  of  ultra  vires.^ 

§  1106.  Other  Illustrations.  —  A  joint-stock  corporation, 
organized,  as  expressed  in  their  articles  of  association,  "to  do  a 
general  insurance  agency,  commission  and  brokerage  business,  and  such 
other  things  as  are  incidental  to,  and  necessary  in,  the  management  of 
that  business,"  has  no  power  to  subscribe  to  the  stock  of  a  savings  bank 
and  building  association. ^  -  -  -  .  A  corporation  formed  under  the 
general  incorporation  act  of  Illinois,  for  a  purpose  other  than  deahng  in 
stocks,  cannot  exercise  the  power  of  purchasnig  corporate  shares,  except 
where  such  a  power  is  necessarily  implied  from  some  power  specifically 
granted  by  the  statute.  Therefore  a  gaslight  company  cannot  purchase 
and  hold  or  sell  the  shares  of  another  gaslight  company,  although  the 
adventurers  who  have  organized  it  have  assumed  to  take  to  themselves 
such  a  power  in  their  articles  of  association.  ^ 

§   1107.   Cannot  Subscribe  for  or  Purchase  its  Own  Stock. — 

A  corporation  has  no  general  power  to  subscribe  for  or  to 
purchase  sbiires  of  its  own  stock.  The  principle  that  an  execu- 
tory contract  which  is  ultra  vires  will  not  be  enforced  has  been 
held  with  reference  to  an  executory  agreement  by  a  manufactuing 
corporation  to  buy  shares  of  its  own  stock.*  This  is  well  illus- 
trated by  a  case  where,  under  the  general  incorporation  law  of 
Oregon,  articles  wore  filid  to  incorporate  the  Oregon  Central 
Railroad  Co.,  with  a  capital  stock  of  $7,250,000,  divided  into 
72,500  shares  of  $100  each.  Six  persons  subscribed  one  share 
each,  and  the   seventh    subscription    was    as  follows:  "Oregon 

'Frauklin  Co.    v.  Lewiston    Inst.  130  III.  2G8;  s.  c.  8  L.  R.  A.  497;  17 

68  Me.  43;  s.  c.  28  Am.  Kcp.  9.  Am.  St.  Rep.  319. 

2  Meclumlcs  &c.  Bank  v.  Meriden  ^  Coppin   v.  Greenloes   &c.  Co.,  38 

Agency  Co.,  24  Conn.  159.  Oh.  St.  275;  s.  c.  43  Am.  Rep.  425. 

•■'  People  V.  Chicago  Gas  Trust  Co., 

877 


1  Thomp.  Corp.  §  1108.]     who  may  become  shareholders. 

Central  Railroad  Company,  by  G.  L.  Woods,  chairman,  seventy 
thousand  shares —  seven  million  dollars."  It  was  held  that  this 
subscription  was  a  nullity,  and  that  a  board  of  directors  elected 
by  the  six  pcrsous  could  not  lawfully  transact  business  for  the 
corporation.^ 

§  1108.  Limited  View  that  One  Corporation  can  Invest  in 
tlie  Shares  of  Another. — A  few  decisions  are  met  with  where 
the  view  is  taken  that  a  corporation  may  invest  in  the  stock  of 
other  corporations,  as  well  as  in  any  other  funds,  provided  it  be 
done  bona  Jide,  and  with  no  sinister  or  unlawful  purpose,  and 
there  be  nothing  in  its  charter,  or  in  the  nature  of  its  business, 
that  forbids  it.^  The  theory  of  these  cases  seems  to  be  that 
such  a  purchase  is  not  necessarily  void ;  ^  and  it  has  been  held 
that  there  is  no  presumption  that  a  corporation  is  incapable  of 
purchasing  and  holding  shares  of  the  stock  of  another  corpora- 
tion, it  not  appearing  under  what  circumstances  it  was  acquired 
or  held.^  Sir  Nathaniel  Lindley  thinks  that  *' there  is  no 
general  principle  of  law  which  prevents  a  corporation  from 
holding  shares  in  a  company,  except  the  principle  that  a 
corporation  cannot  lawfully  employ  its  funds  for  purposes  not 
authorized  by  its  constitution."  And  he  adds,  citing  the  author- 
ities in  the  margin:  "It  has  been  assumed  by  the  legislature, 
in  many  of  the  statutes  relating  to  companies,  that  corpo- 
rations may  lawfully  be  shareholders,^  and  at  common  law 
one  corporation  may  be  a  member  of  another.*'  Accordingly 
it  has  held  that,  where  the  above  principle  does  not  apply,  one 
company  may  hold  shares  in  another  ;^  although  not  in  a  benefit 

1  Holliday  v.  Elliott,  8  Or.  84.  ^  gee  for  example  the  Companies 

2  Booth  V.  Robinson,  55  Md.  419,  act  1862,  §  23,  and  the  interpretation 
^yn  put  on  it  in  the  cases  cited  in  note  (t) ; 

3  Hill  V.  Nisbet,  100  Ind.  341.  the  Industrial  and  Prov.  Soc.  act,  39 

4  Evans  v.  Bailey,  G6  Cal.  112.  In  and  40  Vict.,  c.  45,  §  12  (4)  ;  7  Wra.  IV. 
Mutual  Savings'  Bank  v.  Meriden  and  1  Vict.,  ch.  73,  §§  6  and  10;  7  and 
Agency,  24  Conn.  159,  the  court  went  8  Vict.,  ch.  110,  §§  3  and  7  (8), and  §50. 
no  further  than  to  declare  that  a  sub-  «  Grant  on  Corporations,  p.  6. 
scription  by  a  corporation  to  the  stock  ^  Ex  parte  Contract  Corp.,  3  Ch. 
of  another  corporation,  whose  objects  105;  Royal  Bank  of  India's  case,  4 
were  in  no  wise  connected  with  those  Ch.  252,  and  7  Eq.  91. 

of    the    subscribing    corporation,    is 
void. 

878 


PRIVATE    CORPORATIONS.        [1    TllOIup.  Coi'p.    §   1110. 

building  society.^  Practically,  however,  it  may  be  said  to  be 
prima  facie  ultra  vires  for  one  company  to  hold  shares  in 
'another:  i.  e.,  power  to  do  so  must  be  shown  to  be  expressly 
or  impliedly  given  to  it."  ^ 

§  1109.  Illustrations. — For  instance,  the  Supreme  Court  of  Ten- 
nessee has  taken  the  view  that  there  is  no  legal  objection  to  the  holders 
of  the  stock  of  an  insurance  corporation  purchasing  the  stock  and 
franchises  of  ixhanh.  This  is  not  regarded  as  an  absorption  of  the  bank 
francliises  by  the  insurance  corporation.  ^  _  _  _  _  Under  statutes 
of  Kansas,  a  railroad  company  has  the  power  to  purchase  and  hold  the 
stock  of  any  other  railroad  company,  the  line  of  whose  railroad,  con- 
structed or  being  constructed,  connects  with  its  own.^  -  _  -  - 
A  company  organized  for  the  purpose  of  owning,  developing  and 
disposing  of  a  large  quantity  of  wild  and  inaccessible  land,  with  power 
to  build  a  railroad  not  more  than  twenty  miles  in  length,  has  power, 
it  seems,  to  subscribe  to  the  stock  of  a  railroad,  the  building  of 
which  is  necessary  to  afford  access  to  the  subscribing  company's 
lands. 5  _  _  -  -  The  West  Virginia  statute  which  forbids  one 
corporation  to  subscribe  for  or  purchase  the  bonds  or  stock  of 
another  corporation  except  in  payment  of  a  bona  fide  debt,  is  held  not 
to  preclude  advances  made  on  bonds  and  stock  as  collateral  security.^ 

§  1110.  Consequences  which  Flow  from  this  View. —  Where 
the  view  obtains  that  one  corporation  may  rightfully  purchase 
and  hold  the  shares  of  stock  of  another,  the  ordinary  liabilities 
of  a  stockholder  attach  to  the  corporation  which  so  acts. 
Thus,  where  a  banking  firm  purchased  in  their  own  name  shares 

1  Dobison  v.  Hawks,  16  Sim.   407.  by  a  life  insurance    company  of    the 

A  corporation  cannot  be  treasurer  of  a  stock    of   a  fire    insurance    company 

friendly  society.    Ex  parte   Swansea  will    not    be   set  aside  because  fully 

Friendly  Society,  11  Ch.  D.  7G8.  executed.     Alexander  w.  Jones,  8  Mo. 

'^  See  Great  W.  Rail.  Co.  v.  Metrop.  App.  589,  591. 

Rail.  Co.,  9  Jnr.  (n.  s.)  502;  Ex  parte  ^  Atchison  &c.  R.  Co.  v.  Fletcher,  35 

Contract  Corp.,   3  Ch.  105;  Ex  parte  Kan.  236;  Atchison  &c.  R.  Co.  w.  Coch- 

British   Nation  &c.    Ass.,  8  Ch.  Div.  ran,  43  Kan.  225;  s.  c.  7  L.  R.  A.  414; 

679,  where  it  was  held  that  a  society  23  Pac.  Rep.,    151;  Atchison    &c.    R. 

to  whicn  shares  in  another  society  had  Co.  v.  Davis,  34  Kan.  209.     Compare 

been  transferred  by  an  act  ultra  vires,  Pullman  Palace   Car  Co.  v.  Missouri 

could  not  be  placed  on  the  list  of  con-  Pacific  R.  Co.,  115  U.  S.  587. 

tributories    of    that    society.      Lind.  »  "Watts' Appeal,  78  Pa.  St.  370,  392. 

Comp.  5th  ed.  p.  43.  "  Tavlor  County  Court  v.  Baltimore 

estate    V.    Butler,    86   Tenn.   614.  &c.  R.  Co.,  35  Fed.  Rep.  161. 
Circumstances  under  which  a  purchase 

871) 


1  Thonip.  Corp.  §  1111.]     who  may  become  shareholdeks. 

of  stock  for  a  customer,  which  they  treated  as  their  own,  ami  so 
made  it  appear  on  the  books  of  the  corporation  issuing  the  stock, 
it  was  held  that  they  assumed  the  liability  of  stockholders  as 
between  themselves  and  the  corporation.^  But  it  seems  that  a 
corporation  cannot,  by  merely  purchasing  the  shares  of  another 
corporation,  and  thereby  acquiring  control  of  it,  succeed  to  its 
special  francJiises.  Thus,  it  isheld  in  Massachusetts  that  the  fact 
that  one  corporation  has  purchased  the  property  and  most  of  the 
capital  stock  of  another  corporation  does  not  necessarily 
authorize  the  purchasing  corporation  to  do  that  which,  under  a 
special  act,  the  other  corporation  is  authorized  to  do,  but  which 
the  general  law  prohibits.^ 

§  1111.  Undoing  Sucli  Transactions:  Estoppel  —  Laches. — 

Although  a  corporation  may  not  possess  the  power  to  deal  in 
the  shares  of  another  corporation,  yet  one  who  has  purchased 
from  a  corporation  the  shares  of  another  corporation,  will  not  be 
allowed  to  escape  the  payment  of  the  purchase  money  by  setting 
up  such  want  of  power. ^  The  estoppel  works  also  against 
the  corporation  so  assuming  to  act.  Thus,  a  railroad  company 
was  held  estopped  to  deny  its  liability  under  a  contract  by  which 
it  loaned  the  sum  of  $150,000  to  another  railroad  company, 
whose  road  it  had  leased,  taking  as  security  1,500  shares  of  the 
stock  of  the  lessor  company.  The  court  found,  however,  that 
the  contract  was  within  the  scope  of  the  powers  of  the  lessee 
corporation  ;  that  it  had  been  entered  into  by  the  proper  officers 
and  had  been  recognized  by  corporate  acts;  and  the  holding  was 
that  the  lessee  company  was  estopped  from  setting  up  that  its 
officers  were  not  authorized  to  make  the  contract.*  In  short,  it 
seems  that  a  defense  of  want  of  power  so  to  act  will  not  avail 
where  there  has  been  laches,^  or  were  the  other  party  to  the 
contract  cannot  be  put  in  statu  quo.^ 

1  McKim    V.  Glenn,    66   Md.    479;  ^  Peterborough  K.  Co.,  v.  Nashua 
s.   c.   8  Atl.   Rep.  130;   5   Cent.    Rep.      &c.  R.  Co.  59  N.  H.  385. 

776;  9  East.  Rep.  901.  <^  Boston  &c.   R.  Co.  v.  New  York 

2  French  v.  Connecticut  River  Lum-      &c.  R.  Co.,  13  R.  I.  260. 

ber  Co.,  145  Mass.  261.  6  Terry  v.  Eagle  Lock  Co.,  47  Conn. 

3  Holmes  &  Griggs    Man.    Co.  v.      141, 
Holmes  &  Wessel  Metal  Co.,  53  Hun 

(N.  Y.),  52 ;    s.  c.  5  N.  Y.  Sup.  p.  937. 

880 


WHO   MAY   BECOME   SHAREHOLDERS.       [1   Thomp.  Corp.   §  1115, 


Article  III.     Municipal  Corporations. 


Skction 

1115.  Validity     of     municipal     sub" 

scriptions  to  private  corpora- 
tions. 

1116.  Illustrations   of  the  principle: 

aid  to  railroad  companies  val- 
id —  to  manufacturing  com- 
panies not. 

1117.  Rule  in  the  absence   of  direct 

constitutional  restraints. 

1118.  Validity  of  statutes  authorizing 

municipal  subscriptions  to 
corporations. 

1119.  Power  to  grant  such  aid  by  way 

of  subscription  settled. 

1120.  Whether  power  exists  to  make 

donations  to  such  companies. 

1121.  Eight    to    municipal    aid    not 

created  by  general  words. 

1122.  Right  to  municipal  aid  passes 

to  new  company  on  consoli- 
dation. 

1123.  Statute  repealed    before    right 

vested. 

1124.  An  illustration  of  this  principle. 


Section 

1125.  Another  illustration  of  the  same 

principle. 

1126.  Invalidity  of  State  statutes  at- 

tempting to  take  away  the 
remedy  on  such  subscrip- 
tions. 

1127.  Validity  of  statutes  transferring 

benefit  of  subscription  from 
the  county  to  the  tax-payers . 

1128.  Instances      of     such    statutes 

impairing  the  obligation  of 
contracts. 

1129.  Invalidity  of  statute  compelling 

town  to  subscribe  to  a  rail- 
road. 

1130.  Injunction  to  prevent  issue  of 

bonds  where  terras  of  sub- 
scription not  complied  with. 

1131.  Release    of      subscription      by 

abandonment  of  the  work. 

1132.  Petitions   "representing  a  ma- 

jority of  the  tax-payers,"  etc. 

1133.  Subscriptions    by    a    sovereign 

State. 


§   1115.  Validity  of  Municipal  Subscriptions  to  Private  Cor- 
porations  Whether  the  legislature  of  a  State  has  the  power 

to  authorize  cities,  towns  or  counties  to  subscribe  for  the  shares 
of  private  corporations,  and  to  exert  the  taxing  power  to  raise 
money  to  pay  such  subscriptions,  depends  for  the  most  part  on 
the  question  whether  the  object,  as  far  as  it  affects  the  public, 
which  the  corporation  is  organized  to  promote,  is  a  public  object 
as  distinguished  from  a  merely  private  enterprise.  As  presently 
seen,^  nearly  all  American  courts  hold  that  municipal  aid  may  be 
extended  in  this  form  to  corporations  organized  for  the  building 
and  operating  of  railroads,  turnpike  roads,^  and  pla^ik  roads.^ 
But  it  is  equally  clear  that,  under  our  American  State  constitu- 
tions, such  aid  cannot  be  extended  to  corporations   which   are 


^  Post,  §1118. 

2  Com.  V.  McWilliams,  11  Pa.  St.C2. 


3  Weturapka   v. 
051. 


Winter,    29    Ala. 
881 


1  Thomp.  Corp.  §  1116.]     who  may  become  shareholders. 

organized  to  promote  merely  private  enterprises,  because  of 
some  supposed  collateral  benefit  which  may  thereby  accrue  to 
the  public.! 

§  1116.  Illustrations   of    the    Principle:    Aid  to    Railroad 
Companies   Valid  —  to  Manufacturing    Companies   not.  —  To 

illustrate  this  principle  let  us  take  a  case  which  arose  under  the  consti- 
tution of  Alabama,  which  provided  that  private  property  shall  not  be 
taken  "  for  public  use,  or  for  the  use  of  corporations  other  than 
municipal,  without  the  consent  of  the  owner,"  and  that  "the  State 
shaU  not  engage  in  works  of  internal  improvement,  but  its  credit,  in 
aid  of  such,  may  be  pledged  by  the  General  Assembly  on  undoubted 
security."  Construing  these  provisions,  it  has  been  held  that  the 
legislature  has  power  to  authorize  a  county,  as  a  body  corporate,  on  a 
popular  vote  of  the  county,  to  subscribe  for  stock  in  a  railway 
company ;  and  that,  for  the  payment  of  the  stock  so  subscribed,  the 
county  may  be  compelled  by  mandamus  to  issue  its  bonds  and  deliver 
them  to  the  railway  company. ^  Let  us  throw  into  contrast  with  this  a 
ease  where  a  statute  authorized  a  municipal  corporation,  with  the  con- 
sent of  a  majority  of  the  owners  of  taxable  property,  to  subscribe  for 
the  stock  of  a  private  manufacturing  corporation  and  to  issue  bonds  in 
paj^ment  thereof.  Here  it  was  held  (1)  that  the  statute  was  unconsti- 
tutional and  void,  inasmuch  as  it  attempted  to  authorize  taxation  for 
other  than  public  purposes;  (2)  that  the  fact  that  the  estabhshmeut 
of  the  business  of  the  corporation  would  tend  to  increase  the  business 
prosperity  of  the  town  did  not  render  its  purpose  a  pubhc  use  ;  and,  (3) 
that  the  town  was  not  estopped  from  denying  the  vahdity  of  the 
bonds  by  the  fact  that  it  had  previously  voted  a  special  tax  to  pay  the 
interest  thereon. ^ 

1  Weismer  V.  Douglas,  64  N.  Y.  91;  Wall.  (IT.  S.)  349.  This  decision  falls 
s.  c.  21  Am.  Rep.  586;  Loan  Asso.  v.  in  the  wake  of  Loan  Association  v. 
Topeka,  20  Wall.  (U.  S.)  655;  Olcott  Topeka,  20  Wall.  (U.  S.)  655,  where 
V.  Supervisors,  16  Wall.  (U.  S.)  689;  it  was  held  that  an  act  authorizing  a 
People  V.  Salem,  20  Mich.  452;  Jen-  municipal  corporation  to  use  the 
kins  V.  Andover,  103  Mass.  94 ;  Whiting  power  of  taxation  iu  aid  of  a  private 
V.  Fond  du  Lac,  25  Wis.  188;  Allen  v.  manufacturing  company  was  void,  as 
Jay,  60  Me.  124.  exceeding  those  implied  reservations 

2  Ex  parte  Selma  &c.  R.  Co.,  45  of  power  which  exist  in  every  free 
Ala.  696 ;  s.  c.  6  Am.  Rep.  722.  government.     The  power  of  a  munici- 

3  Weismer  v,  Douglas,  64  N.  Y.  91 ;  pal  corporation  to  lend  its  credit 
s.  c.  21  Am.  Rep.  586;  denying  Alle-  to  a  private  manufacturing  corpo- 
ghenyCity  y.  McClunkan,  14Pa.  St.81;  ration  to  enable  it  to  erect  its 
commending  Thomas  v.  Richmond,  12  works  in  the  town    was    denied    by 

882 


MUNICIPAL  CORPORATION.     [1  Thomp.  Corp.  §  1117. 

§  1117.  Rule  in  the  Absence  of  Direct  Constitutional 
Restraints. —  Nor  does  it  appear  necessary  that  there  should  be 
any  direct  constitutional  restraint  upon  the  power  of  the  legis- 
lature of  a  State  to  authorize  taxation  for  merely  private  objects, 
in  order  to  render  void  municipal  aid  to  corporatiodis  organized 
to  promote  such  objects.  The  Supreme  Court  of  the  United 
States  has  declared  that  the  power  of  taxation  can  only  be 
exerted  for  public  purposes,  and  has  laid  down  the  broad  rule  that 
in  free  governments  there  is  an  implied  reservation  of  power 
which  prevents  the  legislature  from  passing  an  act  whereby, 
through  the  forms  of  taxation  and  under  the  guise  of  promoting 
the  public  benefit,  the  property  of  A.  is  taken  away  from  him 
and  given  to  B.  <' It  must  be  conceded,"  said  Mr.  Justice 
Miller,  speaking  for  the  court,  "  that  there  are  such  rights 
in  every  free  government  beyond  the  control  of  the  State.  A 
government  which  recognized  no  such  rights,  which  held  the 
lives,  the  liberty,  and  the  property  of  its  citizens  subject  at  all 
times  to  the  absolute  disposition  and  unlimited  control  of  even 
the  most  democratic  depository  of  power,  is  after  all  but  a  des- 
potism. It  is  true  it  is  a  despotism  of  the  many,  of  the  majority, 
if  you  choose  to  call  it  so,  but  it  is  none  the  less  a  despotism.  It 
may  well  be  doubted  if  a  man  is  to  hold  all  that  he  is  accustomed 
to  call  his  own,  all  in  which  he  has  placed  his  happiness,  and  the 
security  of  which  is  essential  to  that  happiness,  under  the  unlim- 
ited dominion  of  others,  whether  it  is  not  wiser  that  this  power 
should  be  exercised  by  one  man  than  by  many.  The  theory  of 
our  governments.  State  and  national,  is  opposed  to  the  deposit 
of  unlimited  power  anywhere.  The  executive,  the  legislative, 
and  the  judicial  branches  of  these  governments  are  all  of  limited 
and  defined  powers.  There  are  limitations  on  such  power  which 
grow  out  of  the  essential  nature  of  all  free  governments  ;  implied 
reservations  of  individual  rights,  without  which  the  social  com- 
pact could  not  exist,  and  which  are  respected  by  all  governments 
entitled  to  the  name.  No  court,  for  instance,  would  hesitate  to 
declare  void  a  statute  which  enacted  that  A.  and  B.,  who  were 

the  Supreme  Judicial  Court  of  Maine  vate  school  not  under  the  control  of 
in  Allen  v.  Jay,  CO  Me.  124.  On  like  the  town  authorities  lias  been  denied, 
grounds  the  power  of  a  municipal  Jenkins  u.  Anderson,  103  Mass.  74; 
corporation  to  aid  by  taxation  a  i)ri-       Curtis  v.  Whipple,  24  Wis.  350. 

883 


1  Thomp.  Corp.  §  1117.]     who  may  become  shareholders. 

husband  and  wife  to  each  other,  should  be  so  no  longer,  but  that 
A.  should  thereafter  be  the  husband  of  C,  and  B.  the  wife  of 
D. ;  or  which  should  enact  that  the  homestead  now  owned  by  A. 
should  be  no  longer  his,  but  should  henceforth  be  the  property 
of  B.i 

"  Of  all  the  powers  conferred  upon  government  that  of 
taxation  is  most  liable  to  abuse.  Given  a  purpose  or  object  for 
which  taxation  may  be  lawfully  used  and  the  extent  of  its  exer- 
cise is  in  its  very  nature  unlimited.  It  is  true  that  express 
limitation  on  the  amount  of  tax  to  be  levied  or  the  things  to  be 
taxed  may  be  imposed  by  constitution  or  statute;  but  in  most 
instances  for  which  taxes  are  levied,  as  the  support  of  govern- 
ment, the  prosecution  of  war,  the  national  defense,  any  limitation 
is  unsafe.  The  entire  resources  of  the  people  should  in  some 
instances  be  at  the  disposal  of  the  government.  The  power  to 
tax  is,  therefore,  the  strongest,  the  most  pervading  of  all  the 
powers  of  government,  reaching  directly  or  indirectly  to  all 
classes  of  the  people.  It  was  said  by  Chief  Justice  Marshall, 
in  the  case  of  McCulloch  v.  The  State  of  Maryland, ^  that  the 
power  to  tax  is  the  power  to  destroy.  A  striking  instance  of  the 
truth  of  the  proposition  is  seen  in  the  fact  that  the  existing  tax 
of  ten  per  cent,  imposed  by  the  United  States  on  the  circulation 
of  all  other  banks  than  the  national  banks  drove  out  of  existence 
every  State  bank  of  circulation  within  a  year  or  two  after  its 
passage.  This  power  can  as  readily  be  employed  against  one 
class  of  individuals  and  in  favor  of  another,  so  as  to  ruin  the  one 
class  and  give  unlimited  wealth  and  prosperity  to  the  other,  if 
there  is  no  implied  limitation  of  the  uses  for  which  the  power 
may  be  exercised.  To  lay  with  one  hand  the  power  of  the 
government  on  the  property  of  the  citizens,  and  with  the  other 
to  bestow  it  upon  favored  individuals  to  aid  private  enterprises 
and  build  up  private  fortunes,  is  none  the  less  a  robbery  because 
it  is  done  under  the  forms  of  law  and  is  called  taxation.  Tiiis 
is  not  legislation.  It  is  a  decree  under  legislative  forms.  Nor 
is  it  taxation.  A 'tax'  says  Webster's  Dictionary,  *  is  a  rate 
or  sum  of  money  assessed  on  the  person  or  property  of  a  citizen 

J  Citing  Whi ting  r.  Fond  du  Lac,  25      Limitations,  129,  175,  487;  Dillon  on 
Wis.  188;    Cooley  on    Constitutional      Municipal  Corporations,  587. 

2  4  Wheat.  (U.  S.)  431. 
884 


MUNICIPAL  CORPORATIONS.     [1  Thomp.  Corp.  §  1117. 

by  goverument  for  the  use  of  the  nation  or  State.  Taxes  are 
burdens  or  charges  imposed  by  the  legishiture  upon  persons  or 
property  to  raise  money  for  public  purposes.'  ^ 

*'  Coulter,  J.,  in  Northern  Liberties  v.  St.  John's  Church,^ 
says,  very  forcibly,  «I  think  the  common  mind  has  everywhere 
taken  in  the  understanding  that  taxes  are  a  public  imposition, 
levied  by  authority  of  the  government  for  the  purpose  of  carry- 
ing on  the  government  in  all  its  machinery  and  operations  —  that 
they  are  imposed  for  a  public  purpose.' 

"We  have  established,  we  think,  beyond  cavil  that  there 
can  be  no  lawful  tax  which  is  not  laid  for  a  public  purpose.  It 
may  not  be  easy  to  draw  the  line  in  all  cases  so  as  to  decide 
what  is  a  public  purpose  in  this  sense  and  what  is  not.  It 
is  undoubtedly  the  duty  of  the  legislature,  which  imposes  or 
authorizes  municipalities  to  impose  a  tax,  to  see  that  it  is 
not  to  be  used  for  purposes  of  private  interest  instead  of  a 
public  use ;  and  the  courts  can  only  be  Justified  in  interposing 
when  a  violation  of  this  principle  is  clear  and  the  reason  for 
interference  cogent.  And  in  deciding  whether,  in  the  given 
case,  the  object  for  which  the  taxes  are  assessed  falls  upon 
the  one  side  or  the  other  of  this  line,  they  must  be  governed 
mainly  by  the  course  and  usage  of  the  government,  the  objects 
for  which  taxes  have  been  customarily  and  by  long  course 
of  legislation  levied,  what  objects  or  purposes  have  been  con- 
sidered necessary  to  the  support  and  for  the  proper  use  of  the 
government,  whether  State  or  municipal.  Whatever  lawfully 
pertains  to  this  and  is  sanctioned  by  time  and  the  acquiescence 
of  the  people  may  well  be  held  to  belong  to  the  public  use,  and 
proper  for  the  maintenance  of  good  government,  though  this  may 
not  be  the  only  criterion  of  rightful  taxation.  But  in  the  case 
before  us,  in  which  the  towns  are  authorized  to  contribute  aid  by 
way  of  taxation  to  any  class  of  manufacturers,  there  is  no  difficulty 
in  holding  that  this  is  not  such  a  public  purpose  as  we  have  been 
considering;.     If  it   be  said  that  a   benefit  results  to  the  local 


1  Citing  Cooley  Const.  Lira.  479.  Dutcii.    (N.    J.)    398;     Sharpless     v. 

2  31  Pa.  St.  104.  See  also  Pray  v.  Mayor  of  Pliiladelphia,  21  Pa.  St.  147, 
Northern  Liberties,  31  Id.  C9;  Matter  1G7;  Hanson  v.  Vernon,  27  Iowa,  47; 
of  Mayor  of  New  York,  11  Joiins.  Whiting  v.  Fond  du  Lac,  26  Wis. 
(N.     Y.)    77;     Camden     v.    Allen,    2  188. 

885 


1  Thonip.  Corp.  §  1118.]     who  may  become  shareholders. 

public  of  a  town  by  establishing  manufactures,  the  same  may  be 
said  of  any  other  business  or  pursuit  which  employs  capital  or 
labor.  The  merchant,  the  mechanic,  the  innkeeper,  tlie  banker, 
the  builder,  the  steamboat  owner  are  equally  promoters  of  the 
public  good,  and  equally  deserving  the  aid  of  the  citizens  by 
forced  contributions.  No  line  can  be  drawn  in  favor  of  the 
manufacturer  which  would  not  open  the  coffers  of  the  public 
treasury  to  the  importunities  of  two-thirds  of  the  business  men 
of  the  city  or  town."  ^ 

§  1118.  Validity  of    Statutes  Authorizing    Municipal    Sub- 
scriptions to  Railway  Corporations Most  of  the  American 

courts  have  held  that  enabling  statutes^  which  confer  upon 
municipal  corporations  the  power  to  issue  their  bonds  in 
aid  of  railways  and  to  exchange  them  for  the  stock  of  rail- 
way companies  upon  the  consent  of  the  municipality  being  had 
in  a  prescribed  manner,  are  constitutional  and  valid.  The 
opinion  of  Mr.  Justice  Valentine  of  Kansas  in  the  leading  case 
in  that  State ^  is  a  treatise  on  this  subject.  The  great  in- 
dustry of  the  learned  judge  collected  the  decisions  of  the 
various  Stutes  upon  the  subject,  from  which  it  appears  that 
the  question  has  been  settled  in  favor  of  the  power  of  the 
legislature  to  authorize  such  aid  in  Virginia;  ^  in  Con- 
necticut;*   in    Pennsylvania;^   in    Tennessee;^   in  Kentucky;^ 


1  Loan  Association  v.  Topeka,  20  Commissioners,  32  Id.  218;  Com.  v. 
Wall.  (U.  S.)  GG2-6G5.  Pittsburgh,  41  Id.  278;   Com.  v.  Per- 

2  Coramissiouers  v.  Miller,  7  Kan.  kins,  43  Id.  400. 

479;  s.  c.  12  Am.  Eep.  425.  ^  Nichol    v.   Nashville,    9   Humph. 

3  Goodiuu.  Crumps,  8  Leigh  (Va),  (Teun.)  252,  271 ;    Louisville    &c.    R. 

120;  Harrison  Justices  v.  Ilollaiul,  3  Co.     v.   Davidson    Cuuuty,    1     Sueed 

Gratt.  CVa.)  247;  Langhorne  u.  Robin-  (Tenn.),  C37 ;  s.  c.  62  Am.  Dec.   424; 

son,   20   Id.    661;  s.   c.  5   Call    (Va.),  Ilord  v.    Eogersville    &c.    R.   Co.,   3 

139.  Head  (Tenn.),  208;  Byrd  v.    Ralston, 

4  Bridgeport  v.  Ilousatonic  R.  Co.,  Id.  477;  Campbell  County  v.  Kuox- 
15  Conn.  475;  see  also  Society  for  ville  &c.  R.  Co.,  6  Coldw.  (Teun), 
Savings  v.  New  London,  29  Id.  174.  598. 

5  Harvey  v.  Lloyd,  3  Pa.  St.  331;  '  Talbot  v.  Dent,  9  B.  Monr.  (Ky.) 
Com.  V.  McWilliams,  11  Id.  62  (a  turn-  526;  Justices  v.  Turnpike  Co.,  11  Id. 
pike  case)  ;  Sharpless  v.  Philadelphia,  143;  Slack  v.  Maysville  &c.  R.  Co.,  13 
21  Id.  147;  s.  c.  59  Am.  Dec.  159;  Id.  1;  Maddox  v.  Graham,  2  Mete. 
Moers   v.    Reading,   Id.  188;  Com.  v.  (Ky.)  56. 

88G 


MUNICIPAL    CORPORATIONS.       [1    Thomp.  Coip.    §   1118. 

in  Illinois ;  ^  in  Florida  ;  '^  in  Ohio ;  ^  in  Louisiana  ;  *  in  Iowa  ;  ^ 
in  Alabama;^  in  Mississippi;'  in  North  Carolina;^  in  Mis- 
souri ;^  in  New  York;  ^^  in  South  Carolina  ;  "  in  Georgia  ;  ^^  in 
Indiana;  ^^  in  Wisconsin  ;"  in  California  ;  ^^  in  Maine;  ^®  and  in 
the  Supreme  Court  of  the  United  States.  ^' 


1  Ryder  v.  Railroad  Co.,  13  111. 
616;  see  also  Prettyman  v.  Tazewell 
County,  19  Id.  406;  s.  c.  71  Am. 
Dec.  230;  Robertson  v.  Rockford,  21 
Id.  451;  Johnson  v.  Stark  County,  24 
Id.  75;  Perkins  v.  Lewis,  Id.  208; 
Butler  ».  Dunham,  27  Id.  Hi;  Clarke 
V.  Hancock  County,  Id.  305;  Piatt  v. 
People,  29  Id.  54 ;  Keithsburg  v.  Frick, 
34  Id.  405. 

2  Cotton  w.  County  Commissioners , 
6  Fla.  610. 

3  Railroad  Co.  v.  Clinton  County, 
1  Oh.  St.  77;  Steuben  &c.  R.  Co.  v. 
Treasurer  N.  Township,  Id.  105; 
Cass  V.  Dillon,  2  Id.  607;  Thomp- 
son V.  Kelly,  Id.  647;  State  v.  Van 
Home,  7  Id.  327;  State  v.  Union 
Township,  8  Id.  394;  State  v.  Hancock 
County,  \2  Id.  59C;  Knox  v.  Nichols, 
14  Id.  260;  Fosdick  v.  Perrysburg,  Id. 
472;  Shoemaker  y.  Goshen  Township, 
Id.  569. 

^  Police  Jury  v.  Succession  of 
McDonough,  8  La.  An.  341;  New 
Orleans  v.  Graible,  9  Id.  5G1 ;  Parker  v. 
Scogin,  11  Id.  629;  Railroad  Co.  v. 
Parish  of  Ouachita,  Id.  049. 

5  Dubuque  &c.  R.  Co.  v.  Dubuque, 
4  G.  Greene  (la.),  1;  State  v.  Bissell, 
4  Id.  328;  Clapp  v.  Cedar  County,  5 
la.  15;  s.  c.  68  Am.  Dec.  078;  Ring  v. 
Johnson  County,  6  la.  265;  McMillan 
V.  Boyles,  Id.  304;  McMillan  v.  Lee 
County,  Id.  391 ;  Whittaker  v.  Johnson 
County,  10  Id.  101. 

6  Stein  V.  Mobile,  24  Ala.  591; 
Wetumpka  v.  Winter,  29  Id.  051 
(plank  road  case) ;  Gibbons  v.  Mobile 
&c.,  36  /d.  410;  Ex  parte  Sclma  &c.  R. 
Co.,  45  Ala.  696;  s.  c.  6  Am.  Rep.  722. 

'  Strickland  v.  Mississippi  Central 


R.  Co.,  referred  to  in  Williams  v. 
Cammack,  27  Miss.  224;  s.  c.  61  Am. 
Dec.  508. 

®  Taylor  v.  Newberne,  2  Jones,  Eq. 
(N.  C.)  141;  s.  c.  64  Am.  Dec.  560,  a 
navigation  case;  Caldwell  v.  Justices 
of  Burke,  4  Id.  323. 

3  St.  Louis  V.  Alexander,  23  Mo. 
483;  Flagg  V.  Palmyra,  33  Id.  440;  St. 
Joseph  &c.  R.  Co.  v.  Buchanan 
County,  39  Id.  485. 

10  Grant  v.  Courter,  24  Barb.  (N.  Y.) 
232;  Benson  u.  Albany,  Z(Z.  248;  Clarke 
V.  City  of  Rochester,  Id.  440;  Bank  of 
Rome?;.  Rome,  18  N.  Y.  38;  Gould??. 
Town  of  Venice,  29  Barb.  442;  Staring. 
Genoa,  23  N.  Y.  439;  Clarke  v.  Roches- 
ter, 28  Id.  605;  People  v.  Mitchell,  45 
Barb.  208;  People  v.  Mitchell,  35  N. 
Y.  551. 

"  Copes  V.  Charleston,  10  Rich.  Law 
(S.  C.)  491. 

12  Winn  V.  Macon,  21  Ga.  275; 
Powers  V.  Inf.  Court  of  Dougherty 
County,  23  Id.  65. 

1^  Aurora  v.  West,  9  Ind.  74;  Evans- 
ville  &c.  R.  Co.  V.  Evansville,  15  Id. 
395;  Bartholomew  v.  Bright,  18  Id.  93; 
Aurora  v.  West,  22  Id.  88;  s.  c.  85  Am. 
Dec.  413. 

1*  Clark  V.  Janesville,  10  Wis.  136 ; 
Bushnell  v.  Beloit,  Id.  195. 

15  Pattison  v.  Yuba  County,  13  Cal. 
175;  Ilobart  v.  Butte  County  17  Id. 
23;  Robinson  v.  Bidwell,  22  Id.  379; 
French  v.  Teschemaker,  24  Id.  618; 
People  V.  Coon,  25  Id.  685;  People  v. 
San  Francisco,  27  Id.  655. 

"^  Augusta  Bank  v.  Augusta,  49  Me. 
507. 

''  Knox  County  v.  Aspinwall,  21 
IIow.  (U.  S.)  539;  Knox  County  v. 
887 


1  Thomp.  Corp.  §  1119.]     who  may  become  shareholders. 

§  1119.  Power  to  Grant  such  Aid  by  Way  of  Subscription 
Settled.  —  111  the  leading  case  in  Kansas,  referred  to  in  the 
preceding  paragraph,^  Mr.  Justice  Valentine  showed  that  only 
one  State,  by  its  court  of  last  resort,  had  ever  pronounced  against 
the  power  of  the  legislature  to  enable  counties  and  municipal 
corporations  to  subscribe  for  stock  in  railroad  companies  and  to 
issue  their  bonds  in  payment  therefor,  as  distinguished  from 
the  mere  power  to  make  donations  to  railroad  companies ;  and 
that  was  the  State  of  lowa.^  He  regarded  all  these  decisions  as 
being  overruled  by  decisions  of  the  Supreme  Court  of  the  United 
States.^  He  regarded  later  cases  in  Iowa  as  impugning  the 
principle  that  such  statutes  are  unconstitutional.*  He  pointed 
out  that  these  earlier  decisions  in  Iowa  had  been  finally  over- 
thrown in  that  State. ^  "  Hence,"  he  concluded,  "  no  court  of 
last  resort  can  now  be  found,  that  holds  that  county  and  munic- 
ipal aid  to  railway  companies,  by  way  of  subscription  to  the 
capital  stock  thereof,  is  not  a  legitimate  subject  of  legis- 
lation."^ 


Wallace,  Id.  547;  Zabriskie  v.  Cleve- 
laud  &c.  R.  Co.,  23  Id.  381;  Bissell  w. 
Jefferson,  24  Id.  287;  Amey  v.  Alle- 
gheny County,  Id.  365 :  Knox  County 
V.  Aspinwall,  Id.  37C;  Woods  v.  Law- 
rence County,  1  Black  (U.  S-),  386; 
Moran  v.  Miami  Co.,  2  Black  (U.S.), 
722;  Mercer  Co.  v.  Hackett,  1  Wall. 
(U.  S.)  83;  Gelpcke  u.  Dubuque,  Id. 
175;  Seybert  v.  Pittsburg,  Id.  273; 
Van  Hostrup  v.  Madison  City,  Id.  291 ; 
Meyer  v.  Muscatine,  Id.  384  ;  Slieboy- 
gan  Co.  V.  Parker,  3  Wall.  (U.  S.)  93; 
Havemeyer  v.  Iowa  Co.,  Id.  294; 
Thomsons.  Lee  Co.,  Id.  327;  Rogers 
V.  Burlington,  Id.  654;  Mitchell  v. 
Burlington,  4  Wall.  (U.  S.)  270; 
Larned  v.  Burlington,  Id.  275;  Von 
Hoffman  v.  Quincy,  Id.  535;  Riggs  v. 
Johnson  Co.,  6  Wall.  (U.  S.)  166; 
Weber  v.  Lee  Co.,  Id.  210;  United 
States  V.  Keokuk,  Id.  614;  Same  v. 
Same,  Id.  518;  Lee  County  v.  Rogers, 
7  Wall.  (U.  S.)  181;  City  v.  Lamson, 
9  Wall.  (U.  S.)  477. 


1  Commissioners  v.  Miller,  7  Kan. 
479;  s.  c.   12  Am.  Rep.  425. 

2  State  V.  Wapello  County,  13  la. 
388;  Chamberlain  v.  Burlington,  19 
la.  395;  McClure  v.  Owen,  26  la. 
243. 

3  Gelpcke  v.  Dubuque,  1  Wall.  (U. 
S.)  175;  Meyers  v.  Muscatine,  1  Wall. 
(U.  S.)  384;  Thomson  v.  Lee  County, 
3  Wall.  (U.  S.)  327;  Rogers  v.  Bur- 
lington, 3  Wall.  (.U.  S.)  364;  Riggs  v. 
Johnson  County,  6  Wall.  (U.  S.)  166; 
Weber  v.  Lee  County,  6  Wall.  (U.  S.) 
210;  United  States  v.  Council  of  Keo- 
kuk, 6  Wall.  (U.  S.)  514,  518;  Benbow 
V.  Iowa  City,  7  Wall.  (U.  S.)  313;  Lee 
County  V.  Rodgers,  7  Wall.  (U.  S.) 
181. 

4  Hansen  v.  Vernon,  27  la.  28;  s.  c. 
1  Am.  Rep.  215;  Stewart  v.  Super- 
visors, 30  la.   10;  s.  c.  1  Am.  Rep.  328. 

c  By  the  case  of  Stewart  v.  Super- 
visors, 30  la.  10;  s.  c.  1  Am.  Rep.  238, 

6  Commissioners  v.  Miller,  7  Kan. 
479;  s.  c.  12   Am.  Rep.  425,  443. 


MUNICIPAL  CORPORATIONS.     [1  Thomp.  Corp.  §  1120. 

§  1120.  Whether  Power  Exists  to  Make  Donations  to  such 
Companies.  —  The  power  of  the  legislature  to  authorize  couDties 
and  municipal  corporations  to  make  donations  to  railway  com- 
panies and  to  levy  taxes  for  such  purposes,  has  been  distinguished 
in  several  cases  from  the  power  to  aid  the  public  objects  of  such 
companies  by  subscribing  for  their  stock  and  issuing  bonds  in 
payment  therefor  and  laying  taxes  to  pay  the  interest  and 
principal  of  the  bonds.  Several  States  have  denied  the  power 
of  the  legislature  to  authorize  counties  and  municipalties  to  make 
such  donations.^  In  some  of  the  States  where  there  are  decisions 
against  the  validity  of  donations,  there  are  decisions  in  favor  of 
the  validity  of  subscriptions?  In  some  of  the  decisions  which 
have  been  pronounced  against  the  validity  of  donations,  a  labored 
effort  is  made  to  take  a  distinction  between  subscriptions  and 
donations.^  But  it  is  too  plain  for  much  discussion  that  there  is 
no  foundation  for  such  a  distinction.  If  the  legislature  has  the 
power  to  authorize  municipal  taxation  in  aid  of  a  railway  com- 
pany, it  is  because  the  establishment  of  a  railway  is  a  public 
object.  On  the  other  hand,  if  the  establishment  of  a  railway  is 
a  mere  private  object,  it  is  undeniably  certain  that  the  legislature 
has  not  the  power  to  authorize  municipal  taxation  for  the  purpose 
of  purchasmg  shares  in  corporations  created  for  such  a  private 
object.  If  the  legislature  can  authorize  such  a  use  of  the  taxing 
power,  it  can  authorize  municipalities  to  go  into  any  sort  of 
private  business   and  to  tax   their   inhabitants  for  the    money 

1  Sweet r.  Hulbert,  51  Barb.  (N.  Y.)  N.  Y.  G05;  People  v.  Mitchell,  35  N. 
312;  Whiting  v.  Sheboygan  &c.  R.  Y.  551.  So,  the  Supreme  Court  of 
Co.,  25  Wis.  107;  s.  c.  3  Am.  Rep.  30;  Wisconsin,  while,  as  above  shown, 
People  ex  rel.  v.  Salem,  20  Mich.  452;  deciding  against  the  validity  of  dona- 
s.  c.  4  Am.  Rep.  400.  The  case  of  tions,  had  previously  decided  in  favor 
Hanson  v.  Vernon,  27  la.  28,  s.  c.  1  of  the  validity  of  subscriptions.  Clark 
Am.  Rep.  215,  was  subsequently  over-  v.  Janesville,  10  Wis.  136;  Bushnell 
ruled  in  the  same  State  by  Stewart  v.  v.  Beloit,  10  Wis.  195. 
Supervisors,  30  la.  10;  s.  c.  1  Am.  3  Whiting  v.  Sheboygan  &c.  R. 
Rep.  238.  Co.,  28  Wis.    1G7,    186,  209;  Sweet  u. 

2  Thus,  the  Court  of  Appeals  of  Hulbert,  51  Barb.  (N,  Y.)  312.  See 
New  York  has  decided  in  favor  of  the  also  note  of  Mr.  Chief  Justice  Dillon 
validity  of  subscriptions  in  the  follow-  who  wrote  the  opinion  of  the  court  in 
ing  cases:  Bank  of  Rome  v.  Rome,  Hanson  v.  Vernon  (27  la.  35;  s.  c.  T 
18  N.  Y.  38;  Starin  v.  Genoa,  23  Am.  Rep.  215),  published  in  9  Am.  L. 
N.   Y.  439;    Carke    v.    Rochester,   28  Reg.  (n.  s.)  172.  175. 

889 


1  Thomp.  Corp.  §  1122.]     who  may  become  shareholders. 

necessary  to  bo  raised  for  the  purpose.  Besides,  the  history  of 
American  railway  management  shows  that  the  town  reully  gets  as 
much  in  the  fir^t  case  as  in  the  sc^cond  case.  It  is  he  Id  by  the 
Supreme  Court  of  Illinois,  that  a  railway  company  being  a  public 
object  in  behalf  of  which  the  power  of  taxation  may  be  exercised, 
an  act  of  the  legislature  authorizing  towns  to  appropriate  money 
as  a  donation  to  aid  in  the  construction  of  a  railway  is  constitu- 
tional.^ 

§  1121.  Right  to  Municipal  Aid  not  Created  by  General 
Words. —  But  general  words  in  a  statute,  regulating  the  opening 
of  subscription  books  of  a  railroad  company,  reciting  that  "  it 
shall  be  lawful  for  *  *  *  the  agent  of  any  corporate  body  " 
to  subscribe,  will  not  be  construed  as  enabling  municipal  cor- 
porations to  make  subscription.  The  meaning  should  be  re- 
stricted to  private  and  business  corporations.^ 

§  1122.  Right  to  Municipal  Aid  Passes  to  New  Company  on 
Consolidation. —  As  already  seen,^  the  doctrine  of  the  Federal 
courts,  and  of  many  of  the  State  courts,  is  that  if  one  of  two 
original  companies  enjoys,  under  its  charter  or  an  act  of  the  legis- 
lature, the  right  to  have  municipal  aid  voted  in  its  favor,  this 
right,  being  in  the  nature  of  a  privilege  to  the  company,  will 
pass  upon  a  consolidation  to  the  new  company.*  An  attempt 
has  been  made  by  the  Supreme  Court  of  Missouri  to  limit  this 
principle,  by  holding  that  if  a  county  subscription  thus  author- 
ized has  been  made  to  and  accei:)ted  by  a  railway  company  prior 
to  consolidation  with  another  company,  the  right  to  receive  the 
bonds  in  compliance  with  the  subscription  will  accrue  to  the  new 
company  ;  otherwise  not.''  The  Missouri  court  accordingly  hold 
that  if,  before  a  subscription  has  been  thus  made  and  accepted, 
a  constitutional  ordinance  is  established  or  a  general  statute 
enacted,  changing  the  terms  upon  which  the  subscription  might 

1  Chicago  &c.  R.  Co.  v.  Smith,  G2  ^  Robertsons.  Rockford,  21  111.  451. 
111.  2G8;  s.  c.  U  Am.  Rep.  99.  ^  Wagner  v.    Meety,    G9  Mo.   150; 

2  Township  of  East  Oakland  v.  Harshraan  v.  Bates  County,  92  U,  S. 
Skinner,  94  U.  S.  255;  Campbell  v.  5Gt);  State  ex  rel.  v.  Garroutte,  67 
Paris  &c.  R.  Co.,  71  III.  CU,  Mo.  44G;  overruling   State   ex  rel.  v. 

3  Ante,  §  3GG.  Greene  County  Gourt,  54  Mo.  540. 

800 


MUNICIPAL  CORPORATIONS.      [1  Thomp.  Corp.  §  1121. 

otherwise  have  been  made  to  the  railway  company,  e.  g.,  by  pro- 
viding that  it  can  only  be  made  when  sanctioned  by  a  vote  of  the 
people  of  the  county,  —  the  consolidated  company  will  not  have 
the  right  to  have  the  subscription  made  under  the  provisions  of 
the  charter  of  the  old  company,  and  tax-payers  will  be  entitled 
to  an  injunction  against  such  a  subscription.^ 

§   1123.  Statute  Repealed  before  Right   Vested It    is  a 

principle  of  constitutional  law  that  it  is  competent  for  the  legis- 
lature to  repeal  a  statute  granting  a  right,  at  any  time  before  the 
right  has  become  vested.  As  just  seen,  the  privilege  conferred 
upon  a  railway  company  by  a  special  charter  granted  by  the 
legislature,  of  having  subscriptions  made  to  it  by  the  county 
courts  without  the  sanction  of  a  popular  vote,  is  not  a  vested 
right,  unless  such  a  subscription  is  made  to  or  accepted  by  the 
company,  and  until  that  time  it  can  be  withdrawn. ^ 

§  1124.  An  Illustration  of  this  Principle.  —  In  the  leading  case 
on  the  subject  in  the  Supreme  Court  of  the  United  States,  it  appeared 
that  the  charter  of  the  Ohio  and  Mississippi  Railroad  Company,  passed 
by  the  legislature  of  the  State  of  Indiana  in  1848,  and  a  supplement 
thereto  passed  in  1849,  authorized  the  county  commissioners  of  the 
counties  through  which  the  road  should  pass,  to  subscribe  for  its  stock 
and  issue  bonds  in  payment  of  the  subscription,  provided  that  a 
majority  of  the  qualified  voters  of  the  county  should  vote,  at  an  election 
held  on  the  1st  of  March,  1849,  that  this  should  be  done.  The  election 
was  held  on  the  appointed  day,  and  a  majority  of  the  quahfled  voters 
voted  that  the  subscription  should  be  made.  But  before  the  subscription 
was  made  the  State  adopted  a  new  constitution,  which  went  into  effect 
the  first  day  of  November,  1851.  One  of  the  articles  of  this  constitution 
prohibited  such  subscriptions  unless  paid  for  in  cash,  and  also  pro- 
hibited counties  from  loaning  their  credit  or  borrowing  money  to  pay 
such  subscriptions.  Nevertheless,  in  1852,  the  county  commissioners 
of  the  particular  county  subscribed  for  stock  in  the  railroad  company, 
in  pursuance  of  the  vote  at  the  election  in  1849,  and  issued  the  bonds 
of  the  county  in  payment  therefor.     It  was  held  that  the  bonds,  having 

1  Wagner  v.  Meety,  C9  Mo.  150;  St.  Joseph  «SiC.  II.  Co.  v.  Buchanan 
State  ex  rel.  v.  Garroutle,  G7  Mo.  County  Court,  39  Mo.  485;  Aspinwall 
445.  V.   Commissioners,   22   How.  (U.    S.) 

2  Wagner  v.  Mcety,  G9  Mo.  150;  364.  Compare  Nugent  v.  Supervisors, 
State  ex  rcl.  v.  GarrouUe,  G7  Mo.  445;  19  Wall.   (U.  S.)  241. 

891 


1  Thomp.  Corp.  §  1127.]     who  may  become  shareholders. 

been  issued  in  A-iolation  of  the  constitution  of  Indiana,  were  void ;  and 
that  the  raih'oad  company  had  acquired  no  right  to  have  them  issued  to 
it,  which  was  protected  by  the  constitution  of  the  United  States.^ 

§  1125.  iViiothei'    Illustration    of    the    Same    Principle.  — 

Another  illustration  of  the  same  principle  is  found  in  a  case  where  the 
legislature  of  Kentucky  had  authorized  a  county  to  subscribe  to  the 
stock  of  a  railway  company,  upon  a  vote  of  the  electors  of  the  county 
approving  the  subscription.  A  vote  resulted  in  favor  of  making  the 
subscription  ;  but  the  county  court  refused  to  subscribe  and  to  levy  the 
tax.  The  company  applied  for  a  mandarmis  against  the  judges  of  the 
county  court,  which  was  refused.  From  this  judgment  an  appeal  was 
taken.  Pending  the  appeal,  the  legislature  repealed  the  law  authorizing 
the  county  to  make  the  subscription.  It  was  held  that  while,  on  the 
condition  of  facts  before  the  inferior  court,  the  mandamxis  ought  to  have 
been  granted,  yet,  inasmuch  as  the  county  court  had  not  made  the 
subscription  and  levied  the  tax,  no  right  to  the  subscription  had  become 
vested  in  the  railway  company  prior  to  the  repeal  of  the  law ;  and  the 
judgment  was  therefore  affirmed. - 

§  1126.  Invalidity  of  State  Statutes  Attempting  to  Take 
away  the  Remedy  on  such  Subscriptions.  —  Where  such  sub- 
scriptions have  been  made  by  municipal  corporations  and  accepted 
by  the  railroad  company,  subsequent  State  statutes  repealing  or 
substantially  impairing  the  remedy  on  the  same,  which  existed 
at  the  time  of  the  acceptance,  are  unconstitutional.^  The  case 
below  cited  and  other  cases  hold  that  when  a  municipal  cor- 
poration, having  a  general  power  to  levy  taxes  to  pay  its  debts, 
enters  into  a  contract,  the  legislature  cannot  take  away  or  sub- 
stantially impair  the  right  to  compel  the  corporation,  by  man^ 
damns,  to  exert  its  taxing  power.* 

§  1127.  Validity  of  Statutes  Transferring  Benefit  of  Sub- 
scription from  the  County*to  the  Tax-payers.  —  But  the  inhibi- 
tion against  impairing  the  obligation  of  contracts  and  against 

1  Aspiawcall  v.  Commissioners,  22  County,  5  Dillon  (U.  S.)  414;  United 
How.  (U.  S.)  364.  States    v.   Lincoln    County,   Id.    184; 

2  Covington  &c.  R.  Co.  v.  Kenton  United  States  v.  Johnson  County,  Id. 
County,  12  B.  Monr.  (Ky.)  148.     Com-  207. 

pare  Mclndoe  v.  Jones,  6  Wis.  334.  ^  Rahway  Tax  Assessors  v.  State, 

3  Western  Ark.  Bank  v.  Sebastian      44  N.  J.  L.  395. 

892 


MUNICIPAL  CORPORATIONS.     [1  Thomp.  Coi'p.  §  1130. 

impairing  vested  rights  does  not  exist  in  favor  of  municipal  cor- 
porations ;  and  therefore  where  the  county  has,  under  an  act  of  the 
legislature,  subscribed  to  the  stock  in  a  railroad  company,  and 
issued  its  bonds  and  received  the  share  certificates,  it  is  competent 
for  the  legislature,  by  a  subsequent  act,  to  provide  that  the  shares 
shall  be  turned  over  to  the  tax-payers  in  proportion  to  the  amount 
of  taxes  they  respectively  paid  under  the  particular  subscription.^ 

§  1128.  Instances  of  Such  Statutes  Impairing  the  Obliga- 
tion of  Contracts. — lu  New  Jersey  a  contract  was  made  by  com- 
missioners of  public  roads  ;  but  their  charter  was  held  to  be  unconstitu- 
tional; whereupon  it  was  repealed,  but  the  contract  was,  by  the 
repeahng  act,  validated  and  made  obhgatory  on  the  defendants,  and  they 
were  authorized  to  issue  bonds  and  borrow  money  to  pay  the  sums  due 
thereunder.  Afterwards  an  act  was  passed  that  bonds  should  only  be 
issued  upon  petition  and  resolution  of  the  tax-payers.  It  was  held  that 
the  latter  act  impaired  the  obligation  of  the  contract,  and  was  therefore 
unconstitutional.  2  -  -  -  -  In  1858  an  amendment  to  the  constitution 
of  Minnesota  was  adopted  providing  for  the  issue  of  certain  bonds  called 
"Minnesota  State  Railroad  Bonds."  In  1860  another  amendment  to 
the  same  constitution  was  adopted,  providing  that  ' '  no  law  levying  a 
tax  or  making  other  provisions  for  the  payment"  of  the  bonds  should 
take  effect  until  submitted  to  the  people  and  voted  for  by  a  majority  of 
them.  It  was  held  that  the  latter  amendment  impaired  the  obHgation 
of  the  contract  created  by  the  issue  of  bonds  under  the  former 
amendment,  and  was  void.>^ 

§  1129.  Invalidity  of  Statute  Compelling  Town  to  Subscribe 
to  a  Railway.  —  A  distinction  is  taken,  in  respect  of  the  powers 
and  duties  of  a  municipal  corporation,  between  those  which  are 

J  Lucas  V.  Commissioners  of  Tippe-  charging  the  city  of  Yonkers   from 

canoe  County,  H  Ind.  524.  liability    on    its    negotiable     bonds 

2  State  V.  Union,  44  N.  J.  L.  259.  stok-n  from  the   Manhattan  Savings 

3  State  V.  Young,  29  Minn.  474.  It  Bank,  upon  delivery  of  duplicate 
has  been  held  that  a  statute  which,  in  bonds  to  the  bank,  is  uncoustitu- 
effect,  only  provides  a  mode  of  tional,  as  impairing  the  obligation  of 
determining  which  of  bonds  purport-  the  contract,  and  therefore  the  pro- 
ing  to  have  been  issued  by  it  are  vision  requiring  the  city  to  issue  such 
valid,  and  which  invalid,  impairs  the  duplicate  bonds  is  unconstitutional 
obligation  of  no  contract.  Whaley  v.  also,  it  being  a  part  of  the  invalid 
Gaillard,  21  S.  C.  560.  The  provision  scheme.  People  v.  Otis,  90  N.  Y. 
of  N.  Y.  Acts  1880,  ch.  59,  §  4,  dis-  48. 

893 


1  Thomp.  Corp.  §  1129.]     avho  may  become  shareholders. 

of  a  j^iibHc  or  governmental  character,  and  those  which  are  of  a 
private  nature.  The  distinction  is  referred  to  by  the  courts 
chiefly  for  the  purpose  of  determining  the  liability  of  the  munic- 
ipal corporation  for  torts,  —  the  general  view  being  that,  in 
respect  of  public  or  governmental  acts,  it  is  not  liable  for  the 
torts  of  its  agents,  whereas,  in  respect  of  an  act  done  in  its 
private  character, —  that  is,  where  it  acts,  so  to  speak,  as  a  private 
corporation,  —  it  is  liable  for  the  torts  and  neglects  of  its  agents.* 
One  of  the  grounds  on  which  the  distinction  is  sometimes  placed 
is  that  the  performance  of  duties  of  a  public  or  governmental 
character,  such  as  maintaining  a  board  of  police,  or  a  board  of 
health,  or  a  fire  department,  may  be  made  in  a  sense  compulsory 
by  the  legislature.  Pursuing  the  same  idea,  it  has  been  held  that 
an  act  of  the  legislature  requiring  a  town,  without  its  consent,  to 
issue  bonds  for  raising  money  which  is  to  be  expended  in  the  con- 
struction of  highways  in  the  town,  in  a  manner  prescribed  by  the 
act,  is  constitutional.  The  theory  of  the  decisions  in  general  is 
that  the  making  and  improving  of  public  highways  and  providing 
the  means  therefor,  are  appropriate  subjects  of  legislation  ;  that 
towns  possess  such  powers  as  are  conferred  by  the  legislature; 
that  they  are  a  part  of  the  machinery  of  the  State  government 
and  perform  certain  important  functions,  subject  to  the  regula- 
tion and  control  of  the  legislature;  and  that  such  a  statute  is 
merely  the  exercise  of  the  unquestioned  power  of  the  legislature 
to  determine  what  highways  shall  be  constructed,  and  how  tho 
taxing  power  shall  be  exercised  in  providing  the  means  to  defray 
theexpenses  thereof  .^  But,  a  railway  company  being  organizedfor 
an  object  partly  private,  that  is,  to  operate  a  railway  for  the  profit 
of  its  stockholders,  the  mere  fact  that  the  railway  is,  in  a  sense, 
a  public  object  and  a  public  benefit,  does  not,  it  has  been  held, 
place  it  within  the  constitutional  power  of  the  legislature  to  pass 
a  mandatory  statute,  requiring  a  town  to  become  a  stockholder 
in  a  railroad,  by  exchanging  its  bonds  for  the  stock  of  the  railway 
company  upon  the  terms  prescribed  by  the  statute,  without  its 
consent.^  The  constitutional  power  of  the  legislature  to  force  a 
municipal  corporation  to  engage  in  a  private  business  was  denied 

1  2  Thomp.  Neg.  734.  3  p^^ople  ex   rel.  &c.  v.  Batchellor, 

2  People  V.  Flagg,  4G  N.  Y.  401.  o3  N.  Y.  128;  s.  c.  13  Am.  Rep.  480. 

894 


MUNICIPAL  COEPORATIOKS.       [1  Tliomp.  Coip.   §  1131. 

by  the  legislature  of  Vermont,  in  a  case  where  it  was  held  that  a 
statute  providing  for  the  appointment  of  an  agent  of  a  town  by 
the  county  commissioners,  which  agent  should  have  power  to 
purchase  intoxicating  liquors  on  the  credit  of  the  town,  and  to 
sell  the  same  for  certain  specified  purposes,  and  account  for  and 
pay  over  the  proceeds  to  the  town  in  a  manner  prescribed  ;  and 
that  the  town,  not  having  consented  to  the  appointment  of  the 
agent,  or  ratified  his  contracts,  was  not  liable  for  the  liquors 
purchased  upon  its  credit  by  him  pursuant  to  the  act.^ 

§  1130.  Injunction  to  Prevent  Issue  of  Bonds  where 
Terms  of  Subscription  not  Complied  with.  —  If  a  railway 
company  fails  to  comply  with  the  conditions  upon  which  a 
county  has  made  a  subscription  to  its  stock,  an  injunction  will 
lie  to  prevent  the  company  from  receiving  the  bonds  agreed  to 
be  issued  in  payment  of  its  shares  and  to  compel  the  surrender 
and  cancellation  of  any  already  issued,  and  this  remedy  may  be 
invoked  by  any  one  who  is  a  citizen  and  tax-payer  of  the  county. 
"  Otherwise  it  would  prove  but  a  vain  and  useless  formality  for 
the  county  court  to  impose  any  conditions  precedent  to  the 
issuance  of  bonds ;  they  might  subscribe  for  a  road  in  one 
direction  and  have  to  put  up  with  one  in  another,  built  in  total 
defiance  of  the  terms  of  subscription."  ^ 

§  1131.  Release  of  Subscription  by  Abandonment  of  the 
Work. — As  a  general  rule,  the  mere  fact  that  a  corporation 
abandons  its  work  is  no  defense  to  an  action  to  collect  what  is 
due  from  its  stockholders  ;  since  the  very  means  which  they  are 
withholding  from  it  may  prevent  it  from  resuming  its  work.^ 
But  there  may  be  a  just  exception  to  this  principle  where  the 
corporation  has  totally  abandoned  the  purpose  which  induced  a 
municipal  subscription  to  its  stock,  and  substituted  in  its  stead 
some  other  purpose  of  no  benefit  to  the  municipality;  since,  in 
such  a  case,  the  collection  of  the  municipal  subscription  would 
result  in  the  diversion  of  money  raised  by  public  taxation  to  an 

1  Atkins  V.  Randolph,  31  Vt.    22G.  ^  Wngncr  v.   Mecty,  G9  Mo.  160. 

Compare    Olcott    v.    Supervisors,    10  ^  post,  §  1272. 

Wall.  (U.  S)  C78. 

895 


1  Thomp.  Corp.  §  1132.]     who  may  become  shareholders. 

object  never  intended  by  the  subscription.  Thus,  in  a  case  in 
Kentucky,  a  company  was  authorized  by  its  charter  to  improve 
the  navigation  of  a  certain  river  by  "  building  additional  locks 
and  dams."  ^  A  county,  which  would  have  been  benefited  by 
such  improvements,  was  a  subscriber  to  stock  in  the  company. 
The  company  abandoned  the  building  of  the  new  locks  and 
dams,  and  commenced  the  work  of  repairing  old  ones,  which 
work  did  not  benefit  the  county.  It  was  held,  on  the  company 
becoming  insolvent,  that,  as  the  inducement  for  the  subscription 
was  the  building  of  additional  locks  and  dams,  the  county  was 
not  liable,  on  the  abandonment  of  the  work,  to  pay  its  sub- 
scription, at  the  suit  of  creditors  of  the  company  holding  claims 
originating  subsequent  to  such  abandonment.^  A  well  recog- 
nized exception  to  this  rule  obtains  in  cases  where  the  municipal 
corporation  has  issued  its  negotiable  bonds  in  payment  of  its 
subscription,  and  such  bonds  have  passed  into  the  hands  of  bona 
fide  purchasers  for  value  without  notice  of  equities;  ^  but  this 
opens  up  a  subject  which  is  foreign  to  the  purpose  of  this 
treatise. 

§  1132.  Petition  **  Representing  a  Majority  of  the  Tax-pay- 
ers," etc.  —  A  statute  of  New  York^  relating  to  the  issue  of  railway  aid 
bonds  by  municipal  corporations,  provided  that  "  whenever  a  majority 
of  the  tax-payers  of  any  municipal  corporation,"  etc.,  "  shall  apply  to 
the  county  judge  by  petition,  setting  forth  that  they  are  such  majority 
of  tax-payers,  and  represent  such  a  majority  of  tax-paying  property," 
further  proceedings  may  be  taken,  etc.  A  petition  was  presented  to 
the  county  judge,  the  petitioners  apparently  acting  as  principals,  stating 
that  "  the  undersigned,  representing  a  majority  of  the  tax-payers  of  the 
town  of ' '  etc. ,  —  upon  which  petition  the  court  ordered  the  issue  of  the 
bonds.  In  an  action  to  cancel  the  bonds,  it  was  held  that,  although  the 
petition  did  not  follow  the  statute,  by  stating  that  the  petitioners  are  a 
majority  of  the  tax-payers,  yet  that  was  probably  what  it  meant,  and, 
although  such  proceedings,  being  in  derogation  of  the  common  law,  are 
to  be  strictly  pursued,'^  yet  the  bonds  would  not,  by  reason  of  the 

1  3  Ky.  Acts  1865,  Sec.  2.  ^  N.  Y.  Laws  of  1869,  chap.  907. 

2  Jessamine  v.  Swigert,  3  S.  W.  «  Citing  People  w.  Spencer,  55  N.  Y. 
Rep.  13.  1;    People  v.  Smith,  Id.  135;    Wells- 

3  See  1  Dill.  Mun.  Corp.  ith  ecL,  §  borough  v.  Railroad  Co.,  76  Id.  182; 
518,  et  seq.  Craig  v.  Andes,  93  Id.  405. 

8!)0 


MUNICIPAL  CORPORATIONS.     [1  Tbomp.  Corp.  §  1133. 

defectiveness  of  the  petition,  be  held  invalid. i  The  decision  cannot  be 
sustained  under  the  rule  conceded  in  the  opinion.  Such  a  petition  could 
be  corruptly  or  evasively  drawn  in  the  language  of  this  petition, 
and  verified  by  affidavit,  and  presented  to  a  county  judge,  and  yet  the 
petitioners  would  not  be  a  majority  of  the  tax-paying  citizens  of  the 
municipality,  and  no  one  would  be  guilty  of  perjury. 

§   1133.    Subscriptions    by    a   Sovereign   State. — It    is,    of 

course,  competent  for  a  sovereign  State  to  descend  from  its  plane 
of  sovereignty  to  enter  into  a  contract  of  subscription  to  the 
capital  stock  of  a  private  corporation ;  and  this  has  been  done 
by  members  of  the  American  Union  in  many  cases. ^  The 
obligation  is  of  the  same  one-sided  character  as  that  of  a 
subscription  of  an  emlbassador,  already  spoken  of .^  The  State 
can,  without  doubt,  demand  and  enforce  its  rights  as  a  share- 
holder to  the  fullest  extent;  but  no  rights  can  be  enforced 
against  it  by  the  corporation,  unless  it  gives  its  consent  to  be 
sued,  and  then  only  in  the  forum  and  mode  embraced  in  that 
consent.  Accordingly,  it  has  been  held  that  a  bill  against  the 
Stale  of  Ohio,  to  compel  payment  of  suI»scriptions  for  stock, 
cannot  be  maintained.*  Another  conrt  held  that  a  statute  by 
which  a  State  subscribed  a  million  dollars  to  the  stock  of  a  bank, 
placed  the  State  in  the  attitude  of  giving  a  bonus  to  the  bank, 
and  did  not  nmke  it  liable  for  contributions  as  ordinary  stock- 
holders were.^  The  extent  to  which  a  State,  by  becoming  a 
stockholder  in  a  private  corporation,  throws  off  its  sovereio-ntv, 
pro  hac  vice,  has  been  a  theme  of  nice  disquisition;  but  it  was 
not  necessary  to  resort  to  this  theory  in  order  to  vindicate  the 
conclusion  that,  although  the  State  owns  all  the  stock  in  an  incor- 
porated bank,  a  debt  due  to  the  bank  is  not  a  debt  due  to  the 
State;*'  since  this  would  be  the  rule  in  the  case  of  a  i)rivate 
stockholder  owninsr  all  the  shares.^ 


Solon    V.    Williamsburg    Saving  ^  Myers  v.  Zainesville  &c.   Turnp. 

Bank,  lU  N.  Y.  ]22;  s.  c.  39  Alb.  L.  Co.,  II  Ohio,  273. 

J.  471;  21  N.  E.  Rep.  108.  5  Consolidated  Bank  v.  State,  5  La. 

2  Baltimore  &c.    R.   Co.   u,  Mary-  An.  44. 

land,  36    Md.   519;  Attorney- General  «  Bank  of  Tennessee   v.  Dibrell,  3 

V.  Cape   Fear  Nav.    Co.,  2   Irud.  Eq.  Sneed  (Tcnu),  379. 

(N.  C.)444.  '  ^/Ue,  §  1071. 

3  Ante.,  §  1093. 

57  897 


1  Thomp.  Corp.]     the  contract  of  subscription. 


CHAPTER     XXI. 


THE  CONTRACT  OF  SUBSCRIPTION. 


AUT.    I. 

II. 
III. 

IV. 
V. 


Theokies  as  to  the  Nature  and  Formation  of  the  Con- 
tract, §§  1136-1195. 

Theories  as  to  the  Consideration,  §§  1200-1213. 

Theories  as  to  the  Necessity  of  Paying  the  Statutory 
Deposit,  §§  1216-1232. 

Theohy  that  the  Full  Amount  of  the  Capital  must  be 
SuB'^CRiBKb,  §§  1235-] 242. 

Other  Theories  and  Holdings,  §§  1245-1262. 


Article    I.     Theories    as   to  the  Nature   and  Formation   of   the 

Contract. 


Section 

1136.  Relation  of  stockholflers  to  the 

corpo  aiioii  rests  iu  contract. 

1137.  Governing     stitute   forms   part 

of  tliii  contract. 

1138.  Geueril  views  as  to  wliat  con- 

stitut  s  one  a  stockholder. 

1139.  Subscriptiou  coustitutes   one  a 

member. 

1140.  Ceriiflcate  not  necessary. 

1141.  Circumstances  under  which  nec- 

essary; 

1142.  Contract    of  subscription  when 

not  necessary. 

1143.  If  no  ceriiflcate  issued,  written 

agreement  necess  rv. 

1144.  View  that  a  contract  of  subscrip- 

tion necessary  in  some  form. 

1145.  Such  contract    not   created    by 

I tcitals  in  a  bond. 

1146.  View  that    a    contract  of  sub- 

scription must  be  in  writing. 

1147.  A    writing    not    in     strictness 

neces-ary. 
898 


Section 

1148.  Oral  promise  to  subscribe  for 

shares  and  note  aiven  therefor. 

1149.  Subscription  not  varied  by  parol 

evidence. 

1150.  When  explainable  by  parol. 

1151.  Form  of  tho  subscr.ption. 

1152.  In  wliat  kind  of  a  book — on 

what  kind  of  paper. 

Signing  in  blank. 

Effect  of  erasures. 

Explanatory    memorandum    an- 
nexed. 
1156.  Receipt  on  margin  of  subscrip- 
tion book. 

Rule  which  requires  a  sub- 
scription to  the  articles  of 
as  ociatiou. 

Reasons  which  support  this 
rule. 

Consequence    of  this    role;  no 
contract   if    subscriber   dies 
before  corporation  formed. 
1160.  Other  consequences  of  this  rule. 


1153 
1154 
1155 


1157. 


1158. 


1159. 


[1  Thomp.  Corp.  §  1136. 


Section 

1161.  Doct-rtne  that  subscriptions  not 

binding  uulessregulurlymade. 

1162.  View  that  a  subscription  to  the 

shares  of  a  corporation  not 
formed  creates  no  liability. 

1163.  Further  of  this  view:  reasoning 

of  Chief  Justice  Blacli. 

1164:.  Distinction  between  a  subscrip- 
tion aud  an  agreement  to  sub- 
scribe. 

1166.  The  infirmity  of  this  distinction. 

1166.  Unsoundness   of   the   v.ew  that 

the  proposal  is  bad  unless 
made  in  strict  compliance 
with  the  statute. 

1167.  Difficulty  avoided  by  subsequent 

ratification, 
lies.  Subscription    and    payment    of 

deposit. 
Another  road  out  of  this  difll- 

culty. 
Euld    that  subscriptions    made 

before       organization        are 

good. 

1171.  Reasons    in    support    of      this 

rule. 

1172.  Nature  of  .';uch  an  offer  before 

acceptance. 

1173.  Instances  under  this  rule. 

1174.  Rights  and  liabilities    of   sub- 

scribers to  a  common  fund 
for  a  commoji  purpose. 

1175.  Subscription  must  be  accepted 

or  acted  upon. 

1176.  Action   against  one  member  of 

building  committee  by  the 
other  members. 


1169. 


1170. 


Section 

1177.  Acceptance    necessary    if    cor- 

poration in  existence. 

1178.  Maun,  r    in    which    acceptance 

manifested. 

1179.  Distinctiou  between  cases  where 

the  proposition  com  s  from 
the  company  and  wiere  it  is 
in;ide  to  the  company. 

1180.  Revocation   of   offer    before  ac- 

ceptance. 

1181.  Whether  presumable  in  the  case 

of  a  subscription  to  a  future 
corporation. 

1182.  A  case  in  illustration. 

1183.  Locus  peulti  ntiae    where    sub- 

scription illegal. 

1184.  Other  instances  of  sufficient  sub- 

scriptions. 

1185.  Subscriptions      enforcible      by 

action  without  an  express 
promise  to  pay. 

1186.  Illustrations  of  the  foregoing. 

1187.  Doctrine  tliatau  express  promise 

to  pay  is  necessary. 

1188.  The    absurdity  and  immorality 

of  this  doctrine. 

1189.  Illustration    of    the    foregoing 

d  ictrine. 

1190.  When  contract  to  take   shnres 

complete  under  the  English 
statute. 

1191.  What   facts  amount  to  a  con- 

tract to  take  shares. 

1192.  Continued. 

1193.  Continued. 

1194.  Continued. 

1195.  Continued. 


§  1136.  Kelation  of  Stockholders  to  the  Corporation  Rests 
in  Contract.  —  "The  relation  of  stockholders  to  the  cori)ora- 
tion  wlK)8e  stock  they  hold  is  that  of  coiiti  act ;  and  the  rights 
and  duties  of  both  parties  grow  out  of  contract,  implied  in  a 
subscription  for  stock,  construed  by  the  provisions  of  the  charter 
or  articles  of  incorporation."  ^ 


•  Supply  Ditch  Co.  v.  Elliott,  10  Colo.  827;  s.  c.  3  Am.  St.  Rep.  586,  631, 
©pinion  by  Macon,  C. 

890 


1  Thomp.  Corp.  §  1138.]     tiik  contract  of  subscription. 

§  1137.   Governing  Statute  Forms  Part  of  the  Contract.  — 

Whether  the  corporation  is  organized  under  a  special  charter 
or  under  a  general  statute,  the  statute  which  authorizes  its  or- 
ganization is  deemed  to  enter  into  and  form  a  part  of  it,  and  to 
furnish  the  rule  for  determining  the  effect  of  every  subscription 
to  its  capital  stock,  as  fully  as  though  it  were  embodied  in  express 
terms  in  the  sub>ciiption  paper. ^  The  rule  is  thus  laid  down 
by  Seldeu,  J.,  after  reviewing  the  authorities:  '*  Whatever  may 
be  the  form  or  language  of  a  subscription  to  the  stock  of  an  in- 
corporated com[)any,  every  person  who  in  any  manner  becomes 
a  subscriber  for,  or  engages  to  take,  any  portion  of  the  stock 
of  such  company,  thereby  assumes  to  pay  for  the  same  according 
to  the  conditions  of  the  charter.  *  *  *  Whenever  the 
subscription  papers  refer  to  the  charter  of  the  company,  the 
provisions  of  such  charter  are  virtually  incorporated  in  the  sub- 
scription and  are  to  be  referred  to  for  the  purposes  of  explana- 
tion."^ *'  The  subscription,"  said  Gardner,  J.,  in  another  case, 
**  must  be  construed  as  if  all  the  provisions  of  the  statute  affect- 
ing the  liability  of  the  subscriber,  or  his  title  to  the  stock  pur- 
chased by  him,  were  incorporated  in  his  agreement.  This  has 
never  been  questioned."  ^ 

§  1138.  General  Views  as  to  what  Constitutes  One  a  Stock- 
holder.—  Recurring  to  the  subject  with  the  aid  of  later  de- 
cisions, longer  study  and  wiiler  experience,  the  author  sees  no 
reason  essentially  to  modify  the  general  views  advanced  by  him 
in  his  work  on  stockholders,  as  to  what  is  necessary  to  consti- 
tute a  binding  contract  to  take  shares  in  a  joint-stock  corporation. 
It  was  there  stated^  as  a  general  rule,^  applicable  to  all  the  char- 
ters and  statutory  schemes  of  incorporation  in  vogue  in  this 
country,  that  whoever  subscribes  to  an  unconditional  agreement 
to  take  a  given  number  of  shares  becomes  thereby  a  stockholder, 

1  IToaffland  v.  Cincinnati  &c.  R.  Y.  Laws,  1850,  ch.  140,  §  4.  Buffalo 
Co.,  18  Iiid.  452.  &c.  R.  Co.  v.  Gifford,  87  N.  Y.  294. 

2  Rensselaer  &c.  Co.  v.  Barton,  16  ^  Thomp.  Stockh.,  §  105. 

N.Y.  457,  460,  note.  ^  That  in   some   States  vm  express 

3  Small  V.  He  kimer  Man.  Co.,  2  promise  to  pay  is  necessary,  sea  post^ 
N.  Y.  330.     A.  subscription  good  at      §  1187. 

common  law  is  not  invalidated  by  N. 
900 


FORMATION    OF    THE    CONTRACT.       [1  Thomp.   Corp.   §   1138. 

) 

subject  to  the  conditions  named  in  the  subscription  paper  and 
to  those  imposed  by  the  charter  or  by  the  general  law.^  The 
constating  instrument,  by  which,  persons  associate  themselves 
together  as  members  of  a  corporation  or  joint-stock  company,  is 
usually  termed  in  this  country  the  articles  of  as^^ociation,  and  in 
England  tiie  deed  of  settlement.  It  is,  therefore,  but  another 
way  of  expressing  the  foregoing  rule  to  say  that,  in  the  absence 
of  fraud,^  every  person  who  signs  the  articles  of  associa- 
tion or  the  deed  of  settlement,  agreeing  at  the  same  time  to 
take  a  certain  number  of  shares,  thereby  acquires  the  ad- 
vantages, and  subjeeta  himself  to  the  liabilities,  of  a  share- 
holder; ^  and  this  is  more  clear  where  the  governing  stat- 
ute declares  that  those  signing  such  articles  shall  be  deemed 
a  body  corporate.*  The  act  of  subscribing  for  shares  fixes  the 
subscriber's  liability  to  creditors  as  a  shareholder,  nlthough  he 
has  not  paid  in  any  part  of  his  subscription,  or  done  any  act 
whatever  as  such.^  If  a  person  orders  goods  to  be  delivered  to 
liim,  a  promise  is  implied  that  he  will  pay  for  them.  So,  if  a 
person  subscribes  for  shares  of  stock  in  a  corporation  or  joint- 
stock  company,  a  promise  is  implied  that  he  will  pay  for  Ihem  ;^ 
and  the  same  effect  is  given  to  the  acceptance  and  holding  of  a 

1  Hartford  &  New  Haven  R.  Co.  v.  v.  Mason,  16  N.  Y.  451;  Hartford  &c. 

Kennedy,    12  Conn.    499;    Sagory    v.  R.   Co.   v.  Croswell,    5  Hill  (N.   Y.), 

Dubois,   3  Sandf.   Ch.    (N.   Y.)    4GG;  383;    Northern   R.    Co.   v.    Miller,    10 

Union  Turnpike    Co.    v.    Jenkins,    1  Barb.  (N.   Y.)  2G0;  Kennebec  &c.  R. 

Caines,  (N.Y.),380;  Goshen  Turnpike  Co.  ■«.  Palmer,  34  Me.  306;  Connecti- 

Co.  V.  Hurton,  9  Johns.  (N.  Y.)  217;  cut  &c.  R.  Co.  v.  Bailey,  24  Vt.  465. 
Dutche-s   Cotton  Man.  Co.   v.  Davis,  2  p^sf,  Ch.  XXIV. 

14  Jolins.  (N.  Y  ),  237;  Spearu.  Craw-  ^  Strong   v.  Wheaton,  38  Barb.  (N. 

ford,  14  Weu'l.  (N.  Y.),20;.s.  c.  28  Am.  Y.)    616;  Cole   v.  Ryan,  52   Barb.  (N. 

Dec.  513;    Highland  Turnpike  Co.  v.  Y.)    168;  Sagory  v    Dubois,  3  Sandf . 

McKean,  11  Johns.  (N.  Y.)  98;  Strong  Ch.  (N.  Y.)  466. 

V.  Wheaton,   38    Barb.    (N.  Y.)    616;  *  Strong  v.  Wheaton,  38  Barb.  (N. 

Burr  V.  Wilcox,  22  N.  Y.  551 ;  Picker-  Y.)  616. 

ing  V.   Templeton,  2    Mo.   App.  424;  &  Spear  v.  Crawford,  14  Wend.  (N. 

Beenev.  Cahawba  &c.   R.  Co.,  3  Ala.  Y.)  20. 

<560;  Upton  w.  Tribilcock,  91  U.  S.  47;  «  Spear  v.  Crawford,  14  Wend.  (N. 

Brighara  v.  Mead,  10  Allen   (Mass.),  Y.)  20;  s.  c.  28  Am.   Dec.  513;  Hart- 

215;  Buffalo  &c.  R.  Co.  v.  Dudley,  14  ford  &  New  Haven  R.  Co.  v.  Kennedy, 

N.  Y.   336;  Seymour  v.   Sturgess,   26  12  Conn.   499;    Fry  v.   Lexington    R. 

N.  Y.  134;  Dayton  v.  Borst,  31  N.  Y.  Co.,  2  Mete.  (Ky  )  314;  Klein  v.  Alton 

435;    Rensselaer    &c.  Co.    v.    Barton,  &c.  R.  Co.,  13  111.  514;  Banet  t?.  Alton 

16   N.  Y.  457;  Lake  Ontario  &c.  Co.  &c.  R.  Co.,  13  111.  504. 

901 


1  Thomp.  Corp.  §  1138.]     thk  contract  of  subscription. 

certificate  of  stock,^  although,  in  order  to  constitute  one  a  share- 
holder, it  is  not  necessary  that  a  certificate  should  have  been 
issued. 2  This  promise  may  bc.enforced  by  the  corporation  by 
assu77ipsit,  or  other  suitable  action  ;  ^  and  iu  case  of  the  insol- 
vency of  the  corporation,  it  will  be  enforced  by  a  court  of  equity 
or  of  bankruptcy  for  the  benefit  of  its  creditors.*  From  the 
privileges  and  advantages  flowing  to  the  subscriber  in  conse- 
quence of  his  subscription,  and  from  its  acceptance  by  the  other 
associates  or  by  the  corporation,  the  law  implies  a  consideration 
suflScient  to  support  the  contract.^ 


1  Upton  V.  Tribilcock,  91  U.  S.  48; 
Palmer  v.  Lawrence,  3  Saudf.  (N. 
Y.)  IGl;  Brigliam  v.  Mead,  10  A'len 
(Mass.),  245.  And  this  is  so  although 
the  certificate  contains  a  promise  on 
the  part  of  the  corpoiation  to  pay  in- 
terest thereon  until  the  happening  of 
a  certain  specifiLcl  event.  McLaugh- 
lin V.  Detroit  &c.  R.  Co.,  8  Mich.  100. 
Malting  and  mailing  a  certificate  is  re- 
garded as  the  issuing  of  it.  Jones  v. 
Terre  Haute  &c.  R.  Co.,  17  How.  Pr. 
(N.  Y.)  529. 

-  Post,  §  1140;  Chaffinu.  Cummings, 
37  Me.  76;  Chase  «.  Merriraac  Bank,  19 
Pick.  (Mass.)  5G4;  Beckett  v.  Hous- 
ton, 32  Ind.  393;  Burr  v.  Wilcox,  22 
N.  Y.  551 ;  Schaeffcr  v.  Missouri  Ins. 
Co.,  4G  Mo.  248.  One  who  sells  shares 
bef  oi  e  the  issue  of  the  certificate,  agree- 
ing to  give  tlie  buyer  a  certificate  whf  n 
he  gets  it,  has  been  held  not  bound, 
as  between  the  biixerimd  himself,  to 
pay  an  a-sessmentl;iid  upon  tlie  shares 
subsequently  to  the  sale,  and  before  the 
issuing  of  the  certificate.  Brigham 
V.  Mead,  10  Allen  (Mass.),  245.  Some 
courts  have,  however,  held  that  an  ex- 
press promise  to  pay  is  necessary,  — 
a  subject  hereafter  considered.  Post, 
§  1187,  ci  seq.  Interpretation  and  ef- 
fect of  peculiar  contracts  of  subscrip- 
tion, prescribing  unusual  modes  of 
i.ssuing  St  )ck,  terms  of  payment,  etc.: 
Bailey  v.  Railroad  Co.,  17  Wall.  (U. 
902 


S.)  9(1;  Van  Ah  u  v.  III.  &c.  R.  Co.,  4 
Abb.  App.  Dec.  (N„  Y.)  443;  New  York 
&c.  R.  Co.  V.  Van  Horn,  57  N.  Y. 
473. 

3  Selma  &c.  R.  Co.  v.  Tipton,  5 
Ala.  787;  Beene  v.  Cahawba  &c.  R. 
Co.,  3  Ala.  660;  Union  Turnpike  Co. 
V.  Jenkius,  1  Caines  (N.  Y.),38^  ;  s.  c. 
1  Caiues's  Cas.  95;  Goshen  Turnpike 
Co.  V.  Hurtin,  9  Johns.  (N.  Y.)  217; 
Dutchess  Cotton  Man.  C'l.v.  Davis,  14 
Johns.  (N.  Y.)  238;  Highland  Turn- 
pike Co.  V.  Mclvean,  11  Johns.  (N.  Y.) 
95;  Spear  u.  Crawford,  14  Wend.  (N. 
Y.)  20;  s.  c.  28  Am.  Doc.  513;  Harlem 
Canal  Co.  v.  Seixas,  2  Hall  (N.  Y.), 
504;  Worcester  Turnpike  Co  v.  Wil- 
lard,  5  Mass.  80;  Delaware  &c.  Canal 
Co.  V.  Sansom,  1  Biun.  (Pa.)  70;  In- 
stone  V.  Bridize  Co.,  2  Bibb  (Ky.), 
576;  Tar  Rivtr  Navigation  Co.  v.  Ncal, 
3  Hawks  (N.  C  ),  520;  Sanger  v.  Up- 
ton, 91  U.  S.  56;  Webster  v.  Upton^ 
91  U.  S.  65;  Chubb  v.  Upton,  95  U.  S^ 
665. 

4  Ante,    §§    12-17;    post,   §    258  e 
seq. 

5  Union  Turnpike  Co.  v.  Jenkins,  I 
Caines  (N.  Y),  381;  Goshen  Turnpike 
Co.  V.  Hurtin,  9  Johns.  (N.  Y.)  217; 
Dutchess  Cotton  Man.  Co.  v.  Davis,  14 
Johns.  (N.  Y.)  238;  Kennebec  &c.  R. 
Co.  V.  Palmer,  34  Me.  366.  See  posty 
§  1200,  et  seq. 


FORMATION    OF    THE    CONTRACT.        [1  Thomp.   Corp.    §   1140. 

§   1139.   Subscription    Constitutes  One  a  Member. — It    has 

been  said  ill  a  case  in  Mirylaiul  that  "  none  of  the  cases  decide  tliat 
the  more  fact  of  subscribing  to  the  stock  of  an  incorporated  com- 
pany constitutes  the  subscriber  a  stociiholder,  but  that  such  sub- 
scription puts  it  in  his  power  to  become  a  stockholder  by  com- 
pelling the  corporation  to  give  him  the  legal  evidence  of  his 
being  a  stockholder,  upon  his  complying  with  the  terms  of  the 
6ubscii[)tion."  ^  The  case  cited  in  support  of  this  doctrine^ 
does  not  decide  this  proposition,  but  decides  the  reverse,  namely, 
tliat  a  valid  sul)scription  to  the  stock  of  a  corporation  makes 
one  a  stockholder  within  the  meaning  of  a  provision  of  the 
cliarter  making  stockholders  indivichially  liable  to  creditors  of 
the  company  in  proportion  to  the  amount  of  stock  held,  and 
such  beyond  all  question  is  the  law.^  Asi  we  shall  presently  see, 
the  courts  merely  divide  on  the  question  whether  an  express  prom- 
ise to  iKiy  in  the  subscription  is  necessary  to  give  it  this  effect.* 

§  1140.  Certificate  not  Necessary.  —  "It  is  not  essential  that 
a  certificate  should  have  issued,  in  order  to  create  the  relation  of 
stockholder,  provided  a  contract  to  take  stock  had  been  duly 
made,  or  provided  the  rights,  privileges  and  emoluments  of  a 
stockholder  had  been  enjoyed  with  the  consent  of  the  corpora- 
ticm."  ^  An  owner  of  shares  may  vote  at  corporate  elections,®  hold 
office,  and  in  the  character  of  its  principal  officer  assent  to  a,  mort- 
gaire  of  its  property,^  without  a  certificate  being  issued  to  him. 
Nor  is  it  necessary  that  the  corporation  should  have  issued,  or 
even  tendered  to  him  a  certificate,  in  order  to  enable  it  to  maia- 

1  Busey  v.  Hooper,  35  Md.  15;  s.  114  Ind.  381;  s.  c.  5  Am.  St.  Rep.  627; 
c.  6  Am.  Kip.  350,  359.  Farrar  v.  Wallier,  3   Dill.  (U.  S.)  506; 

2  S|)car  V.  Crawford,  14  Wend.  (N.  Chaffin  v.  Cummings,  37  Me.  76;  Angell 
Y.)  24;  s.  c.  28  Am.  Dec.  513.  &  Ames  on  Corp.,  §  565;  Chase  v.  Mer- 

3  Strong  V.  Wheaton,  38  Barb.  (N.  riraac  Bank,  19  Pick.  (Ma<s.)  56t.  It 
Y.)  616;  Cole  v.  Ryan,  52  Barb.  (N.  follows  that  it  is  not  necessary  that 
Y.)  108;  Sagory  v.  Dubois,  3  Saiidf.  the  facts! lould  appear  on  the  books  of 
Ch.  (N.  Y.)  4:6;  Chaffin  v.  Curamii'gs,  the  c  )rporation.  It  may  be  proved  by 
37  Me.  70;  Chase  v.  Merrimac  Bank,  parol.  Chaffin  ?;.  Cummings,  s?(pra. 
19  Pi'k.  (Mass.)  664;  Beckett  v.  ^  Beckett  v.  Houston,  32  Ind.  393. 
Houston,  82  Ind.  393;  Burr  u.  Wilcox,  ^  McComb  u.  Barcelona  Apartment 
22  N.  Y.  551;  Schaeffer  v.  Missouri  Asso.,  31  N.  Y.  St.  Rep.  325;  McCorab 
Ins.  Co.,  46  Mo.  24H.  v.   Cordova    Apartment    Asso.    (Sup. 

*  Post,  §  1187,  et  seq.  Ct.)  Id.  334. 


5  Butler  University  v.    Scoonover, 


903 


1  Thomp.  Corp.  §  1141.]     tiiio  contract  of  subscription. 

tain  an  actiou  against  him  for  assessments  upon  his  shares.^ 
And  for  equal  reasons  a  certificate  is  not  necessary  to  make  him 
liable  to  crer7iYo?'s  for  debts  of  the  cor[)oration.2  The  theory  is 
that  it  is  the  act  of  subscribing,  or  the  registry  of  the  share- 
holder's name  upon  the  stock  book  of  the  company  opposite 
the  number  of  shares  for  which  he  has  subscribed,  which 
ogives  him  his  title  thereto,  and  that  tlie  certificate  neither 
constitutes  his  title  nor  is  necessary  to  it,  but  is  only  a  mem- 
orial or  evidence  of  it,  which  he  is  entitled  to  demand  from  the 
corporation  whenever  he  may  desire  it.^  It  is  further  reasoned 
that  a  subscription  for  stock  does  not  stand  on  the  same  footing 
as  a  contract  of  sa/e,  so  that  the  company,  like  the  vendor, 
must  offer  to  deliver  before  demanding  the  price.  Whenever 
the  subscriber  pa/ys,  he  is  the  owner  of  stock  in  the  company. 
It  is  the  'payment  that  makes  him  stockholder,  with  all  the 
risfhts  of  one,  if  the  certificate  were  not  issued  at  all.* 

§  1141.  Circumstances  under  which  IS'ecessary.  —  The  rule 
of  the  preceding  section  may,  of  course,  be  dispensed  with  by 


1  Chester  Glass  Co.  v.  Dewey,  16 
Mass.  94;  h.  c.  8  Am,  Dec.  128; 
Shelbyville  v.  Shelbyville  &  Co.,  I 
Mete.  (Ky.)  54;  Vavvter  ■;;.  Ohio  &c.  R. 
Co.,  14  lud.  174;  Haidy  v.  Merri- 
weather,  14  Ind.  203;  Fulgam  v.  Macon 
&c.  R.  Co.,  44  Ga.  597;  South  Georgia 
&c.  R.  Co.  V.  Ayres,  56  Ga.  230;  New 
Albauy  &c.  R.  Co.  v.  McCormick,  10 
Ind.  499;  s.  c.  71  Am.  Dec.  337; 
Heaston  v.  Cincinnati  &c.  R.  Co  ,  16 
Ind.  275;  s.  c.  79  Am.  Dec.  430.  See 
also  Mitchell  v.  Beckman,  64  Cal.  117; 
Schaeffer  v.  Missouri  Ins.  Co.,  46  Mo. 
248,  250 ;  Burr  v.  Wilcox,  22  N .  Y.  551 ; 
Miller  v.  Wild  Cat  Gravel  Road  Co., 
52  Ind.  58.  Slipher  v.  Earhart,  83 
Ind.  179. 

2  Spear  v.  Crawford,  14  Wend.  (N. 
Y.)  20;  s.  c.  28  Am.  Dec.  513;  Haynes 
V.  Brown,  36  N.  H.  545,  563 ;  Chesley 
V.  Pierce,  32  N.  H.  402;  Chaffiii  v. 
Curamings,  37  Me.  76,  83;  Chester 
Glass  Co.  V.  Dewey,  16  Mass.  94;  s.  c. 

904 


8  Am.  Dec.  128;  Chase  v.  Merrimac 
Bank,  19  Pick.  (Mass.)  574;  Burr  v. 
Wilcox,  22  N.  Y.  521;  s.  c.  affd.  6 
Bosw.  (N.  Y.)  198;  Schieffer  v.  Mis- 
souri Ins.  C'>.,  46  Mo.  218;  Uawley  v. 
Upton,  102  U.  S.  314;  Upton  u.Tribil- 
cock,  91  U.  S.  45;  Webster  v.  Upton, 
Id   65. 

3  Cincinnati  &c.  R.  Co.  v.  Pearce, 
28  Ind.  508 ;  Lincoln  v.  State,  36  Ind. 
163;  Beaver  v.  Hartsville  University, 
34  Ind.  248;  New  Albany  &c.  R.  Co.  v. 
McCormick,  10  Ind.  499;  s.  c.  71  Am. 
Dec.  337.  And  see  Chandler  v.  North- 
ern Cross  R.  Co.,  18  111.  190.  For  the 
same  reason  the  failure  of  the  cor- 
poration to  issue  to  the  defendant, 
who  is  a  stockholder  therein,  certifi- 
cates for  his  shares,  is  no  defense  by 
him  when  sued  by  the  corporation  for 
money  loaned.  Ilazelettu.  Butler  Uni- 
versity, 84  Ind.  230. 

*  Fulgam  V.  Macon  &c.  R.  Co.,  44 
Ga.  697. 


FORMATION    OF    THE    COXTRACT,       [1  Thoilip.  Corp.    §  1144. 

the  terms  of  the  contract.  Thus,  a  tender  of  a  certificate  is  nec- 
essary before  the  corporation  can  sue  on  the  contract  of  sub- 
scription, where  the  payment  is  made,  by  the  terms  of  the 
contract,  conditional  upon  the  delivery  of  the  certificate.*  So, 
preferred  stock,  being  something  more  than  a  mere  evidence  of  a 
stocliholdcr's  right  to  participate  in  the  management  of  the  affairs 
of  the  company  and  to  receive  dividends,  but  being  in  the  nature 
of  an  interest-bearing  security,^  it  has  been  held  that  the  implied 
promise  of  the  company  to  issue  such  stock  and  of  the  subscriber 
to  pay  for  it,  where  the  subscription  is  to  stock  of  this  kind,  are 
concurrent  and  dependent,  and  that  an  action  by  the  company 
upon  such  a  sul)scription  can  not  be  maintained  until  it  has 
issued  or  tendered  the  stock.^  On  the  other  hand,  except  in  the 
case  of  preferred  stock,  the  company  can  maintain  an  action 
without  a  delivery  or  tender  of  the  stock,  where  it  seeks  merely 
to  recover  an  installment  or  assessment,  and  not  the  whole  price.* 

§   1142.  Contract  of  Subscription  when  not  Necessary.  —  It 

is  not  necessary,  in  order  to  fix  a,  person  with  the  full  liability  of 
a  stockholder  to  creditors  of  the  corporation,  that  he  should  have 
signed  a  contract  of  subscription  to  the  corporate  stock.  The 
mere  acceptance  of  shares  of  the  stock  by  him  will  have  this 
effect. 5 

§  1143.  If  no  Certificate  Issued,  Written  Agreement  Neces- 
sary. —  On  the  other  hand,  if  no  certificate  of  stock  has  been 
issued  to  and  accepted  by  the  person  sought  to  be  charged,  a 
written  contract  of  subscription  is  ordinarily  necessary  to  bind 
him  as  a  shareholder.* 

§  1144.  View  that  Contract  of  Subscription  Necessary  in 
Some  Form.  —  In  an  action  upon  a  bond  for  $200  given  to  a  corpora- 

1  Courtright  r;.  Deeds,  37  la.  503.  s.   c.   28  Am.  Dec.  513;  Hariford  &c 

2  Pos<,  §2262.  R.    Co.   v.    Kennedy,    12    Couu.    4'Jit; 

3  St.  Paul  &c.  R.  Co.  V.  Robbins,  23  Rensselaer  &c.  R.  Co.  v.  Barton  k; 
Minn.  439.  N.  Y.  457;  Dayton  v.  Borst,  31  N.  Y. 

■*  Minneapolis   Harvester  Works  v.  435;  Jackson  v.  Traer,  64  la.  469;  s.  c. 

Libby,  24  Minn.  327.  62  Am.  Rep.  449. 

^  Nultonu.  Clayton,  54 la.  425;  Spear  «  Pittsburgh  &c.   R.  Co.  v.  Clarke, 

V.   Crawford,  14  Wend.    (N.    Y.)    20;  20  Pa.  St.  146. 

905 


1  Thomp.  Corp.  §  11-45.]     the  contiiact  of  subscription. 

tion,  it  was  alleged  that  it  was  given  as  security  for  $200  of  the  stock 
of  the  corporation,  which  the  defendant  had  subscribed  for  and  which 
had  been  retained  by  him  as  a  loan  under  the  charter.  The  jury  re- 
turned a  special  finding  that  the  defendant  "  at  no  time  before  or  after 
the  execution  of  said  bond  subscribed  for  any  stock,"  etc.  It  was 
held,  in  substance,  that  the  conclusioii  of  law  upon  this  finding  was 
that  the  defendant  was  not  liable  on  tlie  bond.  Mitchell,  C.  J.,  said: 
"  Never  having  subscribed  for  any  stock,  tliere  was,  of  course,  no  con- 
sideration for  the  bond,  unless  in  some  way  he  received  stock,  or  acted 
or  was  recognized  as  a  stockholder.  The  jury  expressly  negitive  each 
and  all  of  these  propositions.  They  return  that  the  defendant  never 
has  subscribed  for  nor  received,  owned,  or  in  any  manner  controlled 
any  stock,  and  that  he  received  no  consideration  whatever  for  the 
bond.  *  *  *  It  (Joes  not  appear,  in  the  case  before  us,  that  there 
was  even  an  oral  agreement  to  subscribe  for  stock.  The  recitals  in  the 
bond,  and  the  whole  case,  assume  that  Scoonover  had  subscribed  for 
stock,  and  that  the  subscription  price  was  the  consideration  of  his  con- 
tract to  pay.  When,  therefore,  it  appeared  that  he  never  had  sub- 
scribed for  stock,  nor  in  any  other  manner  acquired  any  right  to  be 
recognized  as  a  stockholder,  in  the  event  of  payment  of  the  bond,  it 
became  entirely  clear  that  his  contract  was  without  consideration. 
Although  it  may  be  true  that  a  binding  contract  of  subscription  to  the 
stock  of  a  cori)oration,  unless  the  statute  or  articles  of  association  pro- 
vide to  the  contrary,  may  be  made,  without  actually  signing  a  formal 
subscription  paper  or  stock  book,  in  any  manner  that  the  subscriber 
and  corporation  clearly  manifest  their  purpose  to  enter  into  a  contract 
whereby  the  relation  of  stockholder  of  the  corporate  stock  is  to  result, — 
j^et  there  must,  in  every  case,  be  some  sort  of  subscription  or  contract, 
whereby  the  subscriber  obtains  the  right,  upon  some  condition,  to  de- 
demand  stock,  and  to  exercise  the  rights  of  a  stockholder."  ^ 

§  1145.  Such  Contract  not  Created  by  Recitals  in  a  Bond.  — 

In  the  bond  \vhich  was  sued  on  in  this  case  it  was  recited  that  the  prin- 
cipal obligor  "  has  retained  of  his  subscription  for  two  shares  of  capital 
stock  *  *  *  the  sum  of  two  hundred  dollars,  being  the  amount  of 
his  subscription,  as  a  loan."  It  was  held  that  this  recital  did  not  estop 
him  from  siiQwing  that,  in  point  of  fact,  he  had  never  subscribed  to  the 
siiares  of  the  corporation.  The  court  said :  "  While  this  recital  might 
well  have  been  regarded,  in  the  absence  of  countervailing  evidence,  as 
sufficient  proof  that  a  subscription  of  some  kind  had  been  made,  it  was 

1  Butler  University  v>.  Scoonover,  lU  Ind.  381;  s.  c.  6  Am.  St.  Rep.  627. 
90() 


FORMATION    OF   THE    CONTRACT.       [1  TllOmp.  Corp.    §   1146. 

not,  "without  more,  conclusive,  either  upon  the  corporation  or  Scoon- 
over,  that  he  was  a  stockholder.  The  recital  was  in  no  sense  contract- 
ual, but  was  a  mere  statement  of  the  consideration  of  the  bond,  and 
was  in  no  sense  differc  nt  in  effect  than  would  be  a  recital  in  a  promis- 
sory note  or  other  contract  for  the  pa3'ment  of  money,  concerning  the 
consideration  upon  which  it  was  executed.  "Whether  one  who  sub- 
scribes for  stock  in  a  corporation  becomes,  by  the  mere  fact  of  mak- 
ing the  subscription,  a  stockholder  therein,  depends  upon  the  terras 
of  his  contract  and  the  charter  of  the  corporation,  and  whether  the 
subscription  was  made  as  a  preliminary  to  the  organization,  or  after  it 
was  under  way,  for  stock  thereafter  to  be  issued,"  ^ 


§  1146.  View  that  a  Contract  of  Subscription  must  be  in 
Writing.  —  The  word  '*  subscription  "  by  its  etymology  imports 
a  writing;  and  most  of  the  courts  take  the  view  that  accontract 
to  become  a  shareholder  in  a  corporation  must  be  m  writing  and 
cannot  be  established  by  parol  evidence,^  In  conformity  to  the 
same  view,  it  has  been  held  that  the  title  of  a  transferee  of  stock 
c;Mi  only  be  established  by  evidence  of  the  same  dignity.^  This 
view  no  doubt  h:id  its  origin  in  the  fact  that  nearly  all  special 
charteis  and  general  statutes  establishing  schemes  of  corporate 
organization  provide  for  the  receiving  of  subscriptions  to  the 
ca[)ital  stock,  either  in  books  open  for  that  purpose,  or  upon  the 
articles  of  association  by  which  the  corporation  is  established,  or 
©therwise.*  The  conce[)tion  seems,  therefore,  to  have  been  of 
statutory  creation ;  but  as  it  conforms  to  the  common  under- 
standing and  to  the  habits  of  business,  it  seems  to  have  been 
adopted  as  a  general  rule  without  reference  to  the  terms  of  the 
particular  charter  or  statute. 

1  Butler  University   v.   Scoonover,  29   Pa.   St.   146,    152;  Brouwer  t>.  Ap- 
lU  lud.  SSI;  s.  c,  5  Am.  St.  Rep.  G27;  pelby.  1  Sandf.  S.  C.  CN.  Y.)  170. 
opinion  by  iMitcliell,  C.  J.  "*  Thus,  under  a  statute  of  Orogou 

2  Pittsburuh  &c.  R.  Co.  v.  Gazzara,  COr.  St.  525,  Si  cs.  4-7),  defining  the 
32  Pa  St.  340;  Vreelandu.  New  Jersey  duties  of  directors  and  the  rights  of 
Stone  Co.,  20  N.  J.  Eq.  188,  191;  stockholders,  it  is  held  th:it  ail  original 
Thames  Tunnel  Co.  v.  Sheldon,  G  Birn.  stocl^holders  are  only  made  liable  on 
&  C.  341;  Pittsburgh  &c.  R.  Co.  v.  their  subscriptions  for  stock  by  a 
Clarke,  29  Pa.  St.  140,  152;  Fanning  v.  writing,  and  are  all  equal  before  the 
Insurance  Co.,  39  Oh,  St.  339;  s.  c.  41  law,  and  there  is  no  estoppel  between 
Am.  Rep.  517.  tliem.    Coyote  Gold&c.  Co.  ».  Ruble, 

3  Pittsburgh  &c.  R.   Co.   v.  Clarke,  8  Or.  284. 

907 


1  Thorn}).  Coi'}).  §  1148,]     tiik  (x)ntkact  of  subscription. 

§  1147.  A   Writing  not  in  Strictness  Necessary.  —  But  we 

have  ah-eady  seen  that  shares  of  corporate  stock  are  not  goods, 
wares  and  merchandise,  within  the  meaning  of  the  seventeenth 
section  of  the  English  statute  of  frauds. ^  A  contract  to  take  and 
pay  for  shares  in  a  corporation  is  hence  not  a  contract  for  the 
ptircliase  of  goods,  wares  and  merchandise  within  the  meaning 
of  that  statute.  And  it  woukl  seem  to  follow  that,  in  strictness 
of  law,  it  is  neither  necessaiy  that  there  should  be  a  contract  in 
writing  to  take  and  pay  for  shares,  nor  an  actual  receipt  of  them  — 
or  what  is  tantamount,  a  receipt  of  their  symbol,  the  stock 
certificate  —  in  order  to  constitute  one  a  shareholder.  It  has 
accordingly  been  held  that  a  person  may  become  a  shareholder 
without  signing  the  stock  book  or  any  written  agreement  to  take 
shares;''^  and  that  a  parol  agreement  made  with  tlie  directors 
of  a  corporation  to  take  stock  may  be  enforced,  when  neither  the 
governing  statute  nor  the  charter  requires  such  contracts  to  be  in 
writing.^  Again,  it  has  been  observed  in  a  case  in  Canada,  by 
Osier,  J.  :  "A  person  may  make  himself  liable  to  be  treated  as 
a  shareholder  in  many  other  ways  than  by  subscribing  for  shares 
and  obtaining  a  formal  allotment ;  and  one  who  caused  his  name 
to  be  entered  on  the  company's  books  as  a  shareholder  in 
respect  of  shares  taken  for  the  purpose  of  making  up  the  statu- 
tory amount  would,  on  princifde,  clearly  be  estopped  from 
afterwards  saying  that  he  was  not  the  holder  of  such  shares."  * 

§  1148.  Oral  Promise  to  Subscribe  for  Shares  and  Note 
Given  Tlierefor.  — One  American  court  has  gone  so  far  in  this 
direction  as  to  hold  that  an  oral  promise,  pending  the  organiza- 
tion of  a  corporation,  to  take  shares  of  the  stock,  does  not  con- 
stitute the  promisor  a  stockholder  or  member,  and  will  not 
furnish  a  consideration  to  support  a  note  given  by  him  to  pay 
for  such  shares.  The  court  say:  "  The  note  was  a  promise  to 
pay  for  stock  which  the  maker  had  verbally  agreed  to  take. 
Had  Mrs.  Fanning  been  a  subscriber  to  the  stock  she  would 
have  been  entitled  to  be  treated  as  a  stockholder.     This  would 

1  Ante,  §  1068.  ^  Colfax  Hotel  Co.  v.  Lyon,  69  Iowa, 

2  Be  Central  Bank  of  Canada,  23      683;  s.  c.  29  N.  W.  Rep.  780. 

Can.  L.  J.  238;  Castoa's  case,  12  App.  *  Union  Fire  Ins.  Co.  v.  O'Gara,  4 

(Can.)  486.  Ont.  (Can.)  369. 

908 


FORMATION    OF    THE    CONTRACT.       [1   Thomp.  Corp.    §   1149. 

have  been  a  sufficient  consideration  to  have  supported  a  promise, 
either  express  or  hnplied,,  to  pay  for  the  stock.  The  agreement 
must  be  mutual  and  binding  upon  both  parties.  If  the  corpora- 
tion are  not  bound  to  treat  her  as  a  stockliolder,  her  promise  to 
pay  is  a  nudum  pactum,  for  want  of  a  mutual  promise  by  the 
corporation  to  awiird  her  the  stock.  In  the  absence  of  prool' 
that  she  had  received  the  stock,  or  of  any  other  consideration 
to  support  her  promise,  or  of  any  acts  by  her,  creating  an 
e8to|)pel,  her  promise  to  pay  for  stock  for  which  she  has  not  sub- 
scribed, and  which  the  corporation  is  not  bound  to  deliver  at  the 
proper  time,  is  without  sufficient  consideration  to  support  it."  ^ 
Another  American  court  has  held  that  where  A  gives  his  promis- 
sory note  to  a  corporation  and  receives  a  receipt  for  the  same, 
which  also  states  that  the  note  when  paid  will  be  in  full  for  a 
certain  number  of  shares  of  the  capital  stock,  A  does  not 
become  a  stockholder  until  the  note  matures  and  is  paid,  and  a 
stock  certificate  is  issued.^  We  may  take  leave  to  doubt  the 
soundness  of  both  of  the>e  decisions.  A  promissory  note  given 
upon  parol  agreement  to  deliver  goods,  wares  and  merchandise 
(invalid  under  the  statute  of  frauds)  is  undoubtedly  supported  by 
a  gooil  consideration;  and  the  receipt  mentioned  in  the  second 
case  would  take  the  transaction,  if  it  related  to  the  sale  ofgoods, 
out  of  the  statute,  for  both  the  note  and  the  receipt  would  be 
read  together  as  one  paper. 

§  1149.  Subscription  Not  Varied  by  Parol  Evidence.  —  The 

general  rule  which  excludes  parol  evidence  to  vary  writings, 
applies  to  subscriptions  to  the  capital  stock  of  corporations. 
Such  a  subscription  cannot,  therefore,  be  varied  by  parol  evidence 
of  a  special  agreement  made  prior  to  or  concurrently  with  it,^  — 

1  FanniDS  v.  Insurance  Co.,  37  Oh.  EvansvilUe  &c.  R.  Co.  v  Posey,  12  Id. 
St.  3.39;  6.  c.  41  Am.  Rep.  517,  518.  3G3;    Thigpen   v.  Mississippi    &c.    R. 

2  Tracy  u.  Yates,  13  Barb.  (N.  Y.)  Co.,  32  Miss.  347;  Piscataqua  Fjrry 
152.  Co.  V.  Jones,  39  N.  H.  491 ;  McClure  v. 

3  Smith  V.  Tal'assec  &c.  Planlt  People's  Freight  R.  Co.,  90  Pa.  St. 
Road  Co.,  30  Ala.  G50;  Ridgefield  &c.  2G9;  Cunningham  v.  Edgefield  R.  Co., 
R.  Co.  V.  Brush,  43  Conn.  86;  Martin  2  Hoail  (Tcnn.),  23;  East  Tennessee 
V.  I'ensacola  &c.  R.  Co.,  8  Fla.  370;  &c.  R.  Co.  v.  Gammon,  5  Sneed 
«.  c.  73  Am.  Dec.    713;    New  Albany  (Tenn.),  567. 

&c.    R.   Co.   V.   Fields,   10   Ind.    187; 

909 


1  Thomp.  Corp.  §  1151.]     thk  contract  of  subscription. 

as  to   show  that  the  subscriptioQ  was  made  upon  a   condition 
not  expressed  in  the  instrument.^ 

§  1150.  Wben  Explainable  by  Parol.  —  No  reason  is  per- 
ceived why  the  rule  which  lets  in  parol  evidence  to  explain 
ambiguities  in  written  contracts  should  not  apply  to  contracts 
of  this  kind;  and  there  are  decisions  whith  support  this 
view. 2  It  has  been  held  that  the  acts  of  corporations  may  be 
proved  in  the  same  manner  as  acts  of  individuals;  and  that,  if 
there  be  no  record  evidence  of  their  acts,  they  may  he  proved 
by  paiol.  Accordintzly,  it  has  been  held  tliat,  in  a  suit  on  a 
subscription  to  the  s'ock  of  an  incorporated  company,  it  was 
competent  for  the  defendant  to  show  by  oral  testimony,  in  the 
absence  of  record  evidence,  that  the  subscription  list,  upon 
which  the  defendant's  name  appeared,  was  annulled  and  aban- 
dowd,  and  that  another  subscription  was  subsequently  opened 
and  made  the  basis  of  the  organization  by  the  stockholders.^ 

§  1151.  Form  of  the  Subscription.  —  It  seems  tliat  the  form 
of  the  subscription  is  immaterial  t-o  that  the  intention  of  the 
parties  can  be  collected  from  the  writing,*  unless  the  charter 
or  governing  statute  requires  it  to  bo  made  in  a  i)articular  form 
or  manner,  in  which  case,  according  toone  vi<'W,  the  requirement 
of  the  statute  must  be  pursued  or  the  subscription  will  not  be 
l)inding.^  Unsubstantial  variances  from  the  lorm  prescribed  by 
the  statute  will  not,  however,  prevent  the  subscription  from  being 

1  Fairfield  County  Turnp.  Co.  v.  ^  Southern  Hotel  Co.  v.  Newman, 
Thorp,  13  Conn.  173;  Wi-ht  v.  Shelby      80  Mo.  118. 

R.  Co.,  16  B.   Monr.  (Ky.)  4;  s.  c.  G3  *  1  Mor.  Priv.  Corp.,  2d  ed.,  §  (59; 

Am.      Dec.    522;     Kennebec   &c.     R.  Nulton  u.  Clayton,  51  la.  425;  s.  c.  37 

Co.   V.    Wat  rs,   34    Me.   369;    North  Am.  Rep.  213;    Monterey  &c.  R.  Co.  ■». 

Ca;olina   R.  Co.  v.  Leach,  4  Jones  L.  Hildreth,  53  Cal.  123;  Phoenix  AVare- 

(N.   C)   34C;    Miller  r.   Han  ver  &c.  honing    Co.    w.    Badger,    67    N.    Y, 

R.  Co.,  87  Pa.  St.  95;  s.  c   30  Am.  Rep.  294. 

349.     As  t')  subsciiptious  made  upon  ^  Shurtz  ■?;.  Schoolcraft  &c.  R.  Co., 

parol  co«dt«it»ns,  see  pos«,  §  1311,  1401,  9  Mich.   2G'.»;  Carlisle  u.    Saginaw  &c. 

etseq.  R.  Co.,  27  Mich.  315;  Parker  v.  North- 

2  Johnson  v.  "Wabash  &c.  Plank  ern  Central  &c.  R.  Co,  33  Mich.  23; 
Road  Co.,  16  Ind.  389;  Sodus  Bay  Nor' hern  Central  &c.  R.  Co.  ».  Eslow, 
&c.  R.  Co.  V.  Hamlin,  24  Hun  (N.  Y.),  40  Mich.  422. 

390. 

910 


FORMATION    OF    THE    COXTKACT.       [1  TllOmp.  Coi'p.    §   1153. 

operative.  Thus  where  the  legislature  provided  that  the  form  of 
the  subscriptioa  should  be  payable  to  the  "  i)resi(lent,  managers, 
and  company,"  the  contract  was  held  valid  although  the  word 
*'  president  "  was  omitted  and  it  was  made  payable  to  the  man- 
agers and  company.  The  court  found  enough  in  the  other 
expressions  of  the  instrument  to  describe  the  corporation 
intended  and  to  effectuate  the  contract.^ 

§  1152.  In  what  Kind  of  Book  —  on  what  Kind  of  Pa- 
per. —  Unless  the  charter  or  governing  statute  so  provides,  it  is 
not  necessary  to  the  validity  of  the  subscription  that  it  should 
be  originally  made  in  a  book  prepared  for  that  purpose.  And 
although  the  statute  requires  books  to  be  opened,  the  use  of 
subscription  papers  in  the  first  instance  instead  of  a  book  does 
not  make  the  subscription  void.^  Subscriptions  made  on  a  loose 
sheet  of  paper,  which  was  afterwards  put  in  a  bound  book  used 
as  a  record  of  the  company,  were  held  sufficient,  where  the  con- 
tents of  this  paper,  with  the  names  of  the  subscribers  and  the 
amounts  subscribed,  were  entered  in  the  book  by  the  commis- 
sioners who  were  appointed  to  open  books  of  subscription.' 
Where  the  subscription  was  made  in  a  small  blank  book  before 
the  regular  stock  book  for  subscriptions  was  opened,  and  was 
afterwards  accepted  by  the  coiporation,  it  was  regardt^d  as  un- 
necessary, in  order  to  a  right  of  action  for  assessments,  that  it 
should  be  transferred  to  the  stock  book  of  the  company.* 

§  1153.  Si'^ning  in  Blank.  —  A  signature  to  an  incomplete 
paper,  naming  in  any  substantial  particular,  will  not  be  binding 
upon  the  signer  without  further  assent  on  his  part  to  the  com- 
p.letion  of  the  instrument.^  When,  therefore,  a  person  sub- 
scribed to  articles  of  association  for  the  purpose  of  organizing  a 
railroad  corporation  under  the  General  Railroad  Act  of  New  York 

1  Hagerstown  Turnp.  Co.  v.  Cree-  Co.,  18  Ind.  C8;  Mobile  &  Ohio  R.  Co. 
ger,  5  Harr.    &  J.  (Md.)   122;  s.  c.  9      v.  Yaiidal,  5  Sneed  (Tenn),  294. 

Am.  Dec.  405.  ^  Woodruff  v.    McDonald,   33  Ark. 

2  IIamilti>n  &c.  Planli  Road  Co.  v.      97. 

Rice,  7   Barb.  (N.  Y.)  157;  Ashtabula  *  Brownlee  r.  Ohio   &c   R.  Co.,  18 

&c.   R.  Co.    V    Smith,  15  Oh.  St.  328;  Ind.  C8. 

Stuart    V.  Valley  R.    Co.,    32    Gratt.  ^  See,  however,  note,  13  Am.  Dec. 

(Va.)  146;  Brownlee  v.   Ohio  &c    11.  6G9. 

911 


1  Thomp.  Corp.  §  1157.]     the  contract  of  subscription. 

of  1850,*  and,  at  the  time  of  so  signinj^,  the  names  of  the  direct- 
ors were  left  in  blank, — it  was  hehl  that  the  instrument  was 
incomplete  and  inoperative  as  against  him  ;  that  there  was  no  im- 
plied consent  on  his  part  to  the  insertion  of  the  names  of  any 
persons  as  directors ;  and  that,  by  the  insertion  of  such  names 
without  his  consent,  the  instrument  was  not  made  binding  upon 
him. 2  But  where  certain  persons  signed  the  subscription  book 
of  a  corporation,  leaving  the  amounts  in  blank,  intending  that 
they  should  be  represented  as  subscribers  for  the  purpose  of  in- 
fluencing others  to  subscribe,  —  it  was  held,  in  an  action  by  the 
creditors  of  the  corporation,  seeking  to  compel  payment  of  un- 
paid subscriptions, — that  the  signers  impliedly  authorized  the 
filling  up  of  the  blanks  by  thus  taking  subscriptions.^ 

§  1154.  Effect  of  Erasures.  —  The  erasure  of  a  8ubscri[)tion 
for  stock  does  not  per  sp  prevent  suit  upon  it,  but  explanatory 
parol  evidence  is  admissible.* 

§  1155.  Explanatory  Memorandum  Annexed.  —  Where  an 
explanatory  memorandum  is  annexed  to  the  subscription  paper, 
the  legal  presumption  is  that  it  was  there  when  the  subscription 
was  made,  in  the  absence  of  evidence  to  the  contrary.^ 

§  1156.  Receipt  on  Margin  of  Subscription  Book.  —  A  mere 
receipt  for  a  certificate  of  stock  written  in  the  margin  of  the  sub- 
scription book  has  been  held  a  suiEcient  subscription  for  stock. ^ 

§  1157.  Rule  which  Requires  a  Subscription  to  the  Articles 
of  Association.  — Where  corjoorations  are  organized  under  gen- 
eral laws,  by  preparing  and  tiling  in  the  general  office  of  the 
secretary  of  state,  or  some  other  public  ofHce,  articles  of  as- 
sociation signed  by  the  co-adventurers,  there  is  more  reason 
for  holding  that  a  valid  subscription  can  only  be  made  beneath 

1  N.  Y.  Laws,  1850,  ch.  140.  ■^  Robinson  v.  Pittsburgh  &c.  R.  Co. 

2  Dutchess  &c.  R.  Co.  v.  Mabbett,  32  Pa.  St.  ?,U\  s.  c.  72  Am.  Doc.  792. 
58  N.  Y.  397.  *  Lohmaa  v.  N.  Y.  and  Erie  R.  Co., 

3  Jewell  V.  Rock  River  Paper  Co.,  2  Saiidf.  (N.  Y.)  39.  See  also  Car- 
101  111.  57.  rick's  case,  1  Sim.  (n.  s.)  505;    Clem- 

*  Bordentown  &c.  v.  Imlay,  44   N.      ents  v.  Todd,  1  Exch.  268. 
J.  L.  285. 

f)12 


FORMATION    OF    THE    CONTRACT.       [1  TllOmp.  Coip.    §   1158. 

) 

such  articles  of  association.  Under  such  schemes  of  corporate 
organization,  several  courts  have  held  that  signing  a  provisional 
subscription  paper,  before  or  without  a  formal  execution  and 
signing  of  the  articles  of  association,  does  not  make  the  signer  a 
stockholder  and  as  such  liable  to  assessments. ^  Under  this 
theory  the  liability  of  stockholders  at  the  date  of  filing  articles 
is  limited  to  those  named  therein,  and  the  amounts  therein  men- 
tioned.^  It  is  said  that,  to  perfect  such  a  subscription  so  as  to 
render  the  subscriber  liable,  he  must  subsequently  sign  the  arti- 
cles of  association,  or  subscribe,  in  the  books  of  the  company,  to 
the  capital  stock.^  This  rule  seems  to  have  especial  force  where 
the  preliminary  paper  binds  the  subscribers  to  take  the  number 
of  shares  set  opposite  their  respective  names,  on  conditions.  The 
annexing  of  the  conditions  is  regarded  as  placing  the  instrument 
in  the  category  of  mere  tentative  or  provisional  undertakings.* 

§  1158.  Reasons  which  Support  this  Rule.  —  The  theory 
upon  which  the  Supreme  Court  of  Missouri  proceeds  in  reaching 
this  conclusion  is  that  the  statute  furnishes  the  rule  of  decision 
to  the  exclusion  of  the  rules  of  the  common  law,  and  that  the 
statute  decides  the  question  by  providing,  after  certain  prelim- 
inary matters,  that  "  thereupon  the  persons  who  have  so  sub- 
scribed such  articles  of  association,  and  all  persons  who  shall 
become  stockholders  in  said  company,  shall  be  a  corporation," 
etc. 2  In  reaching  the  above  conclusion,  Mr.  Commissioner  Mar- 
tin, writing  the  opinion  of  the  court,  said:  "  I  am  unable  to  per- 
ceive how  any  persons  of  the  requisite  number,  desirous  of 
forming  a  railway  company  under  the  provisions  of  this  statute, 

1  Coppage  V.  Hutton  124  Ind.  Warren,  Id.  310;  Chase  v.  Sycamore 
410;  s.  c.  7  L.  R.  A.  591;  24  N.  &c.  R.  Co.,  38  III.  215;  Thrasher  v. 
E.  Rep.  112  (under  Rev.  Stat.  Ind.,  Tike,  25  111.393.  Where  three existiuj; 
§  3851).  railroad  companies  were  consolidated, 

2  Monterey  &c.  R.  Co.  v.  Ilildreth,  and  a  subscription  was  made  after  the 
53  Cal,  123;  Sedalia  &c.  R,  Co.  v.  agreement  for  consolidation,  but 
Wilkerson,  83  Mo.  235;  Troy  &c.  R.  before  it  was  filed  in  the  office  of  the 
Co.  v.  Tibbitts,  18  Barb.  (N.  Y.)  298;  secretory  of  tlie'  commonwealth,  it 
Troy  &c  R.  Co.  v.  Warren,  Id.  310.  was  held  that  the  filing  of  the  agree- 

'  Troy  &c.  R.  Co.  v.  Tibbitts,  supra;  ment  in  the  office  of  the  secretary  was 
Troy  &c.  R.  Co.  v.  Warren,  snpra;  not  necessary  to  validate  the  subscrip- 
Sedalia  &c.  R.  Co.  u.  Wilkerson,  s?/;jra,      tiou.     McClure    v.   People's    Freight 

<  Trov  &c.  R.   Co.   v.   Tibbitts,    18      Ry.  Co.,  90  Pa.  St.  269. 
Barb.  (N.  Y.)  298;  Troy  &c.  R.  Co.  v.  ^  R.  S.  Mo.  1879,  §  7fi4. 

58  913 


1  Thomp.  Corp.  §  1159.]     the  contract  of  subscription. 

can  do  so  in  any  other  mode  than  the  one  pointed  out  in  it.  In  no 
other  mode  can  the  relation  of  stockholder  and  corporation,  under 
this  statute,  be  established.  The  statute  neither  contemplates  nor 
alludes  to  any  preliminary  paper  of  subscription  such  as  the  one 
giv^en  ill  evidence.  The  fact  that  informal  papers  and  circular 
letters  are  commonly  signed  and  published  as  a  part  of  the  enter- 
prise and  zeal  which  give  birth  to  such  corporations,  can  make 
no  difference,  as  long  as  the  statute  fails  to  recognize  them  as 
among  the  necessary  and  prescribed  legal  steps  to  be  taken  by 
the  incorporators  to  create  the  body  corporate.  The  allusion  in 
the  statute  to  '  all  persons  who  shall  become  stockholders  in  said 
company,'  evidently  refers  to  such  as  become  stockholders  by, 
subscribing  for  stock  after  the  corporation  is  established,  in 
suhscri'ption  books  opened  by  the  directors,  according  to  the 
provisions  of  Section  711,  Revised  Statutes."^ 

§  1159.  Consequence  of  this  Rule:  No  Contract  if  Sub- 
scriber dies  before  Corporation  Formed.  —  One  of  the  conse- 
quences of  the  foregoing  doctrine  is  that  if  the  subscriber  dies 
before  signing  the  formal  articles  of  association,  the  liability  of  a 
shareholder  cannot  be  enforced  against  his  personal  representa- 
tive.^  On  still  plainer  grounds  it  has  been  held  that  an  engage- 
ment to  subscribe  for  the  benefit  of  an  association,  which  is  not 
a  joint-stock  company,  but  which  needs  money  to  carry  out  its 
objects,  as  for  instance,  a  religious  society,  for  the  building  of 

1  Sedalia  &c.  R.  Co.   v.  Wilkerson,  a  person  might  acquire  the  rights  and 

83  Mo.  235,  242;  citing  and  following  be  subject  to  the  responsibilities  of  a 

Troy&c.  R.  Co.   v.  Tibbitts,  18  Barb,  stockholder:"    Tonica  &c.  R.  Co.  v. 

(N.  Y.)  297;  Poughkeepsie  &c.   Plank  McNeely,  21   111.  71;  Johnson  v.  Ew. 

Road  Co.  r.  Griffin,  24  N.Y.  150;  and  ing,   Female  University,  35   111.   518; 

distinguishing  Peninsular  R.   Co.    v.  Buffalo  &c.  R.  Co.  v.  Dudley,  14  N.  Y. 

Duncan,  28  Mich.    130;  — also  distin-  336;  Hartford  &c.  R.  Co.  v.  Kennedy, 

guisliing  the  following  cases  as  being  12   Conn.    500;    Taggart    v.  Western 

cases  '*  in  which  the  act  of  incorpora-  Maryland  R.  Co.,  24  Md.  603;  Penob- 

tion,   either   general  or   special,  had  scot  R.  Co.  v.  Dummer,  40  Me.   172; 

been  passed,  and  the  defendants  were  s.  c.  63  Am.  Dec.  654;  Kennebec  &c. 

held  liable  as  stockholders  by  reason  R.  Co.  v.  Palmer,  34  Me.  3G6;  Cross  v. 

of    subscriptions  within  the  peculiar  Pinckneyville    Mill    Co.,    17   HI.     64; 

meaning  and  terms  of  the    acts;  or  Athol   Music  Hall   Co.    v.   Gary,    115 

because  the  acts,  unlike  the  one  be-  Mass.  471. 

fore  us,  failed  to  prescribe  any  partic-  ^  Sedalia  &c.    R.  Co.  v.  Wilkerson, 

ular  method  of  subscription  by  which  83  Mo.  235. 

9U 


FORMATION    OF    THE    CONTRACT.       [1  Thomp.  Coip.    §   1161. 

a  church,  —  is  necessarily  a  mere  proposal,  and  is  therefore 
revocable  until  the  association  is  formed.  Until  then,  there  is 
no  one  to  accept  the  proposal,  and  consequently  if  the  sub- 
scriber dies  before  organization,  the  proposal  is  necessarily 
withdrawn  by  his  death,  and  does  not  ripen  into  a  contract ;  since 
there  can  be  no  contract  without  the  correlative  parties,  and 
there  must  be  something  to  support  a  promise.^  But  it  is  said 
that,  if  the  association  is  formed  and  the  object  for  which  the 
money  was  subscribed  is  entered  upon  during  the  life-time  of 
the  subscriber,  e.g.^  if  the  building  of  the  church  is  begun, — 
and  with  his  express  or  implied  consent,  he,  and  of  course  his 
legal  representatives,  will  be  bound  to  pay  the  subscription.^ 

§  1160.  Other  Consequences  of  this  Kule. — Another  con- 
sequence of  this  rule,  and  one  which  results  in  conformity  with 
a  principle  stated  in  a  preccGling  section,^  is  that  a  subscriber  to 
the  provisional  paper  is  not  bound  by  it  where  it  is  annexed  to 
the  articles  of  association  without  his  consent.*  In  the  same 
line  of  thought  it  has  been  held  that  agreements  made  by  per- 
sons who  contemplate  becoming  stockholders  in  a  corporation 
thereafter  to  be  organized,  which  agreements  are  not  intended 
as  subscriptions  to  its  stock,  although  they  relate  to  its  future 
management,  do  not  give  the  secretary  of  the  corporation,  when 
formed,  authority  to  place  the  names  of  such  subscribers  on  the 
list  of  stockholders  in  the  stock  book.^  Another  consequence 
of  the  same  rule  is  that,  where  there  is  no  statute  requiring  or 
authorizing  such  a  provisional  subscription  to  be  made,  distinct 
from  the  articles  of  association  which  are  required  to  be  executed 
and  filed  with  the  secretary  of  state, — a  copy  of  such  provis- 
ional subscription  paper,  certified  by  the  secretary  of  state,  will 
not  be  admissible  in  evidence.® 

§  1161.  Doctrine  that  Subscriptions  not  Binding  unless 
Regularly  Made.  —  It  seems  to  be  merely  another  way  of  stat- 

1  Phipps  V.  Jones,  20  Pa.  St.  260.  »  Coyote  Gold  &c.  Co.  v.  Ruble,  8 
But  see  post,  §  1170.                                        Or.  284. 

2  Ibid.  «  Troy  &c.  R.  Co.  v.  Kerr,  17  Barb. 

3  Ante,  §  1153.  (N.  Y.)  681. 
■•  Bucher  v.   Dillsburg  &c.  R.  Co., 

76  Pa.  St.  30G. 

915 


1  Thomp.  Corp.  §  11()2.J     tmk  contract  of  subscription. 

ing  the  theory  of  the  foregoing  cases  to  say,  as  some  of  the 
courts  do,  that  a  stock  subscription  is  not  binding  unless  regu- 
larly made  in  the  statutory  mode.  The  subscribers  are  bound 
to  take  notice  of  the  terms  of  the  charter,  where  there  is  one  in 
existence,  and  of  the  governing  statute  where  the  corporation  is 
organized  under  a  general  law.*  The  charter  or  governing  stat- 
ute is  deemed  to  enter  into  and  to  form  a  part  of  the  contract  of 
subscription;  but,  on  this  theory,  only  when  the  subscription  is 
made  in  conformity  with  its  terms.  Such  subscriptions,  it  is 
reasoned,  are  only  binding  on  the  subscribers  when  they  are  so 
made  as  to  bind  the  company;  and  as  the  statute  creates  no  ob- 
ligation on  the  corporation,  except  upon  subscriptions  regularly 
made,  no  others  can  be  enforced,  unless  they  were  made  upon 
some  actual  consideration  or  agreement  binding  the  company.^ 
In  conformity  with  this  theory,  it  has  been  ruled,  under  a  statute 
of  incorporation  which  declares  that  the  persons  subscribing  the 
original  articles,  and  those  who  subscribe  to  the  stock  in  the 
manner  to  be  provided  by  the  by-laws,  shall  be  a  body  corpo- 
rate; ^  that  there  can  be  no  operative  subscription  to  the  stock, 
outside  of  subscriptions  to  the  articles,  until  by-laws  directing 
the  mode  of  subscribing  have  been  framed  ;  and  that  a  subscrip- 
tion before  the  adoption  of  by-laws,  does  not  create  either  the 
rights  or  liabilities  of  membership.*  In  like  manner  it  has  been 
held  that  there  can  be  no  recovery  upon  a  subscription  to  the 
capital  stock  of  a  street  railroad  company,  made  before  its  organ- 
ization, where  it  is  not  shown  that  the  defendant,  after  the  sub- 
scription of  the  requisite  amount  of  stock,  subscribed  articles 
of  association  which  set  forth,  besides  other  requisites,  the  num- 
ber of  directors  and  their  na  mes,  as  required  by  the  applicatory 
statute,  and  where  it  does  not  appear  that  he  ever  assented  to  the 
number  or  names  of  the  directors. * 

§  1162,  View  that  a  Subscription  to  the  Shares  of  a  Cor- 
poration not  Formed  Creates  no  Liability. —  The  rule  which 
requires    a  strict  compliance  with  the   statute  in  the  mode  of 

1  Ante,  §  1137.  ^  Carlisle    v.   Saginaw    Valley  &c. 

2  Parker  v.  Northern  Cent.   Mich.      R.  Co.,  27  Mich.  315. 

K.  Co.,  33  Mich.  23.  ^  Eeed  v.  Richmond  Street  R.  Co., 

»  Mich.  Comp.  L.,  1871,  §  2405.  60  Ind.  342. 

916 


FORMATION    OF   THE    CONTRACT.       [1  Thomp.  Coip.   §   1162. 

making  the  subscription  is  entirely  compatible  with  the  rule 
hereafter  stated  ^  that  a  subscription  is  valid  although  it  be  an 
agreement  to  take  shares  of  the  capital  stock  of  a  corporation 
to  be  thereafter  created.  It  has  been  already  seen  that  where 
corporations  are  organized  under  general  laws,  the  existence  of 
the  corporation  generally  dates  from  the  filing  of  the  articles  of 
association,  certificate  of  incorporation,  or  other  statutory 
paper,  by  whatever  name  called,  in  the  office  of  the  secretary 
of  state,  or  in  some  other  public  office,  for  record.^  Now,  if  it 
were  the  rule  that  the  subscription  does  not  become  obligatory, 
unless  the  other  contracting  party —2 namely,  the  corporation, — 
is  in  existence  at  the  time  the  subscription  is  made,  the  subscrip- 
tion of  none  of  the  original  corporators  would  be  binding,  but 
any  of  them  could  retreat  from  their  obligation  even  after  the 
corporation  should  come  into  existence  in  part  by  his  voluntary 
act.  We  should  then  have  the  anomalous  condition  of  a  corpo- 
ration being  created  by  the  engagements  of  a  number  of  co- 
adventurers,  not  one  of  which  is  binding.  We  should  have  the 
still  more  anomalous  spectacle  of  a  joint-stock  company  having 
no  capital  except  such  as  depended  on  the  mere  moral  obliga- 
tion of  its  creators,  —  unless  such  part  payment^  as  they  may 
have  been  required  to  make  under  the  governing  statute 
should  render  their  subscriptions  binding.  But,  as  will  be 
subsequently  shown,*  these  part  payments  are  often  either  not 
made  at  all,  or  else  made  by  giving  promissory  notes  or  bank 
checks,  which  are  not  paid,  the  articles  or  certificate  falsely 
stating  that  they  have  been  made.  So  that,  if  the  view  on  which 
we  are  commenting  is  a  sound  one,  we  should  have  in  many 
cases  the  solecism  of  joint-stock  corporations  without  any 
stockholders  and  without  any  capital  stock,  other  than  a  poten- 
tial stock  depending  on  the  future  voluntary  action  of  the 
co-adventurers  or  of  others  who  might  conclude  to  come  into 
the  venture.  Of  course,  the  legislatures  enacting  these  schemes 
of  corporate  organization  did  not  contemj)late  results  so  absurd 
and  so  obviously  opposed  to  public  policy.  Any  view  which 
ascribes  such  a  meaning  to  such  a  statute  is  scarcely  worthy  of 

1  Ante,  ^  1158.  »  As  to  which  see  post,  §  1168. 

2  Ante,  §  217,  et  seq.  *  Post,  §  1218,  et  seq. 

917 


1  Thomp.  Corp.  §  1163.]     the  contract  of  subscription. 

discussion;  and  yet,  as  will  now  be  shown,  such  a  view  has 
been  taken  by  an  authoritative  court  in  an  opinion  delivered 
by  an  eminent  judge. 

§  1163.  Further  of  this  View:  Reasoning  of  Chief  Justice 
Black.  —  The  view  just  stated  has  been  taken  in  Pennsylvania. 
It  is  seemingly  limited  to  that  State,  and  is  doubted  and  departed 
from  in  other  decisions  in  that  State.  Briefly  stated,  it  is,  that 
one  who  signs  a  subscription  paper,  but  nothing  more,  whereby 
he  agrees  to  take  a  certain  numl)er  of  shares  in  a  corporation 
thereafter  to  be  formed,  does  not  become  liable  as  a  shareholder, 
in  an  action  for  assessments  by  the  corporation  after  it  is  formed.^ 
The  reasoning  of  the  court  in  the  leading  case  where  this  doc- 
trine  was  started  is  more  impulsive  than  sound.  The  opinion 
was  given  by  Jeremiah  Black,  C.  J.,  who  said:  "  A  contract 
cannot  be  made  by  one  person  alone.  It  takes  two  to  make  a 
bargain.  Before  a  promise  becomes  a  binding  obligation,  it 
must  not  only  be  made  to,  but  must  be  expressly  or  impliedly 
accepted  by,  the  party  for  whose  benefit  it  was  meant.  The 
paper  before  us  is  no  more  than  a  naked  expression  of  the  sub- 
scriber's intention  to  purchase  certain  shares  in  the  capital  stock 
of  a  company  which  it  was  expected  would  be  incorporated  by 
the  legislature.  Besides,  it  is  without  any  sufficient  consideration. 
It  is  not  pretended,  and  cannot  be  made  out  from  the  paper,  that 
the  ao;reement  of  the  defendant  was  the  motive  of  the  others  for 
taking  stock.     It  is  well  settled,  that  procuring  legislation  of  any 

1  Strasburg  R.  Co.  ?;.  Echternacht,  object  is  binding.  This  case  followed 
21  Pa.  St.  220;  s.  c.  60  Am.  Dec.  49;  the  decision  in  Ediuboro  Academy  v. 
Hedge  v.  Horn's  Appeal,  G3  Pa.  St.  Robinson,  37  Pa.  St.  210;  s.  c.  78  Am. 
279;  McClure  v.  People's  Freight  Co.,  Dec.  421,  where  an  action  at  law  for 
90  Pa.  St.  271.  The  same  view  was  an  assessment  was  sustained  after  the 
taken  by  Mr.  Justice  Campbell  in  his  incorporation  of  the  company  on  a 
dissenting  opinion  in  Peninsular  R.  subscription  made  before  its  incor- 
Co.  V.  Duncan,  28  Mich.  152.  The  poration.  In  Steamship  Co.  v.  Mur- 
tendency  of  the  courts  in  Pennsylvania  phy,  6  Phila.  (Pa.)  224,  Sharswood,  P. 
to  depart  from  this  holding  is  illus-  J.,  regarded  the  case  of  Strasburg  R, 
trated  by  Shober  v.  Lancaster  Park  Co.  v.  Echternacht,  supra,  where  this 
Asso.,  68  Pa.  St.  431,  where  it  was  doctrine  was  sprung,  as  being  over- 
held  that  a  subscription  which  posi-  ruled  in  Edinboro  Academy  v.  Robin- 
tively  promises  to  pay  a  certain  sura  son,  supra,  except  in  so  far  as  it  denied 
of  money  to  accomplish   a   specified  relief  in  equity. 

918 


> 


FORMATION   OF   THE    CONTRACT.       [1   Thomp.  Corp.    §   1165. 


kind  is  not  a  consideration  which  will  support  even  a  direct 
promise  to  pay  a  fair  compensation  for  the  hxbor  of  the  promisee 
about  such  a  business.  Ag^ain :  if  there  was  a  bindino:  engage- 
ment,  it  was  not  made  with  the  railroad  company,  which  did  not 
exist  at  the  time."  ^ 

§  1164.  Distinction  between  a  Subscription  and  an  Agree- 
ment to  Subscribe.  —  This  discussion  conducts  us  to  a  distinction, 
taken  in  some  of  the  cases,  between  a  contract  of  subscription  and 
an  agreement  to  subscril)e.  The  theory  of  these  cases  seems  to  be 
thiit  if  a  number  of  co-adventurers  mutually  agree  to  subscribe  for 
shares  in  a  corporation  thereafter  to  be  formed,  this  does  not 
amount  to  an  irrevocable  contract  to  become  shareholders  when 
the  corporation  is  formed;  but  they  must  perform  the  additional 
act  of  executing  the  statutory  contract  of  membership  by  signing 
and  acknowledging  the  articles  of  association  where  the  corpora- 
tion is  unformed,  or  by  entering  their  names  on  its  stock  book 
where  it  is  formed.  This  theory  is  much  like  that  already  con- 
sidered,^  that  until  this  additional  act  is  performed  there  is  no 
offer  which  the  corporation,  when  formed,  or  even  if  alreadj^ 
formed,  can  accept,  and  that  the  subscribers  do  not  therefore 
become  shareholders  and  liable  to  be  charged  as  such,  unless 
they  choose  to  carry  out  their  agreement  by  subscribing  for  the 
shares. "^ 

§  1165.  Infirmity  of  this  Distinction.  —  While  this  view  is 
not  inherently  absurd,  as  is  another  view  hereafter  considered,* 
yet  it  carries  with  it  an  infirmity  which  in  conscience  and  morals  is 
scarcely  less  serious.  It  permits  any  one  of  the  co-adventurers 
to  retreat  from  his  solemn  obligation  after  the  others  have  acted 
upon  the  faith  of  it  by  organizing  the  corporation.     The  same 

1  Strasburg  R.  Co.  v.  Echternacht,  3  See  Mor.Priv.  Corp.  2nd  ed.,  §  49; 
21  Pa.  St.  220;  s.  c.  CO  Am.  Dec.  49.  Lake  Ontario  Shore  R,  Co.  v.  Curtiss, 
This  case  is  referred  to  in  Talcott  v.  80  N.  Y.  219;  Thrasher  v.  Pike  Couuiy 
Pine  Grove,  1  Flippiu  (U.  S.),  49,  on  R.  Co.,  25  III.  393.  Compare  Quicic  v. 
the  propo.sition  that  tiie  promoters  and  Lemon,  105  111.  578,  585  ;  Mt.  Sleriing 
launchers  of  a  corporation  cannot  Ijind  Coal  Road  Co.  v.  Little,  14  Bush  (Ky.), 
it  io  any  way,  although  all  are  share-  429. 

holders.  <  Post,  §  1188. 

2  Anu,  §  1157. 

919 


1  Thomp.  Corp.  §  11G6.]     the  contuact  of  suiisciiiPTiON. 

view,  applied  to  the  analogy  of  a  contract  of  sale,  would  deprive 
the  vendee  of  any  remedy  in  the  case  of  an  executory  contract 
to  sell,  or  to  manufacture  and  sell.  It  presents  a  striking 
instance  of  the  manner  in  which  lawyers  and  judges  frequently 
reason,  stumbling  upon  technical  refinements  and  sinking  justice 
entirely  out  of  view.  The  true  view  is  :  1.  That  the  co-adven- 
turers who  sign  such  a  contract  obligate  themselves  to  each  other, 
and  that  the  promise  of  each  is  a  consideration  for  the  promise 
of  the  others.^  2.  That  the  subscription  is  in  the  nature  of  a 
standing  and  continuing  proposal  to  the  corporation  which  is 
contemplated  b\'  the  parties,  and  tliat  when  the  corporation  is 
called  into  existence  and  accepts  the  proposal,  the  minds  of  the 
contracting  parties  meet  and  the  contract  is  obligatory.  It  is 
mere  casuistry  to  say  that  the  contract  can  never  become  oblig- 
atory because  there  are  not  at  the  time  it  is  made  two  contract- 
ing parties. 

§  1166.  Unsoundness  of  the  View  that  the  Proposal  is  Bad 
Unless  Made  in  Strict  Compliance  with  the  Statute.  —  Equally 
unsound  is  the  view  that  the  proposal  of  the  subscriber  is  bad 
unless  made  in  strict  compliance  with  the  governing  statute.  It 
in  no  sense  resembles  the  case  of  a  defective  execution  of  a  statu- 
tory power,  which  will  not  be  aided  even  in  equity.^  It  is  in  no 
sense  like  the  case  where  a  statute  creates  a  right  and  gives  a 
remedy  for  the  assertion  of  the  right,  — in  which  case  it  is  well 
known  the  statutory  remedy  is  exclusive.^  It  is  not  even  re- 
motely analogous  to  the  case  where  a  court  of  justice  proceeds 
under  a  statute  which  is  in  derogation  of  the  common  law,  in 
which  case  it  must  not  only  proceed  strictly,  but  must  show 
affirmatively  by  its  record  that  it  has  kept  within  its  jurisdiction.* 
It  is  the  naked  case  of  a  man  capable  of  making  and  taking  con- 
tracts, making  a  proposal  for  a  contract  which  is  not  only  not 

1  Post,  §  1205.  upon  the  subscription  contract.     Ag- 

2  For  instance,  that  equity  will  not  ricultural  &c.  R.  Co.  v.  Winchester, 
aid  defective  conveyances  by  married      13  Allen  (Mass.),  29. 

women,  see    19  Am.  Dec.  230.  ^  Galpin  v.  Page,  18  Wall.  (U.  S.) 

^  Uncertainty,  in     relation  to    an  350,371;  Pulaski  v,  Stuart,  28  Gratt. 

immaterial  matter,  in  the  terms  of  sub-  (Va.)  872,  879:  Werz  v.  Werz,  11  Mo. 

scription  to  the   stock  of   a  railroad  App.  30. 
company,   "will  not  avoid    an  action 
920 


FORMATION   OF   THE    CONTRACT.        [1   TllOlUp.  Corp.   §   1167. 

opposed  to  the  policy  of  the  law,  but  which  the  law  favors. 
That  such  an  engagement  is  voidable  because  not  made  in  a  par- 
ticular way  prescribed  by  a  statute  seems  to  find  support  in  no 
principle  of  public  policy  and  in  no  legal  analogy;  but  it  seems 
to  be  opposed  to  whatever  analogy  can  be  discovered.  Take, 
for  instance,  the  contract  of  suretyship.  The  liability  of  a 
surety  is  strictissimi  juris;  and  yet  where  a  principal,  with 
sureties,  undertakes  to  execute  a  statutory  bond,  but  fails  by 
reason  of  not  complying  with  the  statute,  it  is  the  constant 
practice  of  the  courts,  for  the  sake  of  justice,  to  hold  the  bond 
good  as  a  common  law  obligation.^  But  in  the  particular  under 
consideration,  many  of  the  courts,  careless  of  justice,  have  )ier- 
mitted  men  to  retreat  from  their  solemn  obligations  after  others 
have  incurred  obligations  or  changed  their  position  on  the  faith 
of  the  same,  —  and  this,  on  the  refined  ground  that  a  contract 
such  as  will  bind  the  intending  obligors  must  be  tendered  to  the 
other  contracting  party,  —  an  artificial  being  not  yet  in  esse^  in 
the  precise  statutory  mode,  or  not  at  all. 

§  1167.   Difficulty  Avoided    by  Subsequent    Ratification.  — 

Other  courts  stumbling  upon  these  refinements  and  endeavoring 
to  be  severely  logical,  have  sometimes  avoided  the  difficulty  by 
discovering  a  subsequent  ralification,  taken  place  after  the  or- 
ganization of  the  corporation,  —  as  where  the  corporation  issues 
and  the  subscriber  accepts  certificates  representing  the  number  of 
shares  for  which  he  subscribed.  In  such  a  case  the  contract  is 
complete,  and  the  corporation  may  maintain  an  action  against 
him  for  assessments.^  Such  a  ratification  has  been  held  to  take 
place  where,  after  the  organization  of  the  corporation,  the  sub- 
scriber recognizes  the  obligation  of  his  subscription  by  making  a 
part  iwyment  upon  it.  This,  it  is  reasoned,  is  a  sufiicient  re- 
newal of  his  promise  to  the  corporation,  to  enable  them  to  main- 
tain assumpsit  for  the  balance,  and  the  partial  execution  of  the 
purpose  designed  by  the  charter,  forms  a  suflScient  consideration 

*  Murfree  Off.  Bonds,  §  67;  United  2  Taunton  Tump.  Corp.  ^7.  Whiting, 

States  V.    Maurice,  2  Brock.  (U.  S.)  10  Mass.   327;  s.  c.  6  Am.  Dec.  124; 

96;  Goodrum    v.   Carroll,   2  Humph.  Inter- Mountain  Pub.   Co.  v.  Jack,   6 

(Tenn.)   490;   s.  c.  37  Am.  Dec.  564;  Mont.  668;  Compare  Gilmore  u.  Polk, 

Cleason  v.   Shaw,  5  Watts  (Pa.)  468;  6  Mass.  491. 
s.  c.  30  Am.  Dec.  391. 

921 


1  Thomp.  Coi[).  §  1170.]     the  contract  of  subscription. 

for  such  promise.^  The  same  consequences  were  held  to  follow 
where  the  subscriber  hud  paid  for  one  of  his  shares  in  full  and 
transferred  the  others. ^ 

§  1168.  Subscription  and  Payment  of  Deposit.  —  Possibly 
another  statement  auiouiits  to  the  same  thing,  namely,  that  a  sub- 
scription for  a  given  immber  ot'  shares  of  the  stock  of  a  corpora- 
tion, accompanied  by  a  payment  of  the  de[)osit  required  of 
subscribers,  makes  the  subscriber  a  stockholder  in  respect  of  the 
shares  subscribed  for.^  But  this  woulil  seem  lo  proceed  upon  the 
aJ-sun)i)tion  that  the  corporation  is  in  existence  at  the  time.  For 
the  mere  acceptance  of  the  dei)osit  on  behalf  of  a  non-existent 
corporation  could  not  possibly  make  the  depositor  a  shareholder 
in  the  corporation  when  it  should  come  into  existence,  where 
his  subscription  does  flot  have  that  effect,  unless  some  theory  of 
ratification  or  adoption  is  resorted  to. 

§  1169.  Another  Road  out  of  this  Difficulty.  —  Another  road 
has  been  found  out  of  this  difficulty  by  reasoning  that,  although 
the  underwriting  of  a  subscription  paper  may  have  preceded  in 
point  of  time  the  day  of  the  meeting  at  which  the  corporation 
was  organized,  3^et  if  it  were  actually  delivered  to  the  corpora- 
tion on  that  day,  the  difficulty  is  obviated  and  the  logical  sym- 
metry of  the  law  preserved,  —  and  this  without  reference  to  the 
inquiry  whether  its  delivery  actually  antedated,  in  point  of  time, 
the  organization  of  the  corporation ;  since  the  law  will  so  arrange 
the  acts  performed  in  one  day,  and  relating  to  the  same  subject- 
matter,  as  to  render  them  conformable  to  the  intentions  of  the 
parties,  without  regarding  which  was  in  fact  first  produced  or 
executed.*  A  fiction  is  thus  resorted  to  in  order  to  preserve  the 
logic  of  the  law. 

§  1170.  Rule  that  Subscriptions  Made  before  Organization 
are  Good. — A  great  majority  of  the  courts,  disregarding  such 

1  Kennebec  &c.  R.  Co.  u.  Palmer,  34  M.  (Miss.)  515;  Payne  v.  Ballard,  23 
Me.  336.  Miss.  88;   s,  c.  55  Am.  Dec.  74;  Post, 

2  Bell's  Appeal,   115  Pa.  St.  88;  s.  c.      § 

2  Am.  St.  Rep.  532.  ^  Taunton  Turnpike  Corp.  v.  Wbit- 

2  Hayne  v.  Beauchamp,  5  Smed.  &      ing,  10  Mass.  327;  s.c.6  Am.  Dec.  124. 
922 


FOUMATION    OF    THE    CONTRACT.       [1  TllOmp.  Corp.    §   1170. 

subtleties  and  cutting  through  such  refinements,  hold  that  a  sub- 
scription to  the  capitid  stock  of  an  intended  corporation,  made 
before  it  comes  into  existence,  becomes  a  binding  contract  when 
the  corporation,  on  coming  into  existence,  accepts  it,  either 
expressly  by  issuing  to  the  subscriber  his  certificate,  or  impliedly 
by  otherwise  recognizing  him  as  a  shareholder  and  extending  ta 
him  the  rights  which  pertain  to  that  relation.  This  is  the  general 
result  of  the  doctrine  of  many  cases,  although  in  the  opinions 
delivered  it  has  been  stated  in  various  ways.^  Under  this  rule 
it  is  not  necessary,  in  order  to  become  liable  to  the  corpora- 
tion for  assessments  as  a  shareholder,  that  the  pitrty  should 
have  affixed  his  signature  to  the  articles  of  incorporation.  He 
may  acquire  this  liability  by  affixing  it  to  any  subscription  paper 
which  distinctly  imports  that  he  subscribes  for  a  given  number 
of  shares  of  a  certain  value.  *'  It  matters  not  how  informal 
the  writing  may  be,  if  the  intent  of  the  parties  can  be  collected 
from  it."  Accordingly,  a  writing,  reciting  the  formation  of  an 
association  for  the  purpose  of  organizing  a  bank,  and  stating, 
among  other  things  "the  names  and  residence  of  the  share- 
holders, with  the  number  of  shares  held  by  each,"  and  sub- 
scribed by  the  corporators,  has  been  held  to  constitute  a  sub- 
scription to  the  capital  stock,  on  the  part  of  the  signers,  and 
binds  them  to  pay  for  the  number  of  shares  set  opposite  their 
names ;  and  the  corporation  can  maintain  an  action  on  such  an 
instrument  against  any  of  the  signers.^ 

1  Hamilton  &c.   Plank  Road  Co.  v.  Co.  v.  McCormick,  10  Ind.  499;  s.  c. 

Rice,  7  Barb.  (N.  Y.)  157;  Cleaves^.  71  Am.  Dec.  337;  Mich.  Midland  &c. 

Turnpike  Co.,  1  Sneed  (Tenn.),  491;  R.  Co.  v.  Bacon,  33  Mich.  466;  Cross 

Tonica  &c.   R.  Co.  v.  McNealy,  21  111.  v.  Pinckneyville  Mill  Co.,  17  111.   64; 

71;    Johnston  v.  Ewing  &c.  Univer-  Red  "Wing  Hotel  Co.  v.  Friederich,  26 

sity,  35  111.  618;  Lake  Ontario  R.  Co.  Minn.  112;  Mahon  v.  "Wood,  44  Cal. 

V.  Mason,  16  N.  Y.  451;    Penobscot  R.  462;  Belton  Compass  Co.  v.  Saunders, 

Co.  V.  Duramer,   40  Me.  172;  s.  c  63  70  Tex.  699;  s.  c.  19  Am.  &  Eng.  Corp. 

Am.  Dec.  654;    Penobscot  R.   Co.  v.  Cas.  284;  6  S.  W.  Rep.  134;  Johnston 

White,  41    Me.    512;    s.    c.    66    Am.  v.  Ewing  &c.  University,  35  111.  518; 

Dec.    257;    Kennebec    &c.    R.   Co.   v.  Glenn  v.  Busey,  5   Mackey    (D.    C), 

Palmer,34Me.  360;  Thompson t;.  Page,  233;    s.  c.  4  Cent.  Rep.  609;  Ashuelot 

1  Mete.  (Ma.ss.)  565;    Bell's  Appeal,  Boot  &c.  Co.  v.  Hoit,  56  N.  H.  548. 
115  Pa.  St.  88;  s.  c.  2  Am.  St.  Rep.  532;  2  Nulton  v.  Clayton,  64  la.  425;  s.  c. 

Nulton  V.  Clayton,  54  Iowa,  425;  s.  c.  37  Am.  Rep.  213. 
37  Am.   Rep.  213;  New  Albany  &c.  R. 

923 


1  Thomp.  C(»rp.  §  1172.]     the  contract  of  subscription. 

§  1171.  Reasons  in  Support  of  this  Rule. —  One  court  has 
reasoned  that  a  subscription  by  a  number  of  persons  to  the 
stock  of  a  corporation,  to  be  thereafter  formed  by  them,  con- 
stitutes a  contract  among  the  subscribers  to  become  stockholders 
when  the  corporation  is  formed,  upon  the  conditions  expressed 
in  the  agreement,  and  is  irrevocable  from  the  date  of  the  sub- 
scription ;  and  is  in  the  nature  of  a  continuing  offer  to  the  pro- 
posed corporation,  which,  upon  acceptance  by  it,  becomes  as 
to  each  subscriber  a  contract  between  him  and  the  corporation.^ 
The  same  court,  struggling  with  the  difficulties  of  this  question 
has  reasoned  that  a  promoter  of  a  proposed  corporation,  who 
solicits  and  procures  stock  subscriptions,  is  the  agent  of  the 
body  of  subscribers  to  hold  the  subscriptions  until  the  cor- 
poration is  formed,  and  then  to  turn  them  over  to  it  without 
further  act  of  delivery  on  the  part  of  the  subscribers ;  and  hence 
that  a  delivery  of  a  subscription  to  such  promoter  is  a  complete 
delivery,  so  that  it  becomes,  eo  instanti,  a  binding  contract 
as  amonsr  the  subscribers.^  Another  court  has  reasoned  that, 
where,  by  the  provisions  of  the  contract  of  subscription,  until 
the  organization  of  the  company,  the  subscription  was  subject 
to  the  acceptance  or  rejection  of  the  commissioners  appointed 
under  the  charter,  and  it  did  not  appear  that  it  was  ever 
rejected  by  the  commissioners  or  disaffirmed  by  the  company 
after  it  became  organized,  it  became  binding  on  the  company, 
and  the  subscriber  became  entitled  to  his  certificates  of  shares 
and  the  corporation  to  the  assessments  made  against  the  sub- 
scription.^ 

§   1172.  Nature  of  Such  an  Offer  before  Acceptance.  —  The 

effect  of  an  agreement  to  take  shares  in  a  corporation  not  yet 
organized  has  been  thus  stated  in  a  recent  case  in  Alabama  by 
Mr.  Chief  Justice  Stone:  "  An  agreement  to  take  shares  in  a 
corporation  to  be  afterwards  formed,  while  it  may  be  and  often 
is,  a  binding  contract,  for  the  breach  of  which  an  action  may  be 

1  Minneapolis    Threshing-Machine  ^  /^j^^. 

Co.   V.  Davis,  40  Minn.  110;  s,   c.   12  ^  Connecticut  &c.  R.  Co.  v.  Bailey, 

Am.  St.  Eep.  701;  41  N.  W.  Rep.  102G;  24  Vt.  465;  s.  c.  58  Am.  Dec.  181,  190. 

3  L.   R.  A.  796;  26  Am.  &  Eng.  Corp.  See  also  Townsend    v.  Alexander,   2 

Cas.  61.  Oh.  19. 

9M 


)         FORMATION    OF    THE    CONTRACT.        [1  TllOmp.  Coi'p.   §   1173. 

maintained,  is,  by  force  of  the  mere  agreement,  in  no  sense  a 
subscription  of  stock.  Sometliing  more  must  be  done  before  it 
can  be  affirmed  that  the  subscription  is  a  completed  contract. 
Till  a  charter  is  obtained  or  incorporation  otherwise  perfected, 
such  agreement  is  a  mere  oifer;  or  it  is  an  option,  revocable  or 
not  as  the  nature  of  the  agreement  may  determine.  The  terms 
of  the  offer,  and  the  consideration  it  rests  on,  may  render  it 
bindino-  and  irrevocable ;  or  a  failure  to  withdraw  such  offer, 
even  when  in  its  nature  it  is  revocable,  until  it  has  been 
accepted  by  actual  incorporation,  may  so  bind  the  offerer  that  he 
cannot  afterwards  withdraw  it.  When  it  rests  on  a  valuable 
consideration,  such  as  a  promise  for  a  promise,  then  as  a  rule,  it 
becomes  an  irrevocable  option,  provided  incorporation  accord- 
inor  to  the  terms  of  the  offer  is  perfected  within  a  reasonable 
time.  This  would  constitute  the  offerer  in  substance  a  stock- 
holder. So,  if  an  offer,  which  has  no  valuable  consideration  to 
rest  on,  be  permitted  to  stand  until  it  is  accepted  by  incor- 
poration according  to  its  terms,  this,  it  seems,  would  be  an 
irrevocable  subscription  of  stock."  ^ 

§  1173.  Instances  under  tliis  Rule.  —  Under  this  rule  it  has 
been  held  that  a  stock  subscription  made  in  contemplation  of  a  special 
charter  being  granted  by  the  legislature,  creating  a  company  to  build  a 
railroad  is  valid  and  enforceable  by  the  raih-oad  company  when  it  comes 
into  existence.  2  _  _  _  -  One  of  the  original  associates  for  the  for- 
mation of  a  railway  company,  who  signed  a  subscription,  agreeing  to  take 
a  certain  number  of  shares  of  the  capital  stock  of  the  proposed  com- 
pany, and  to  pay  therefor  "at  such  times  and  in  such  sums  as  the 
same  shall  be  assessed,  demanded,  and  required  to  be  paid  by  the 
directors  of  said  company,"  but  who  afterwards  failed  to  sign  the 
articles  of  incorporation,  or  to  subscribe  for  stock  on  the  commis- 
sioner's books,  was  held  liable  on  his  preUmiuary  subscription,  after 
the  company    had  been  formed,  and  assessments  made  and  payment 

1  Knox  V.  Childersburg  Land  Co.  (Mass.),  303;  2  Wat.  Corp.,  §  184;  1 
86  Ala.  180;  s.  c.  5  South.  Rep,  578;  Mor.  Priv.  Corp.,§  128. 
citing:  1  Mor.  Priv.  Corp.  §47;  2  Tonica  &c.  R.  Co.  v.  McNealy,  21 
etseq.;  Music  Hall  Co.  v.  Carey,  116  111.  71.  See  also  Belton  Cotton  Cora- 
Mass.  471;  Road  Co.  v.  Lancaster,  79  press  Co.  v.  Saunders,  70  Tex.  699; 
Ky.  552;  Land  Co.  v.  Aldricii,  86  111.  s.  c.  19  Am.  &  Eng.  Corp.  Cas.  284; 
504;  Publislilng  Co.  v.  Jack,  6  Pac.  6  S.  W.  Rep.  134. 
Rep.    20;    Ferry   Co.  v.  Balcli,  8  Gray 

925 


1  Thomp.  Corp.  §  1174:.]     the  contract  of  subscription. 

demanded.!  _  -  -  -  An  action  may  be  maintained  in  the  name 
of  a  corporation  after  it  is  organized,  against  a  subscriber  upon  the 
allotment  to  him  of  the  shares  subscribed  for,  on  a  contract  wherein  the 
subscribers  "agree  to  and  with  each  other,"  to  associate  themselves 
into  a  corporation  to  purchase  a  certain  site  for  a  town-hall,  and  to 
"pay  to  the  treasurer  of  said  corporation,"  the  amount  set  against 
their  respective  names. ^  -  -  -  -  A  promissory  note  executed  for 
the  purchase  of  a  certain  number  of  shares  of  a  homestead  association 
about  to  be  formed,  under  a  name  and  with  a  number  of  shares  agreed 
upon  when  the  note  is  given,  does  not  fail  for  want  of  consideration, 
because  the  association  when  formed  has  a  name  or  number  of  shares  of 
stock  different  from  that  agreed  on,  provided  the  land  is  the  same  and 
the  lots  are  of  the  same  value  as  the  promisor  had  reason  to  expect. 
But  the  giver  of  the  note  in  such  case  is  at  liberty  to  stand  on  the  terms 
of  his  contract,  and  if  it  was  understood  that  the  shares  of  stock  he  is 
to  receive  should  not  cost,  in  the  aggregate,  more  than  a  certain  sum 
per  share,  he  is  at  liberty  to  refuse  the  stock  if  it  will  cost  more  than 
that  sum,  and  the  note  is  then  void  for  want  of  consideration.^ 

§  1174.  Rights  and  Liabilities  of  Subscribers  to  a  Common 
Fund  for  a  Common  Purpose. —  In  respect  of  the  rights  and 
liabilities  of  subscribers  to  a  common  fund  for  a  common  pur- 
pose,—  as  for  instance,  to  a  fund  for  the  erection  of  an 
academy, —  it  has  been  observed  that  as  soon  as  the  subscription 
paper  becomes  complete  by  the  subscription  of  the  stipulated 
amount  of  money,  the  subscribers  to  it  become  an  association 
of  persons  united  for  contributing  to  a  common  fund  for  a 
common  purpose,  to  be  carried  out  by  themselves.  Then  the 
subscription  of  each  (at  least  if  not  withdrawn  before  the  actual 
organization  of  the  associates)  becomes  a  contract  by  each 
associate  with  his  fellows,  in  consideration  of  similar  contracts 
by  them,  to  contribute  to  a  common  fund  the  amount  subscribed 
by  him.  Such  an  act  of  association  involves  an  agreement  to 
organize  the  associates  when  the  subscription  shall  become  com- 
plete, and  generally  this  is  expressly  provided  for.  The  duties 
created  by  the  act  of  subscription  are  duties  to  the  association, 
and  the  first  of  them  that  is    to  be  performed  is  the  duty  of 

1  Peninsular  R.  Co.  v.  Duncan,  28  ^  Athol    Music  Hall   Co.  v.  Carey, 

Mich.    130.     See  also  Buffalo   &c.  R.       116  Mass.  471. 
Co.  V.  Clark,  22  Hun  (N.  Y.),  359.  ^  Mahon  v.  Wood,  44  Cal.  4C2. 

92() 


''  FOUMATIOX    OF    THE    CONTKACT.        [1   TllOmp.   CoUp.    §   1175. 

organization;  and  when  this  is  completed,  the  duty  of  paying 
the  sum  subscribed  is  a  duty  to  the  organized  association.  In 
a  legal  aspect,  the  most  perfect  form  of  organization  is  by  legal 
incorporation;  and  therefore  this,  when  regularly  obtained  by  a 
common  consent  of  the  associates,  must  be  regarded  as  the  true 
oro-anization  of  the  association,  and  the  corporation  becomes 
the  proper  legal  body  to  which  the  subscriptions  are  to  be 
paid,  and  which  is  to  sue  for  them.  There  can  be  but  one  true 
organization.^ 

§   1175.   Subscription  Must  be  Accepted  or  Acted  Upon. — 

It  has  been  held,  speaking  of  a  subscription  for  the  building  of 
a  church,  that  "  to  make  such  a  subscription  binding,  it  must  be 
acceded  to,  as  any  other  promise  or  offer,  and  the  party  apprised 
that  his  offer  is  accepted  ;  and  this  must  be  done  in  a  reasonable 
time?  Another  court  has  held  that  a  railroad  company  cannot 
recover  on  a  subscription  to  the  road  without  proof  that  the 
same  has  been  accepted  and  acted  upon  f  and  that  demand  of 
payment  and  suit  for  its  recovery  are  not  evidence  of  acceptance 
where  a  subscription  is  otherwise  invalid.^  In  a  case  in  another 
State,  it  appeared  that  before  a  railroad  company  was  incor- 
porated, the  defendant  and  others  signed  a  paper  agreeing  that 
if  it  should  be  incorporated  with  certain  privileges,  they  would 
subscribe  the  number  of  shares  set  opposite  to  their  respective 
names.  The  charter  was  obtained,  but  the  defendant  refused  to 
take  the  stock;  and  the  company  brought  a  bill  to  enforce 
specific  performance  of  the  contract.  It  was  held  that  the  bill 
should  be  dismissed,  there  being  no  binding  contract;  that  if 
there  were,  it  was  not  made  with  the  plaintiflfs,  and  that  if  the 


1  The  text,  with  some  slight  vari-  Lancaster  &c.  Assn.,  68  Pa.  St.  431), 

ance,  is  drawn  from  the  opinion   of  and  a  subscriber  is  liable,  though  the 

the  Supreme  Court   of    Pennsylvania  mode  of  organization  was  witliout  his 

by  Lowrie,  C.  J.,  in  Ediuboro  Acad-  direct  and  express  assent.     Robinson 

erayw.  Robinson,  87  Pa.  St.  210;  s.  c.  w.  Edinboro  Academy,  3    Grant  Cas. 

78    Am.   Dec.  421.      As  soon  as  the  (Pa.)    108;    Hedges'    Appeal,   63   Pa. 

associates  who  have  subscribed  or-  St.  279. 

ganize,  the  subscription  is  binding,  ^  Gait  u.  Swain,  9  Gratt.  (Va)  633; 

and,   if  they    incorporate    in  regular  s.  c.  GO  Am.  Dec.  311. 

form,  the  corporation  is  authorized  to  ^  Northern  &c.  R.  Co.  v.  Eslow,  40 

collect  tlie  subscriptions    (Shober  v.  Mich.  222. 

927 


1  Thomp.  Corp.  §  1176.]     the  contract  of  subscription. 

contract  had  been  binding,  and  the  plaintiffs  were  parties  thereto, 
their  remedy  was  at  law.^  So,  in  another  State,  sundry  persons 
having  subscribed  an  agreement  to  pay  certain  sums  respectively 
for  erecting  an  academy,  and  the  legislature  having  afterwards 
Incorporated  certain  trustees  of  such  academy,  and,  in  the  act 
of  incorporation,  having  provided  that  all  moneys  subscribed 
should  be  received  and  held  by  said  trustees  in  trust  foi  the 
academy,  it  was  held  that  the  corporation  could  not  maintain  an 
action  on  this  agreement  against  a  subscriber  thereto,  for  the 
money  by  him  subscribed.^  In  the  same  line  of  thought  it  has 
been  held  in  New  York  that,  where  several  parties  subscribe  for 
shares  of  stock  in  a  seminary  of  learning,  signing  for  such  nuni- 
ber  of  shares  as  each  proposes  to  take  and  pay  for,  no  implied 
authority  can  be  inferred  warranting  any  of  the  parties  in  con- 
tracting debts  or  advancing  moneys  on  the  credit  of  the  other 
parties.  The  court  reason  that  the  agreement  so  signed  is 
simply  an  agreement  to  take  and  pay  for  stock  in  an  association 
to  be  incorporated,  and  does  not  contemplate  the  conduct  of  any 
enterprise  as  copartners,  nor  as  members  of  an  unincorporiited 
joint-stock  association.  Such  articles  of  association  do  not  es- 
tablish such  relations  between  the  subscribers  as  would  authorize 
the  trustee  to  contract  debts  or  make  advances  on  the  credit  of 
the  association.^ 

§  1176.  Action  against  one  Member  of  Building  Committee 
by  the  other  Members.  — But  a  promise  to  pay  to  a  building 
committee  a  certain  amount  of  money  to  build  a  church,  made  by 
one  of  the  committee,  may,  in  Pennsylvania,  be  enforced  by  the 
other  members  of  the  committee  or  their  survivors,  by  an  action 
at  law  against  the  promisor.  The  court  refused  in  such  a  case  to 
higgle  about  the  question  whether  the  promisor  were  properly 
joined  as  plaintiff,  reasoning  that  his  name  as  plaintiff  would  be  at 
most  surplusage ;  but  that,  as  no  one  could  be  legally  bound 
by  a  promise  to  himself,  the  contract  in  the  case  was  void  in  part 
only,  but  good  for  the  residue,  and  the  name  of  the  promisor  was 
properly  dropped  as  that  of  plaintiff — at  least  it  lessened  the 

1  Strasburg  H.  Co.  v.  Etchternact,  2  Phillips  Academy    v.    Davis,    11 

21  Pa.  St.  220;  s.  c.  (JO  Am.  Dec.  49.  Mass.  113;  s.  c.  6  Am.  Dec.  162. 

3  Shibley  v.  Angle,  37  N.  Y.  626. 
928 


;      FORMATION    OF    THE    CONTRACT.       [1  Thomp.  Corp.    §   1177. 

appearance  of  irregularity.^  la  such  case  it  was  regarded  as  of 
no  consequence  that  the  building  committee  had  finished  the 
edifice  and  heen  discharged.  *'  T\M\xgh.  functus  officio  as  to  that, 
they  were  still  trustees  for  the  recovery  of  this  debt."  Nor  was 
it  of  any  importance  that  another  committee  had  been  raised  to 
wait  on  the  delinquent  subscriber  iu  reference  to  his  obligation. 
«<  Even  had  the  congregation  desired  to  transfer  this  chose  in  ac- 
tion to  another  committee,  so  as  to  enable  them  to  sue  in  their  own 
names,  it  could  not  have  done  so ;  and  the  only  course  was  to  sue  in 
the  names  of  the  surviving  members  of  the  original  committee."  ^ 

§  1177.  Acceptance  Necessary  if  Corporation  in  Exist- 
ence.—  If  the  corporation  is  iu  existence  at  the  time  when  the 
subscription  is  made,  then,  unless  the  subscription  takes  the 
form  of  a  proposal  by  the  corporation  and  an  acceptance  by  the 
subscriber,  it  must  necessarily  be  regarded  as  a  proposal  by 
the  subscriber  to  become  a  shareholder,  so  that  in  order  to 
make  a  binding  contract,  the  proposal  must  be  accepted  by  the 
corporation ;  and  some  of  the  decisions  proceed  upon  this 
view.^  Thus,  it  has  been  held  that  a  mere  subscription  to  p-e- 
ferred  capital  stock,  made  after  the  organization  of  the  corpo- 
ration, while  it  will  obligate  the  company  to  issue  the  stock  upon 
the  subscriber  paying  for  it  and  will  obligate  him  to  pay  for  it, 
it  yet  does  not  give  him  an  interest  in  the  company,  nor  vest  in 
him  a  title  to  the  stock,  until  the  contract  has  been  executed.^ 
Another  court  has  reasoned,  but  upon  grounds  which  the  writer 
has  ventured  to  criticise,^  that  the  mere  fact  of  subscribing  to 
the  stock  of  an  incorporated  company  does  not  constitute  the 
subscriber  a  stockholder  ;  though  it  puts  it  in  his  power  to  be- 
come a  stockholder,  if  the  stock  is  not  all  filled  up  at  the  time 
of  his  subscription,  by  compelling  the  corporation  to  give  him  the 
lethal  evidence  of  his  being  a  stockholder,  namely,  the  usual  stock 
certificate i  upon  his  complying  with  the  terms  of  his  subscription.'' 

1  Chambers  v.  Calhoun,  18  Pa.    St.  Northern  Central  &c.  R.  Co.  v.  Eslow, 
13;  s.  c.  55  Am.  Dec.  583.  40  Mich.  222. 

2  ma.  ■*  St.  Paul  &c.  R.  Co.   V.  Robbius, 

3  Carlisle    v.    Saginaw  Valley   &c.  23  Minn.  439. 

R.    Co.,    27    Mich.    318;     Parker    v.  '  Post,  §  1188. 

Northern  Central  R.  Co.,  33  Mich.  23;  «  Bu.sey  v.  Hooper,  35  Md.  15;  a.  c. 


59 


C  Am.  Rep.  351. 

929 


1  Thomp.  Corp.  §  1180.]     the  contract  of  subscriffion. 

§  1178.   Manner  in  which   Acceptance   Manifested.  —  It  is 

said  by  a  lato  writer  that  '*  although  no  particular  form  of  ac- 
ceptance is  essential,  in  order  to  constitute  this  proposition  to 
become  a  shareholder  a  binding  contract,  there  must  be  some 
unequivocal  act  o\\  the  part  of  the  agents  having  the  authority 
to  accept  the  offer,  so  that  there  can  be  no  doubt  as  to  the  obli- 
gation of  the  corporation  as  well  as  of  the  subscriber."  ^  Very 
often  there  will  be  no  formal  writing,  speech  or  act  of  accept- 
ance. This  will  often  happen  where  the  corporation  is  one 
not  having  a  joint  stock,  —  as  for  instance  a  religious,  educa- 
tional or  other  charitable  corporation.  Here  the  usual  form  of 
acceptance  will  be  the  incurring  of  expense  on  the  faith  of  the 
subscription;  and  this  may  be  shown  by  parol  evidence. ^ 

§  1179.  Distinction  between  Cases  where  the  Proposition 
Comes  from  the  Company  and  where  it  is  Made  to  the  Com- 
pany. —  In  respect  of  the  time  when  the  contract  of  subscription 
is  deemed  to  be  complete,  a  distinction  exists  between  cases 
where  the  proposition  for  the  subscription  comes  from  the 
company  to  the  subscriber,  and  where  it  comes  from  the  sub- 
scriber to  the  company.  In  the  former  case,  a  proposition  by 
or  on  behalf  of  the  company,  and  an  assent  thereto  by  the  sub- 
scriber, render  the  contract  complete.^  But  where  the  proposi- 
tion comes  from  the  subscriber,  there  must  obviously  be  an  assent 
on  the  part  of  the  company  ;  otherwise  it  remains  merely  unilat- 
eral.* But  in  either  case  it  is  not  doubted  that  until  there  is  a 
meeting  of  the  minds  of  both  parties  no  binding  contract  exists.^ 

§  1180.  Revocation  of  Offer  before  Acceptance.  —  Where 
the  corporation  is  in  existence  at  the  time  of  the  subscription, 
the  matter  seems  to  stand   on  the  mere  footing  of  a  contract 

1  1  Mor.  Priv.  Corp.  2iid  ed.,  §  48.  R.  6  Esch.  108;  "Wilkinson  v.  Anglo- 
See  Parker  v.  Northern  Central,  &c.,  California  Co.,  17  Jur.  231;  Pellatt's 
R.  Co.,  33  Mich.  23;  Northern  Central  Case,  L.  R.  2  Ch.  527;  Gunn's  Case, 
&c.,  R.  Co.  V.  Eslow,  40  Mich.  222.  L.  R.  3  Ch.  40;  European  &c.,  R.  Co. 

2  Jones  w.  Florence,  &c.  University,  v.  McLeod,  3  Pugsley,  N.  B.  331,  340. 
46  Ala.  626.     See  post,  I  1206.  ^  Cook  v.  Oxley,  3  T.  R.  653;  Payne 

3  European,  &c.,  R.  Co.  V.  McLeod,  v.  Cave,  3  T.  R.  148;  Routlcdge  v. 
3  Pugsley,  N.  B.,  331,  310.  Grant,  4  Bing.  660. 

*  British  &c.  Tcl.  Co.  v.  Colson,  L. 
{VM) 


'  FORMATION    OF   THE    COXTRACT.       [1  Thomp.   Corp.    §    1181. 

between  two  parties,  and  obviously  the  proposal  may  be  with- 
drawn before  acceptance.  The  same  conclusion  would  logically 
follow  where  the  subscription  is  made  with  a  view  to  the  forma- 
tion of  a  future  corporation,  if  such  an  undertaking  can  be  re- 
garded merely  as  a  proposal  by  the  subscriber  to  the  future 
corporation,  which  becomes  a  contract  on  the  acceptance  of  it  by 
the  corporation  when  it  comes  into  existence, ^  Proceeding  on 
this  view  it  has  been  held,  in  the  case  of  a  corporation  formed 
under  the  general  railroad  act  of  New  York,  that,  since  such  a 
corporation  is  not  formed  until  the  articles  have  been  filed  in 
the  office  of  the  secretary  of  state,  a  subscriber  having  the  ar- 
ticles in  his  possession  may,  at  any  time  before  such  filing,  alter 
and  reduce  his  subscription  to  any  extent  he  pleases. ^ 

§  1181.  Whether  Presumable  in  the  Case  of  a  Subscription 
to  a  Future  Corporation.  —  But  caution  should  be  exercised  in 
accepting  this  doctrine  in  its  application  to  a  subscription  to  the 
stock  of  a  projected  corporation.  In  such  a  case,  the  subscrip- 
tion, in  the  view  of  an  authoritative  court,  takes  effect  upon  the 
filing  of  the  certificate. ^  But  the  filing  of  the  certificate  cannot 
in  any  sense  be  regarded  as  an  act  of  the  corporation  accepting 
the  subscription.  In  fact,  it  is  not  the  act  of  the  corpora- 
tion at  all.  It  is  the  act  of  the  promoters,  or  co-adventur- 
ers. The  corporation  does  not,  and  cannot,  act  until  its 
directors  and  principal  officers  have  been  elected  ;  for  it  can, 
from  its  very  nature,  only  act  through  them.  This  conveys  to 
the  mind  the  obvious  suggestion  that  we  must  look  beyond  the 
theories  of  a  mere  contract  for  the  principles  which  are  to  solve 
this  question.  The  element  of  estoppel  evidently  enters  into  the 
engagement  of  the  subscriber  to  the  stock  of  an  inchoate  cor- 
poration, to  an  essential  degree.  His  promise  is  something 
more  than  a  proposal  to  a  possible  future  company  ;  it  is  a 
promise  to  his  co-adventurcrs  ;  and  while  it  is  not  such  a  promise 

1  See  Mor.  Priv.  Corp.  2nd  ed.  §  50:  2  Burt  v.  Farrar,  24  Barb.   (N.  Y.) 

Stuart  V.  Valley  R.  Co.,32Gratt.  (Va.)  518. 

147;    Goff  V.    Winchester    Colles^e,  6  ^  riioenix  Warehousing  Co.  u.  Bad 

Bush  (Ky.),  443;  Greer  v.  Chartier's  ger,  07  N.  Y.  294. 
R.  Co.,   96  Pa.  St.  391  s.   c.  42;  Am. 
Rep.  548,  per  Truukey,  .T. 

931 


1  Thomp.  Corp.  §  1183.]     the  contract  of  subscription. 

to  them  as  they  can  accept  so  as  to  enforce  it  by  an  action 
against  him  in  their  individual  names  —  for  the  promise  is  not 
made  to  them  as  obh'gees, — yet,  after  they  became  liable  on  the 
faith  of  it,  is  it  not  si  fraud  on  them  for  him  to  withdraw  from 
it?  This,  it  seems,  must  be  the  conclusion,  unless  we  suppose 
that  all  the  co-adventurers  signed  with  a  general  understanding 
that  it  is  a  mere  proposal  until  the  corporation  is  in  fact  formed. 
But  this  theory,  while  undeniably  logical,  like  much  of  the 
severe  logic  of  the  law,  opens  the  door  to  unlimited  frauds. 
Wealthy  and  influential  men  may  head  the  subscription  list  with 
large  amounts,  thus  influencing  others  to  subscribe,  and  th^n, 
the  very  moment  before  the  articles  are  filed,  cancel  or  reduce 
their  subscriptions,  unknown  to  the  others,  —  thus  leaving  the 
victims  of  their  fraud  bound  while  they  are  free.  That  the  law 
does  not  allow  this  to  be  done  we  shall  hereafter  see.^  We  then 
take  the  true  view  to  be  that  the  engagement  created  by  a  sub- 
scription to  the  stock  of  a  projected  corporation  is  binding,  in 
the  absence  of  fraud  inducing  it,  provided  the  corporation  is 
formed  according  to  the  scheme  within  a  reasonable  time;  and 
that  the  subscriber  cannot  in  the  interim,  any  more  than  after 
the  corporation  is  formed,  retreat  from  it  without  unanimous 
consent. 

§  1182.  A  Case  in  Illustration. — Even  where  the  corporation 
is  iu  existence  at  the  time,  a  state  of  circumstances  may  exist  in  which 
a  subscriber  wiU  not  be  allowed  to  withdraw  his  name  even  before  his 
subscription  has  been  delivered  to  the  company,  —  as  where  others  have 
presumably  subscribed  on  the  faith  and  in  pursuance  of  his  subscrip- 
tion. Thus,  where  the  subscriber  was  himself  the  agent  of  a  corpora- 
tion then  in  existence,  to  procure  subscriptions  to  its  capital  stock,  and 
he  entered  his  own  name  in  the  subscription  book  furnished  him  for  that 
purpose,  as  a  subscriber  to  a  certain  number  of  its  shares,  and  there- 
after persuaded  others  to  subscribe,  and  kept  the  book  for  about  six 
months,  and  then  cut  his  name  out  before  he  returned  the  book  to  the 
company,  because  of  a  difference  respecting  the  payment  for  his  serv- 
ices, —  it  was  held  that  he  was  bound  as  a  subscril)er.  The  court 
reasoned  thus:  "The  Chartiers  Railway  Company  made  a  continuing 
offer  which  became  an  agreement  with  each  acceptant  for  the  number 
of  shares  for  which  he  subscribed.     At  the  time  a  person  signed  his 

1  Post,  §§  1311,  1151,  etseg. 

932 


>  FORMATION    OF    THE    CONTRACT.       [1  Thoilip.  Corp.    §   1184r. 

name,  as  a  continuance  of  his  act  he  might  have  erased  it,  as  one  who 
had  written  an  acceptance  of  an  offer  by  letter,  before  mailing  the 
same  might  destroy  it.  But  if  the  subscriber  returned  the  book  to  the 
company's  agent  he  could  not  aftei'wards  withdraw  his  subscription,  for 
he  had  completed  the  agreement.  Greer  was  acting  as  agent  in  soUcit- 
ing  subscriptions,  no  matter  whether  for  pay  or  not ;  and,  by  procuring 
subscriptions  under  his  own  name,  he  declared  his  acceptance  and  ad- 
mitted his  agreement  for  the  stipulated  number  of  shares.  The  book 
was  not  his  —  he  had  no  right  to  its  possession  but  for  a  specific  use. 
In  that  use  he  exhibited  the  evidence  of  his  agreement  with  the  com- 
pany to  every  subsequent  contracting  party.  Had  the  book  been  acci- 
dentally destroyed,  there  was  ample  evidence  of  the  contents  of  the 
written  contract,  upon  which  he  could  have  held  the  company  to  per- 
formance ;  or  if  it  refused,  to  payment  of  damages.  Clearly  the  com- 
pany was  bound  to  him  the  same  as  to  any  other  subscriber,  and  so 
was  he  to  the  company.  While  he  retained  the  book  the  written 
contract  was  in  his  hands  —  its  validity  did  not  depend  on  the  conduct 
of  the  depositary —  and  its  unauthorized  mutilation  did  not  annul  it."  ^ 

§   1183.   Locus  Poenitentise  where  Subscription  Illegal.  — 

The  principle  that  where  an  illegal  contract  or  transaction  is  only 
partially  performed,  there  is  a  locus  pmnitentioe,  and  either  party 
may  rescind  the  contract,  applies  to  the  case  of  a  subscription 
to  the  stock  of  a  corporation.^ 

§  1184.  Other   Instances    of   Sufficient    Subscriptions.  —  A 

subscription  of  stock  '•  subject  always  to  the  by-laws,  rules  and  articles 
of  incorporation,"  one  of  which  was  that  the  stock  should  be  paid  for 
after  five  hundred  shares  had  been  subscribed,  and  that  ten  per  cent, 
should  be  payable  on  the  fifteenth  of  each  month,  has  been  held  to 
render  the  subscriber  a  shareholder,  and  to  make  the  installments 
become  due  even  if  no  assessments  were  made.-*  -  -  -  -  The 
defendant,  with  others,  signed  a  paper  promising  to  pay  to  A.  B.,  $100 
for  every  share  set  opposite  his  name,  for  the  purpose  of  building  a 
plank  road,  etc.,  and  authorized  A.  B.  to  transfer  his  subscription  to 
a  company  hereafter  to  be  formed  for  that  purpose.  The  company  was 
formed,  and  the  subscription  duly  transferred.  It  was  held  that  the 
defendant  was  bound  by  his  subscription  so  transferred.'*     -     -     -     - 

»  Greer  v.  Chartiera   R.  Co  ,  96  Pa.  '  Waukon  &c.  R.  Co.  v.  Dwyer  49 

St.  391;  s.  c.  42  Am.  Rep.  648.  Iowa,  121. 

2  Knowlton    v.     Conj;;ress     Spriug  ^  Eastern  Plank  Road  Co.  v. 

Co.,  14  Blatchf.  (U.  S.)  364.  Vaughan,  20  Barb.  (N.  Y.)  155.      - 

933 


1  Thomp.  Corp.  §  1185.]     tiik  contract  of  subscription. 

A  certificate  in  all  respects  according  to  the  requirements  of  a  statute,^ 
authorizing  the  business  of  banking,  and  concluding  with  the  words 
"we  have  hereunto  respectively  subscribed  and  set  our  hands  and 
seals,  etc.,  and  the  number  of  shares  of  the  capital  stock  of  the  corpo- 
ration aforesaid  taken  and  held  by  each  of  us  respectively,"  is  suffi- 
cient to  render  the  signers  stockholders,  and  liable  to  pay  for  the 
number  of  shares  set  against  their  names. ^ 

§  1185.  Subscriptions  Enforcible  by  Action  Witbout  an  Ex- 
press Promise  to  Pay. — The  prevailing  American  doctrine, 
denied  in  some  jurisdictions  as  hereafter  seen,  is  that  a  subscrip- 
tion to  a  certain  number  of  the  shares  of  the  capital  stock  of  a 
projected  or  existing  corporation,  implies  that  the  subscriber  will 
pay  for  the  shares,  and  imposes  upon  him  an  obligation  to  pay 
the  assessments  which  are  made  thereon  in  pursuauce  of  the 
charier  or  by-laws,  without  any  express  promise  in  the  subscrip- 
tion paper  to  do  so ;  and  this  although  the  charter  or  governing 
statute  also  gives  to  the  corporation  a  remedy  by  a  forfeiture  or 
sale  of  the  shares,  —  the  theory  of  the  courts  being  that  this 
remedy  is  cumulative  merely:  ^   in    other  words,  that   the   ob- 


i  N.  Y.  Act  of  1838,  ch.  260. 

2  Coal  V.  Ryan,  62  Barb.  (N.  Y.) 
168. 

3  Beene  v.  Cahawba&c.  R.  Co.3  Ala. 
660;  Selma  &c.  R.  Co.  v.  Tipton,  5  Id. 
787;  s.  c.  39  Am.  Dec.  344;  Hartford 
&c.  R.  Co.  V.  Kennedy,  12  Conn.  499; 
Danbury  &c.  R.  Co.  w.  Wilson,  22  Id. 
435;  Hightower  v.  Thornton,  8  Ga. 
486;  s.  c.  52  Am.  Dec.  638;  Instone  v. 
Frankfort  Bridge  Co.,  2  Bibb  (Ky.), 
576;  s.  c.  5  Am.  Dec.  638;  Fry  v.  Lex- 
ington &c.  R.  Co.,  2  Mete.  (Ky.)  322; 
Hughes  V.  Antietam  Man.  Co.,  34  Md. 
316;  Busey  v.  Hooper,  35  Id.  15;  s.  c. 
6  Am.  Rep.  350;  Kennebec  &c.  R.  Co. 
V.  Jarvis,  34  Me.  360;  Penobscot  &c. 
R.  Co.  V.  Dunn,  39  Id.  587;  Buffalo 
&c.  R.  Co.  V.  Dudley,  14  N.  Y,  336; 
Lake  Ontario  &c.  R.  Co.  v.  Mason,  16 
Id.  451;  Rensselaer  &c.  Plank  Road 
Co.  V.  Barton,  Id.  457,  460 ;  Northern 
R.  Co.  V.  Miller,  10  Barb.  (N.  Y.)  2G0; 
Ogdensburgh  &,c.  R.  Co.  v.  Frost,  21  Id. 

9U 


541;  Frost  V.  Frostburg  Coal  Co.,  24 
How.  (U.  S.)  278;  Upton  v.  Tribil- 
cock,  91  U.  S.  45;  Webster  w.  Upton, 
Id.  65;  Hawley  v.  Upton,  102  Id.  314; 
Dexter  &c.  Plank  Road  Co.  v.  Millerd, 
3  Mich.  91;  Carson  v.  Arctic  Mining 
Co.,  5  Mich.  288;  Merrimac  Mining 
Co.  V.  Bagley,  14  Mich.  601;  Spear  u. 
Crawford,  14  Wend.  (N.  Y.)  20;  s.  c 
28  Am.  Dec.  513;  Small  v.  Herkimer 
&c.  Co.,  2  N.  Y.  330,  335;  Hartford^ 
&c.  R.  Co.  V.  Croswell,  5  Hill  (N.  Y.)' 
383;  s.  c.  40  Am.  Dec.  354;  Waukon 
&c.  R.  Co.  V.  Dwyer,  49  la.  121;  Goshen 
Turnpike  Co.  v.  Hurtin,  9  Johns.  (N. 
Y.)  217;  s.  c.  6  Am.  Dec  273;  Dutch- 
ess Cotton  Man.  Co.  v.  Davis,  14 
Johns.  (N.  Y.)  238;  s.  c.  7  Am.  Dec. 
459;  Troy  &c.  R.  Co.  v.  Kerr,  17  Barb. 
(N.  Y.)  581;  Troy  Turnpike  Co.  v. 
McChesney,  21  Wend.  (N.  Y.)  296; 
East  Tenn.  &c.  R.  Co.  ■;;.  Gammon,  S 
Sneed  (Tenn.)  570;  Herkimer  Man. 
Co.     V.    Small,    21     Wend.    (N.    Y.> 


FORMATION    OF    THE    CONTRACT.       [1   Thomp.  Corp.    §   1187. 

ligation  of  actual  payment  is  created  in  all  cases  by  a  subscrip- 
tion, unless  the  terms  of  subscription  are  such  as  plainly  to 
exclude  it.*  It  has  been  reasoned  that,  by  the  act  of  subscrib- 
ing, each  associate  undertakes  to  raise  his  proportion  of  the 
capital,  as  it  may  be  called  for  by  the  directors.  And  if  the 
directors  are  authorized  by  the  act  of  the  legislature  to  make 
the  call,  the  subscriber  must  pay.  A  right  to  call  ordinarily 
implies  a  corresponding  duty  to  pay.^  *'  It  is  not  at  all  essential 
that,  at  the  time  there  is  an  original  subscription,  there  shall  be 
an  express  promise  to  pay  the  subscription  price.  Oftener  than 
otherwise  there  is  none,  the  subscription  being  a  simple  agree- 
ment to  take  so  many  shares  of  stock.  By  necessary  implication 
there  arises  from  such  a  subscription  a  promise  to  pay  the  par 
value  of  such  stock,  upon  which  an  action  of  assumpsit  lies."^ 

§  1186.  Illustration  of  the  Foregoing. — Thus,  a  subscription 
running  in  the  words,  "We  do  hereby  subscribe  to  the  stock  of  the  said 
railroad  the  number  of  shares  annexed  to  our  names  respectively,  on 
the  terms,  conditions  and  limitations  mentioned"  in  the  resolutions  of 
the  General  Assembly  incorporating  the  company,  —  was  held  to  amount 
to  an  assumption  to  pay  instalments  as  called ;  and  this  although  the 
resolutions  of  the  General  Assembly  did  not  declare  that  there  should 
be  any  personal  liability,  but  provided  that  the  stock  might  be  sold  for 
unpaid  requisitions.* 

§  1187.  Doctrine  that  an  Express  Promise  to  Pay  is 
Necessary.  —  Some  of  the  New  England  courts  have  fallen  into 

273;    Mann  v.  Cooke,   20  Conn.  178;  App.  55.     Compare  Robertson  u.  Sib- 
Freeman  V.   Winchester,  10  Smed.  &  ley,  10  Minn.  823. 
M.    (Miss.)   577;    Stokes  v.   Lebanon  i  Spear  «.  Crawford,  14  Wend.  (N. 
&c.    T.  Co.,  6   Humph.    (Tenn.)  241;  Y.)  20;  s.  c.  28  Am.  Dec.  513;  Palmer 
Buckfield  Branch  R.  Co.  v.  Irish,  39  v.  Lawrence,  3  Sandf.    (N.   Y.)    IGl ; 
Me.   44;  City  Hotel  v.    Dickinson,   6  Elysville  u.  Okiske  Co.,  5  Md.  152, 
Gray    (Mass.)   580;  Dayton  v.  Borst,  2  Merriraac  Mining  Co.  «.  Levy,  54 
31  N.  Y.  435;  Fort  Edwards  &c.  Plank  Pa.  St.  227;  s.  c.  97  Am.  Dec.  697. 
Road  Co.  V.  Payne,  17  Barb.  (N.  Y.)  3  west  Nashville  Planing  Mill  Co. 
567 ;  Troy  &c.  R.  Co.   v.   Tibbitts,  18  v.  Nashville  Savings  Bank,   80  Tenn. 
Barb.  (N.  Y.)  298;    Merrimac  Mining  252;  «.  c.  6  Am.  St.  Rep.  835,  per  Lur- 
Co.  V.   Levy,   54   Pa.    St.    237;  Plank  ton,  J. 

Road  Co.  V.  Wetsel,  27  Barb.  (N.  Y.)  *  Hartford  &c.  R.  Co.   v.  Kennedy, 

5G;  Miller  V.  WildCatGravel  Road  Co.,  12  Conn.  499.    See  also  Ward  v.  Gris- 

52  Ind.   61;   Joy  v.   Manion,   28  Mo.  woldville  Man.  Co.,  16  Conn.  693. 

935 


1  Thomp.  Corp.  §  1187.]     the  contract  of  subscription. 

the  unsound  doctrine  that  unless  an  express  promise  is  made  by 
the  subscriber  to  pay  the  subscription  the  corporation  cannot 
maintain  an  action  against  him  thereon,  but  its  only  remedy  is 
to  proceed  to  forfeit  his  shares  in  the  mode  prescribed  by  the 
charter.^  Such  courts  had,  of  course,  no  difficulty  in  holding  that 
such  a  subscriber  could  not  be  rendered  liable,  by  a  by-law  or  vole 
of  the  corporation,  to  do  what  all  men  of  sense  would  say  that  he 
had  agreed  by  his  contract  to  do  —  pay  for  the  shares.^  The 
theory  of  these  holdings  is  that  the  only  remedy  that  the  corpo- 
ration has,  in  the  absence  of  an  express  promise  by  the  sub- 
scriber to  pay,  is  to  forfeit  the  shares,  and,  if  possible  sell  them 
to  some  one  else.  One  of  them  has  gone  so  far  as  to  hold  that 
the  fact  that  the  corporation  has,  by  statute,  authority  "  to  make 
and  collect  such  assessments  on  the  shares  "  as  may  be  deemed 
expedient,  in  such  manner  as  should  be  prescribed  jn  tiieir  by- 
laws, does  not  enable  it  to  maintain  an  action  against  the  sub- 
scriber on  his  promise.^  The  same  court,  in  a  later  case,  hold 
that  in  the  absence  of  an  express  promise  by  the  subscriber  to 
pay,  a  provision  of  the  charter  to  the  effect  that  the  subscriber 
shall  be  liable  for  the  balance  remaining  due  after  the  sale  of 
his  shares,  in  case  they  are  forfeited  for  non-payment  of  assess- 
ments, does  not  operate  to  make  him  personally  liable  on  his 
subscription.*  The  Supreme  Court  of  New  Hampshire,  after  an 
examination  of  the  authorities,  concluded  the  true  rule  to  be  this  : 
"  Where  a  party  makes  an  express  promise  to  pay  the  assess- 

1  Andover  Tump.  Corp.   v.  Gould,  Moore,  60  Me.  561 ;  Kennebec  &c.  R. 

6  Mass.  40;  s.  c.  4  Am.  Dec.  80;  New  Co.  v.  Kendall,  13   Me.  470;  West  v. 

Bedford  Turup.  Co.  v.  Adams,  8  Mass.  Crawford,  80  Cal.  19;  s.  c.  21  Pac.  Eep. 

38;  s.    c.   5   Am.    Dec.    81;  Franklin  1123;  Same u.Belding,/d.  1 136;  Same ■??. 

Glass  Co.  V.  White,  14  Mass.  286;  Es-  Hitchcock.  Id.;  Arkansas  River  Land 

sex  Bridge  Co.  v.  Tuttle,  2  Vt.  393;  T.  &  C.  Co.  v.  Farmers  Loan  &  Trust 

Connecticut  &c.   R.  Co.  w.  Bailey,  24  Co.,  13  Colo.  587;  s.  e.   22  Pac.  Rep. 

Vt.   465;   s.  c.  58  Am.  Dec.  181,  184;  954;   Odd  Fellows  Hall  Co.  17.  Glazier, 

Franklin  Glass  Co.  w.  Alexander,  2  N.  5  Harr.    (Del.)  172;  New  Hampshire 

H.    380;    s.    c.    9  Am.    Dec.  92;    per  &c.  R.  Co.  u.  Johnson,  30  N.  H.  390; 

Woodbury,    J. ;    Worcester  Turnpike  s.  c.  64  Am.  Dec.  300. 

Co.  ■!;.  Willard,  5  Mass.  80;  s.  c.  4  Am.  -  Kennebec  &c.  R.  Co.  v.  Kendall, 

Dec.  39 1  Chester  Glass  Co.  v.  Dewey,  13  Me.  470. 

16  Mass.  94;  s.   c.   8  Am.  Dec.  128;  ^  Kennebec  &c.  R.  Co.  v.  Kendall, 

Katama    Land  Co.    v.  Jernegan,   126  13  Me,  470. 

Mass.  155;  Mechanics'  Foundry  Co.  u.  *  Belfast  &c.  R.  Co.,  v.  Moore,  60 

Hall,  121  Id.  272 ;  Belfast  &c.  R.  Co.  v.  Me.  561. 
936 


FORMATION    OF    THE    CONTRACT.        [1   Thomp.  Corp.   §   1188. 

ments,  he  is  answerable  to  the  corporation  upon  such  promise 
for  all  legal  assessments,  and  may  be  compelled  to  its  performance 
by  action  at  law,  before  resorting  to  a  sale  of  the  shares.  It  is 
a  personal  undertaking,  beyond  the  terms  of  the  charter. 
Where,  on  the  other  hand,  he  only  agrees  to  take  a  specified 
number  of  shares,  without  promising  expressly  to  pay  assess- 
ments, then  resort  must  first  be  had  to  a  sale  of  the  shares  to  pay 
the  assessments,  before  an  action  at  law  can  be  maintained. 
His  agreement  simply  to  take  the  shares  is  an  agreement  upon 
the  faith  of  the  charter,  and  by  it  alone  is  he  to  be  governed,  so 
far  as  his  shares  are  to  be  affected.  He  takes  them  upon  the 
conditions  and  law  of  the  charter.  They  exist  only  by  virtue  of 
the  charter,  and  are  to  be  governed  by  the  provisions  therein 
contained."  ^  But  where  the  contract  of  subscription  does  con- 
tain an  express  promise  to  pay  the  assessments,  and  the  conditions 
of  the  subscription  have  been  performed,  then  by  all  the  authori- 
ties an  action  of  assumpsit^  or  other  like  action,  can  be  main- 
tained in  the  first  instance,  without  a  proceeding  to  forfeit  the 
shares,  or  a  declaration  of  forfeiture,  sale  of  them,  or  other 
equivalent  act.^ 

§   1188.  The  Absurdity  and  Immorality  of  this  Doctrine.  — 

This  line  of  decisions  is  not  at  all  creditable  to  American  juris- 
prudence. 1.  In  the  first  place,  there  is  a  striking  want  of 
sense  in  a  doctrine  which  makes  a  subscription,  which  does 
not  contain  an  express  promise  to  pay,  tantamount  to  a  prom- 
ise to  take  the  shares  without  paying  for  them, —  or  at 
best,  to  a  promise  to  take  them  provided  the  promisor  shall 
not  conclude  to  change  his  mind.  It  is  as  though  the  courts 
should  construe  a  written  agreement  to  A.  B.  to  buy  of  C.  D.  a 
horse  of  the  value  of  $100,  to  create  only  a  privilege  in  A.  B. 
to  get  the  horse,  but  not  to  create  any  obligation  in  him  to  do 

1  New  Hampshire  &c.  R.  Co.  v.  Goewey,  19  Wend.  (N.  Y.)  424;  s.  c.  32 
Johnson,  30  N.  II.  390;  s.  c.  64  Am.  Am.  Dec.  614;  Dutchess  Cotton  Man. 
Dec.  300.  Co.  v.  Davis,  14  Johns.  (N.  Y.)  238;  s. 

2  South  Bay  Meadow  Dam  Co.  v.  c.  7  Am.  Dec.  459;  Worcester  Turn- 
Gray,  30  Me.  647;  Smith  v.  Natchez  pike  Co,  v.  Willard,5  Mass.  80;  s.  c.  4 
Steamboat  Co.,  1  How.  (Miss.)  479;  Am.  Dec.  39;  Andover,  &c.  T.  Co.  v. 
Sulcm  Mill-Dam  Corp.  v.  Ropes,  6  Gould,  6  Mass.  40;  s.  c.  4  Am.  Dec. 
Picli.      (Mass.)      23;      Townseud     v.  80. 

937 


1  Thomp.  Corp.  §  1189.]     the  contract  of  subscription. 

so,  but  merely  to  leave  the  vendor  the  remedy  of  putting  an 
end  to  the  option  and  selling  the  horse  (if  he  can)  to  some  one 
else.  It  is  as  though  a  man  were  to  sign  an  agreement  to  take 
1,000  bushels  of  wheat,  deliverable  at  a  certain  time,  at  $1,00  a 
bushel,  and  then  when  the  wheat  should  be  tendered,  be  allowed 
to  say  to  the  intending  vendor,  "Although  I  agreed  to  take 
the  wheat,  I  did  not  agree  to  pay  for  it,"  and  thereupon  the  law 
should  allow  the  vendor  the  remedy  of  keeping  the  wheat.  It 
is  a  well  understood  rule  in  the  interpretation  of  writings,  that 
every  part  of  a  writing  is,  if  possible,  to  be  interpreted  so  as  to 
mean  something.  But  here  is  an  interpretation  which  makes  the 
subscription  mean  nothing,  or  even  worse  than  nothing^  for  it 
may  mean  that,  while  it  creates  no  obligation  on  the  part  of  the 
subscriber,  yet  it  does  create  an  obligation  on  the  part  of  the 
other  party,  the  corporation.  The  subscription  binds  the  corpo- 
ration to  issue  to  him  the  shares  unless  the  subscriber  shall  sub- 
sequently elect  to  back  out,  —  that  is  to  say,  he  binds  the  other 
party  and  leaves  himself  free.  2.  But  this  doctrine  is  no  less 
nonsensical  than  immoral.  It  encourages  men  to  break  their 
written  obligations,  and  this  after  others  have  acted  on  the  faith 
of  them  to  their  disadvantage.  We  have  seen  that,  in  the  view 
of  some  of  the  courts,  such  a  subscription  is  a  contract  sup- 
ported by  the  consideration  that  others  have  concurred  in  it  and 
subscribed  on  the  faith  of  it,  and  that  to  allow  the  subscriber  to 
rescind  will  operate  as  a  fraud  on  them.  The  courts  which  have 
set  up  the  extraordinary  doctrine  on  which  we  are  commenting 
do  not  stumble  at  such  difficulties,  or  at  any  others. 

§  1189.     Illustration   of  the   foregoing  Doctrine.  —  It    has 

been  stated  in  illustration  of  the  foregoing  doctrine,  that  the  instrument 
should  contain  something  more  than  a  promise  to  become  a  stockholder 
or  proprietor  of  a  given  number  of  shares.  "  But  if  it  contains  in  its 
language  an  acknowledgment  of  a  personal  liability  thereon,  and  gives 
the  right  to  enforce  that  obligation  by  the  usual  means  of  enforcing 
contracts  at  law,  it  would  be  equivalent  to  an  express  promise,  and  no 
court  would  hesitate  to  say  that  the  party  intended  to  create  such 
liabihty  for  the  purpose  of  giving  to  the  corporation  a  cumulative 
remedy  to  that  charter."  Looking  at  the  subscription  before  the  court, 
it  was  therefore  found  that  it  first  recited  the  existence  of  the  charter 
and  the  names  of  the  commissioners  appointed  by  the  legislature  to  oiDen 
1138 


FORMATION    OF    THE    CONTRACT.       [1  Thomp.  Coip.    §   1190. 

the  books  and  receive  subscriptions  to  tlie  capital  stock  of  the  company, 
and  then  recited,  "And  the  subscribers  agree  to  take  the  number  of 
shares  respectively  placed  against  their  names."  The  court  said:  "  If 
the  agreement  rested  there,  the  assessments  could  be  enforced  only  by 
the  forfeiture  of  their  stock," — thus  planting  itself  on  the  absurd 
conclusion  that,  although  the  subscriber  agreed  to  take  the  number  of 
shares  set  opposite  his  name,  he  did  not  agree  thereby  to  pay  for  them. 
But,  as  the  charter  contained  the  further  provision,  "  that  the  subscrib- 
ers are  held  to  pay  to  the  amount  which  shall  be  assessed,  and  the 
companj'  may  enforce  their  claim  thereto,  with  expense  of  collection,  by 
sale  of  the  shares,  or  by  suit,  or  by  either  of  those  means,"  — it  was 
held  that,  an  action  might  be  maintained  for  assessments  against  the 
subscriber.^ 

§  1190.  When  Contract  to  Take  Shares  Complete  Under 
the  English  Statute. —  The  EngUsh  courts  have  settled  upon  the  rule 
that,  in  order  to  make  a  contract  to  take  shares  complete,  there  must 
be  an  application  for  the  shares,  an  allotment  of  the  shares  to  the 
applicant,  and  a  communication  to  him  of  notice  of  the  allotment. ^  By 
the  23d  section  of  the  Companies  Act,  1862,  these  formaUties  are  dis- 
pensed with  where  a  person  signs  the  memorandum  of  association. 
This  section  provides  that  "  the  subscribers  of  the  memorandum  of 
association  of  any  company  under  this  act  shall  be  deemed  to  have 
agreed  to  become  members  of  the  company  whose  memorandum  they 
have  subscribed,  and  upon  the  registration  of  the  company  shall 
be  entered  as  members  on  the  register  of  members  hereinafter  men- 
tioned ;  and  every  other  person  who  has  agreed  to  become  a  member  of 
a  company  under  this  act,  and  whose  name  is  entered  on  the  register  of 
members,  shall  be  deemed  to  be  a  member  of  the  company."  Under 
this  statute  the  uniform  ruling  appears  to  have  been  that  signing  the 
memorandum  of  association  makes  a  person  a  shareholder,  and  conse- 
quently a  contributory,  although  no  shares  are  in  fact  allotted  to  him.^ 
It  was  so  held  in  one  case,  although  a  year  and  a  half  had  elapsed  be- 
tween the  signing  of  the  memorandum  and  the  winding  up,  during  which 
time  no  shares  had  been  allotted  to  the  signer.*  But  this  rule  does 
not.  of  course,  apply  where  there  are  no  shares  available  for  allotment. 

1  Connecticut  &c.  Co.  v,  Bailey,  24  ^  jjg  London  &  Provincial  Consoli- 
Vt.  465;  s.  c.  58  Am.  Dec.  181,  185.  dated    Coal    Co.,    5    Cli.    Div.     525; 

2  Rogers  Case,  L.  R.  3  Ch.  637;  Evan's  Case,  L.  R.  2  Ch.  427;  Sidney's 
Pellot'8  Case,  L.  R.  2  Ch.  527,  per  Case,  L.  R.  13  Eq.  228;  Levick's  Case, 
Lord  Cairns,  L.  J.;  distinguishing  40  L.  J.  CCh.)  180;  Hall's  Case,  L. 
Bl.xam'8  Case,  33  Beav.  529;  s.  c.  12  R.  5  Ch.  707. 

W   R.  995.  "  Levick's  Case,  40  L.  J.  (Ch.)  180. 

939 


1  Thomp.  Corp.  §  1191.]     the  contract  of  subscription. 

Thus,  where  a  person  subscribed  the  memorandum  of  association,  but 
took  no  part  in  its  management,  was  never  treated  as  a  shareholder,  his 
name  was  never  entered  on  the  register  of  shareholders,  and  the  entire 
shares  of  capital  were  allotted  to  other  persons,  he  was  held  not  liable 
as  a  contributory.!  But  nevertheless  in  a  similar  case,  where  all  the 
shares  in  the  first  instance  had  been  allotted  to  other  persons,  j'et  some 
of  the  allotments  had  never  been  confirmed  in  the  manner  required  by 
the  memorandum  of  association,  and  there  were,  consequently,  shares 
subject  to  allotment,  the  signer  of  the  memorandum  was  put  on  the  list 
of  contributories.-  Facts  which  show  that  the  subscriber  had  knowledge 
that  his  application  for  shares  had  been  accepted  are  held  equivalent  to 
the  sending  of  a  letter  of  allottment.  Thus,  L.  applied  for  1,000  shares 
in  a  company,  as  trustee  for  M.  No  letter  of  allotment  was  sent  to  L., 
but  his  name  was  put  on  the  register  in  respect  of  those  shares,  and  he 
was  advertised  as  a  director.  He  attended  meetings  of  the  directors, 
and  for  two  years  took  no  steps  to  have  his  name  removed  from  the 
register.     He  was  held  a  contributory  in  respect  of  1,000  shares. ^ 

§  1191.  Wliat  Facts  Amount  to  a  Contract  to  Take  Shares. — 

What  facts  amount  to  a  contract  to  take  shares  may  be  further  illus- 
trated by  a  variety  of  cases.  A  person  desirous  of  being  appointed 
local  secretary  of  a  company  formally  applied  for  a  certain  number  of 
shares,  which  were  allotted  to  him,  with  his  knowledge,  and  he  was  duly 
registered  as  holder  thereof.  No  particular  shares  were  appropriated 
to  him,  but  only  the  amount  which  he  had  agreed  to  take.  No  deposit 
was  ever  paid  by  the  applicant  upon  the  shares  for  which  he  applied, 
but,  by  agreement  between  himself  and  the  company,  the  payments,  on 
application  and  allotment,  were  to  be  set  off  against  his  salary  and  com- 
missions. These  facts  were  held  by  the  court  to  constitute  an  agreement 
on  the  part  of  the  applicant  that  he  would,  and  on  the  part  of  the  com- 
pany that  he  should,  become  a  member  of  the  company,  as  the  holder 
of  the  number  of  shares  applied  for.*  In  another  case  it  was  provided 
by  the  deed  of  settlement  of  the  corporation  that  no  transfer  of  stock 
should  be  valid  without  the  approbation  of  the  directors,  to  be  "  mani- 
fested by  entries  or  memorandums  to  that  effect  in  the  share-register 
book,  under  the  signatures  of  two  of  the  directors  for  the  time  being, 
and  by  like  memorandums,  so  signed,  added  to  or  endorsed  upon  the 
copies  or  certificates  of  the  former  entries  respecting  the  shares  in 
question  in  the  share-register  book ;  or,  instead  of  such  last-mentioned 

1  Mackley's  Case,  1  Ch.  Div.  247.  s  Levita's  Case,  L.  R.  3  Ch.  36. 

2  Evan's  Case,  L.  R.  2  Ch.  427.  *  Thomson's  Case,  4  De  G.  J.  &  S. 

749. 

940 


FORMATION    OF    THE    CONTRACT.       [1  TllOlUp.  Corp.    §   1192. 

memorandums,  by  such  copies  or  certificates  being  delivered  to  the 
pai-ties  entitled  thereto,  of  the  new  or  altered  entries  respecting  the  same 
in  the  share-register  book.  Shares  were  transferred  to  G.  by  two  share- 
holders respectively.  G's.  name  was  entered  by  the  secretary  at  the 
head  of  a  page  in  the  company's  ledger,  as  also  the  number  of  shares 
transferred,  both  entries  being  made  in  pencil.  This  transfer  took  place 
November  loth,  1842.  The  company  ceased  to  do  business  on  Decem- 
ber 31st,  1844,  and  was  dissolved  by  a  resolution  of  a  general  meeting 
on  May  5th,  1847.  The  entry  in  the  ledger  remained  as  stated  until 
the  month  of  August,  1847,  following  the  dissolution,  when  the  secre- 
tary perfected  the  entry  so  made,  with  ink,  and  also  added  thereto  the 
names  of  the  transferors  of  said  shares.  G.  was  twice  recognized  as  a 
shareholder,  the  only  dividend  which  the  company  ever  paid  being  i^aid 
to  one  D.  according  to  his  direction,  and  he  was  also  summoned  by  the 
secretarjs  by  letter,  to  a  meeting  of  shareholders  in  July,  1845,  to  devise 
means  for  discharging  the  remaining  liabilities  of  the  company ;  to  which 
letter  G.  responded,  advising  for  this  purpose  the  sale  of  certain  premises 
owned  by  the  company,  which  letter  of  G.  was  recorded  in  the  minutes 
of  the  meeting.  The  vice-chancellor,  while  stating  that  the  formalities 
of  transfer,  as  required  by  the  deed  of  settlement  of  the  company,  had 
not  been  comphed  with,  yet  said  it  depended  upon  the  circumstances  of 
each  particular  case  as  to  what  acts  would  dispense  with  these  formali- 
ties, and  held  that  in  this  case  G.  had  been  accepted  as  a  shareholder  by 
those  who  had  the  management  of  the  affairs  of  the  company,  and  who 
were  for  this  purpose  competent  to  act  as  they  did  act.^ 

§  1192.  Continued.  —  And  where  the  promoters  of  an  intended 
company  issued  their  prospectus  headed  "  The  Amazon  Life  Assur- 
ance and  Loan  Company  and  Sick  Benefit  Society,"  and  the  company 
was  thereafter  registered  as  "The  Amazon  Life  Assurance  and  Loan 
Company,"  a  person  ai)plied  for  shares  (after  such  registration),  ad- 
dressing his  application  to  the  directors  of  the  company  as  stj'^led  in  the 
prospectus.  Shares  were  allotted  to  him  in  the  company  as  registered, 
and  notice  was  sent  to  him  on  paper  headed  with  the  registered  name 
of  the  company,  to  which  he  paid  no  attention ;  and  on  a  further 
request  by  letter  bearing  the  same  heading  he  paid  the  deposit  thereon. 
The  following  year  the  company  was  ordered  to  be  wound  up,  and  the 
applicant  was  made  a  contributory  notwithstanding  the  change  in  the 
name ;  for  he  had  ample  notice  of  that  in  the  notices  sent  to  him  of 
allotment,  and  in  fact  the  company  had  a  sick  benefit  department, 
although  its  registered  name  did  not  indicate  it.     Neither  was  it  a  de- 

1  Gordon's  Case,  3  De  G,  &  S.  249. 

941 


1  Thomp.  Corp.  §  111)3.]     the  contract  of  subscription. 

fense  that  be  bad  been  informed  at  the  time  of  his  application  for 
shares  that  it  was  a  company  of  limited  liability.  This  was  entirely  a 
question  of  law.^ 

§  1193.  Continued.  — A  promise  in  writing  to  take  and  fill  a  cer- 
tain number  of  shares  in  a  chartered  company  becomes,  by  a  subsequent 
organization  of  the  company  and  an  acceptance  of  the  subscription,  a 
binding  contract.  Where  the  terms  of  the  subscription  require  that 
seventy-five  per  centum  of  the  estimated  cost  of  any  section  of  the 
railroad  shall  be  subscribed  for  by  responsible  persons  before  com- 
mencing its  construction,  if  the  subscription  is  obtained  in  good  faith, 
assessments  will  be  valid,  though  some  of  the  subscriptions  to  make 
up  that  amount  may  turn  out  to  be  worthless. ^  In  1837  a  body  of 
o-entlemen,  of  whom  the  defendant  was  one,  associated  themselves 
together  for  the  purpose  of  estabhshing  a  steamship  line.  The  defend- 
ant attended  meetings  of  the  company  from  November,  1837,  to  March, 
1838,  as  a  director  of  the  company,  and  his  name  appeared  as  a  director 
in  the  prospectus  issued  in  that  period;  but  from  March,  1838,  he 
ceased  to  act  as  a  director.  On  the  following  July  31st  an  act  of  Par- 
liament was  passed  forming  the  company  in  question,  in  which  act  the 
defendant  was  named  as  a  director.  In  July,  1839,  a  memorial  was 
enrolled,  but  it  did  not  contain  the  defendant's  name,  nor  did  he  execute 
the  company's  deed,  although  a  space  was  left  therein  for  his  name  and 
seal,  which  was  filled  up  in  lead-pencil.  The  defendant  did  not  take 
any  shares,  the  necessary  number  for  a  director's  qualification  being 
fifty.  A  judgment  was  obtained  against  the  company  in  November, 
1843,  in  an  action  begun  on  April  15,  1840.  The  court,  upon  these 
facts,  stated  that  the  only  question  was  whether  the  defendant  was  a 
member  of  the  company  in  November,  1843.  It  was  certain  that  he 
had  been  a  member  at  one  period ;  but  the  act  of  Parliament  did  not 
make  him  a  member  in  that  sense  that  it  required  an  instrument  of  as 
high  a  nature  to  release  him  from  membership.  He  had  signed  no 
deed,  and  it  was  competent  for  him  to  dissolve  such  partnership  by 
parol;  therefore  the  fact  that  the  company's  deed  was  never  presented 
to  him  for  execution  and  he  in  no  manner  co-operated  with  the  direct- 
ors subsequent  to  March,  1838,  was  evidence  suflaciently  conclusive  to 
show  that  he  had  withdrawn  from  the  company  so  effectually  as  to 
escape  liability  upon  this  judgment, ^ 

1  Blackburn's  Case,  8  De  G.  M.  & 
G.  177. 

2  Penobscot  R.  Co.  v.  Duramer,  40 
Me.  172;  s.  c.  63  Am.  Dec.  654. 

942 


3 

Scott  V. 

Berkeley, 

3 

C. 

B. 

925; 

S.    C, 

.  5   Rail. 

C.  51;   16 

L. 

J. 

(C. 

P) 

107. 

FORBIATION    OF    THE    CONTRACT.       [1  Thomp.  Corp,    §  1195. 

§  1194.  Continued. —  After  the  formation  of  a  company,  and  before 
its  shares  had  been  fully  offered  to  the  public,  H.  &  Co.,  by  letter, 
agreed  with  an  agent  of  the  company  to  "  underwrite  "  a  specified  por- 
tion of  the  shares  "at  15  per  cent,  discount,"  and  "  to  pay  the  appli- 
cation money  upon  any  balance  of  shares  required  to  makeup"  the 
amount  specified.  In  pursuance  of  this  agreement,  and  without  any 
further  application  by  them,  a  certain  smaller  number  of  shares  was 
allotted  to  them,  which  they  declined  to  take.  It  was  held,  upon  evi- 
dence as  to  the  meaning  of  the  term  "  underwrite  "  as  applied  to  shares, 
that  the  agreement  was  not  merely  a  guaranty,  but  was  to  be  regarded 
as  an  application  for  such  part  of  the  shares  specified  as  should  not  be 
applied  for  by  the  public,  and  authorized  an  allottment  thereof  to  H.  & 
Co. ;  that  the  word  "  discount  "  in  the  agreement  was  to  be  construed 
as  "  commission,"  so  that  the  agreement  was  not  one  to  issue  shares  at 
a  discount ;  and  that  H.  &  Co.  were  liable  as  contributories  in  respect  to 
the  shares  so  allotted  to  them  in  the  liquidation  of  the  company.  ^ 

§  1195.  Continued.  — The  defendant,  in  an  action  for  assessments, 
had  signed,  as  indicated  below,  the  following  printed  agreement:  "  We 
the  undersigned,  hereby  authorize  J.  J.  Imbrie,  secretary  of  the  Grang- 
ers' Market  Companj^  to  affix  our  names  to  the  capital  stock  of  the  said 
company  for  the  number  of  shares  of  said  stock  set  opposite  to  our 
respective  names. 


Names. 

No.  Shares. 

Amount. 

Name  of  Grange. 

Post  oflSce. 

J.  S.Vinson. 

5. 

$100. 

Lena. 

Umatilla  Co., 
Or." 

Printed  upon  the  same  sheet,  and  above  this  agreement,  were  the 
articles  of  Incorporation  of  the  plaintiff  company.  This  document  was 
held  suflficient  to  authorize  the  secretary  to  subscribe  for  defendant  for 
five  shares  of  the  capital  stock  of  the  corporation  ;  but  an  execution  of 
this  power  was  not  sufficiently  demonstrated,  so  as  to  constitute  the  de- 
fendant a  stockholder,  by  the  secretary  writing  the  name  of  defendant  in 
a  list  headed  "  Stockholders,"  in  the  stock-book  of  the  corporation,  and 
opposite  the  name  so  entered,  the  words  "Lena,"  "Umatilla  Co., 
Oregon,"  "5,"  "$100."  2 


^  Be  Licensed  Victuallers  &c.  Ao- 
soc,  42  Cli.  Div.  1. 

2  Grangers'  Market  Co.,  v.  Vinson, 
6  Oreg.  1 72.     This  decision  is  given  out 


of  a  desire  not  to  overlook  applicatory 
cases ;  but  it  is  thought  to  be  clearly 
unsound. 

943 


1  Thomp.  Corp.  §  1201.]     the  contract  of  subscription. 


Article  II.     Theories  as  to  the  Consideration. 

Section  Section 

1200.  Theories  as  to  the  consideration      1208.  Contrary  view  that   money  not 

of  the  contract.  deemed  expended  on  the  faith 

1201.  Rights  and  interest  acquired  by  of  the  subscription:  formation 

the  subscriber.  of  corporation  not  authorized 

1202.  Obligation  of  the   company  to  thereby. 

if-sue  the  shares.  1209.  Consideration   where    the    cor- 

1203.  Franchises  granted  by  the  char-  poration  is  in  existence. 

ter.  1210.  Effect  of  the  words  "  value  re- 

1204.  Failures  of   the   commissioners  ceived." 

to      reject     the       subscrip-       1211.  Subscription  a  good  considera- 
tion, tion  for  other  undertakings. 

1205.  Mutuality  of  promise  as  among      1212.  Subsequent  failure  of  considera- 

subscribers.  tion. 

1206.  Labor  or  money  expended   on      1213.  No      consideration    where    the 

the  faith  of  the  promise.  company,    and    not  the   sub- 

1207.  Illustrations  of  this  principle.  scriber,  gets  the  shares. 

§  1200.  Theories  as  to  the  Consideration  of  the  Con- 
tract. —  Where  both  parties  to  a  contract  are  in  esse  at  the  tiaie 
when  the  proposal  is  made,  mutuality  of  promise  constitutes  a 
good  consideration.  But  where  the  very  proposal  is  a  part  of 
the  thing  required  to  be  done  in  order  to  bring  the  other  party 
to  the  contract  into  existence,  a  wide  field  is  open  for  theorizing 
as  to  the  nature  of  the  consideration.  The  courts,  in  their 
search  for  the  consideration  for  such  a  contract,  have  indulged 
in  a  variety  of  speculations  more  curious  than  useful.  Never- 
theless, it  is  proposed  to  follow  them  briefly. 

§  1201.   Rights  and  Interest  Acqtiired  by  the  Subscriber. — 

Some  courts  have  found  the  consideration  of  the  contract  in  the 
interest  in  the  corporation  thereby  acquired  by  the  subscriber,^ — 
in  the  right  which  he  thereby  acquires  to  participate  in  the  pe- 
cuniary dividends ;  and  it  has  been  reasoned  that  where  the 
agreement  secures  that  to  the  subscribers,  on  the  organization  of 
the  company,  the  objection  of  a  want  of  consideration  cannot  be 
made  with  success. ^     But  the  same  must  be  equally  true  where 

1  East  Tennesee  &c.  R.  Co.  v.  Gam-  ^  Hamilton  &c.  Plank  Road  Co.  v. 

mon,  5  Sneed  (Tenn.),  5G7;  Kennebec      Rice,  7  Barb.  (N.  Y.)  157. 
&c.  R.  Co.  V.  Jarvis,  34  Me.  360. 
944 


THEORIES  AS  TO  coxsiDERATiox.      [1  Thomp.  Corp.  §  1205. 

the  subscription  paper  is  silent  on  the  subject,  for  all  this  is 
implied. 

§  1202.   Obligation  of  the  Company  to  Issue  the  Shares. — 

It  is  merely  another  way  of  expressini^  the  same  idea  to  say  that 
the  obligation  of  the  corporation  to  .issue  the  shares  to  the  sub- 
scriber 1  —  that  is,  to  admit  him  to  a  share  in  its  management  and 
in  its  profits, — constitutes  a  good  consideration  for  such  a 
promise.^ 

§  1203.  Franchises  Granted  by  the  Charter.  — A  vague  ex- 
pression of  the  Siim^  idea  is  found  in  another  case,  that  the  con- 
sideration of  such  a  contract  consists  in  the  franchises  srrauted 
by  the  charter,^  —  implying  that  those  franchises  inure  to  the 
benefit  of  the  subscriber. 

§  1204.  Failure  of  the  Commissioners  to  Reject  the  Sub- 
scription. —  Where  the  subscriptions  are  taken  by  commit^sion- 
ers,  as  was  generally  the  case  in  the  days  of  special  charters,' 
they  were  deemed  public  officers  or  agents  for  the  purpose.  They 
occupied  a  position  somewhat  analogous  to  that  of  a  promoter 
under  the  English  theory ,5  except  that  they  generally  acted  in 
the  execution  of  a  statutory  power.  Where  they  had  power  to 
reject  the  subscription,  a  species  of  mutuality  was  created  by 
their  acceptance  of  it ;  and  this  has  been  regarded  as  furnishing 
a  sufficient  consideration.^ 

§  1205.  Mutuality  of  Promise  as  among  the  Subscribers.  — 

Other  courts  have  found  in  the  act  of  the  particular  subscriber 
in  subscribing  with  others^  a  mutuality  of  promise  which  obliges 
him  to  make  good  his  promise  to  the  corporation  after  it  comes 
into  its  existence.^     Decisions  are  not  wanting  which  either  deny 

^  As  to  which  see  post,  §  1249.  «  Connecticut  &c.  R.  Co.  v.  Bailey, 

2  Kichmondville   Seminary  v.   Mc-  24  Vt.  4(55;  s.  c.  68  Am.  Dec.  181. 
Donald,  34  N.  Y.  379;  St.  Paul  &c.  K.  '  Bolton  Compress  v.  Saunders,  70 
Co.  V.  Robbins,  23  Minn.  439.  Tex.  099;  s.c.  19  Am.  &Eng.  Corp.  Cas. 

3  Thigpcn  V.  Mississippi  &c.  R.  Co.,  284 ;  G  S.  W.  Rep.  134 ;  West  v.  Craw- 
32  Miss.  347.  ford,  SO   Cal.  19;    s.  c.  21    Pac.   Rep. 

*  Ante,^U.  1123;   26  Am.  &  Eng.  Corp.  Cas.  85; 

s  Ante,  §  4Ig.  Trustees  v.  Stetson,  5  Pick.  (Mass.) 

60  945 


1  Thomp.  Corp.  §  1205.]     the  contract  of  subscription. 

this  principle  or  hold  it  to  be  inapplicable  ;  but  they  seem,  on 
oxamination,  to  be  cases  where  no  payee  is  named  or  designated, 
or  where  the  one  designated  is  either  incapable  of  acting,  or  does 
not  assume  and  is  not  bound  to  act.^  With  reference  to  this 
'juestioti  it  has  been  observed:  •'  So  far  as  the  question  of  con- 
sideration goes,  the  general. rule  is  that  mere  promises  of  gifts, 
even  to  public  uses,  made  without  consideration,  cannot  be  en- 
forced as  contracts.  But  it  is  also  a  rule  in  cases  of  simple  con- 
tract that,  if  one  person  makes  a  promise  to  another,  for  the 
benefit  of  a  third,  the  third  may  maintain  an  action  upon  it, 
though  the  consideration  does  not  move  from  him.  The  mutual 
promises  of  the  several  subscribers  in  this  case  constitute  a 
sufficient  consideration,  and,  that  the  promise  is  to  pay  a  third 
party,  is  not  a  tenable  objection ;  and  the  promise  is  binding, 
though  the  corporation  to  which  the  payment  is  to  be  made  is 
not  then  in  esse^  but  to  be  formed  thereafter."  ^  The  governing 
principle  has  been  brought  out  with  great  clearness  by  a  decision 
of  the  House  of  Lords,  where  it  is  held  that  if  a  number  of  per- 
sons, meaning  to  join  in  a  common  undertaking,  raise  a  common 
fund,  eventually  to  be  increased,  but  commencing  by  a  deposit, 
and  they  put  these  deposits  for  a  common  object  into  the  hands 
of  a  committee,  with  directions  to  them  to  do  certain  acts,  it  is 
not  competent  for  any  one  or  more  of  the  subscribers,  against 
the  will  of  the  others,  to  withdraw  and  say,  "  I  think,  or  we  think, 
you  ought  not  to  go  any  further."  Any  one  subscriber  who  is 
not  of  that  opinion  has  a  right  to  say,  *'  I  gave  my  money  upon 
the  faith  that  we  all  embarked  in  one  common  undertaking,  and 
till  that  has  been  done,  which  we  agreed  should  be  done,  none 
have  a  right  to  withdraw  and  say  you  shall  not  go  any  further."  ' 

506;     Watkina    v.     Eames,    9    Gush.  Farmington    Academy    v.     Allen,   14 

(Mass.)  537;    George  v.  Harris,  4  N.  Mass.  172. 

H.    533;    Congrtgational    Society    v.  2  ^ew  Lindell  Hotel  Co.  v.  Smith, 

Perry,  6  N.  H.  164;  Troy  Academy  «.  13  Mo.  App.  7,  14;  opinion  by  Bake- 

Nelson,  24  Vt.  189;  Amherst  Academy  well,  J. 

V.  Cowls,  6  Pick.  (Mass.)  427.    Com-  ^  Baird  v.   Ross,  2   Macqueen,  61. 

pare  New  York  &c.  Co.  v.  Martin,  13  See  also  Burnes  v.  Pennell,  2  H.  L.  C. 

Minn.  417.  497.    Compare    Kent  v.  Jackson,   14 

1  Boutell  V.  Cowdin,  9  Mass.  254;  Beav.  367;  s.  c.  2  De  G.  Mac.  &  G.  49. 

Phillips  Academy  V.  Davis,  11   Muss.  As  to  the  right  of  scrip  holders  to  have 

113;  s.  c.  6  Am.  Dec.  162.     Compare  the  money  subscribed  by  them  applied 

94(5 


THEORIES    AS    TO    CONSIDERATION.       [1  Thomp.  Corp.    §   1206. 

"It  follows  from  this,"  says  Sir  N.  Lindley,  "that  no  sub- 
scriber to  a  projected  company  can  recover  back  his  money  on  the 
ground  that  the  consideration  for  his  subscription  has  failed,  until 
the  formation  of  the  company,  upon  the  terms  assented  to  by 
him,i  has  been  abandoned,  or  has  become  impracticable."  ^ 

§  1206.  Liabor  or  Money  Expended  on  the  Faith  of  the 
Promise.  —  If  a  subscription  contains  screquestf  express  or  im- 
plied, for  the  expenditure  of  labor  or  money  to  carry  out  the 
object  for  which  it  is  made,  and  such  labor  or  money  are  ex- 
pended, it  will  constitute  a  good  consideration  for  the  promise.^ 
Speaking  with  reference  to  this  question  it  has  been  said:  **  At 
first  view  it  would  seem  that,  when  a  person  signs  his  name  to  a 
promise  to  pay  money  or  to  convey  property  to  an  institution 
of  learning,  the  public  advantage  and  the  fact  that  otiiers  have 
been  induced  by  their  reliance  upon  his  co-operation  to  give 
their  money  and  property  to  the  same  object,  ought  to  be  a  suffi- 
cient consideration;  but  the  courts,  acting  upon  the  principle 
that  every  promise,  to  be  enforced,  must  have  a  good  or  valuable 
consideration  to  uphold  it,  have  held  that  something  more  than 
the  naked  promise  to  give  is  necessary,  and  that  the  public  ad- 
vantage is  not  of  itself  a  sufficient  consideration,  to  support  a 
promise. ■*    Yet,  while  the  courts,  rather  than  violate  an  old  and 

to  the  purposes  for  which  they  sub-  60  Am.  Dec.  311.    Where  work  is  done 

scribed  it,  see  Bagshaw  v.  The  East-  or  expense  incurred  under  a  promise, 

ern  Rail.  Co.,  7  Hare,  114 ;  s.  c.  2  Mac.  the  liability  is  not  disputed   by  any 

&  G.  389.  authority.      Underwood  v.   Waldron, 

1  Citing  Johnson  v,  Goslett,  18  C.  12  Mich.  73,  89,  opinion  by  Camp- 
B.  (N.  8.)  5G9,  and  see  also  Wilson  v.  bell,  J.  Labor  performed  and  money 
Church,  13  Ch.  Div.  1,  and  s.  c.  under  spent  to  secure  the  location  of  a  rail- 
the  name  of  National  Bolivian  Nav.  road  d  pot  are  suflBcient  consideration 
Co.  V.  Wilson,  5  App.  Cas.  176.  to  support  a  promise  contained  in  a 

2  Lind.  Comp.  L.,5thed.,  pp.  29,  30.  subscription  to  pay  money  for  that 

3  "  A  subscription,  like  any  other  object.  Workman  v.  Campbell,  46 
promise  or  offer,  requires  a  consider-  Mo.  305.  See  also  Koch  v.  Lay,  38 
ation  to  support  it,  either  of  profit  to  Mo.  147;  Farmington  Academy  v. 
the  party  promising  or  of  loss  to  the  Allen,  14  Mass.  172;  s.  c.  7  Am.  Dec. 
other  party.  If  a  subscription  be  ac-  201;  Cook  v.  McNaughton,  128  Ind. 
ceeded  to  on  the  terms  in  which  it  is  410;  s.  c.  24  N.  E.  Rep.  361. 

made,  and  labor  or  money  is  expended  <  Citing  Trustees  v.    Stewart,  1  N. 

on  the  faith  thereof,  the  party  making  Y.  681;  Howard  v.  Williams,  2  Pick. 

the  subscription  is  bound  thereby."  (Mass.)  80. 
Gait  V.  Swain,  9  Gratt.  (Va.)  033;  s.  c. 

947 


1  Thomp.  Corp.  §  1*208.]     thk  contract  of  subscription. 

established  rule  of  law,  hold  that  a  naked  promise  to  pay  money 
for  a  public  object  can  not  be  enforced  for  the  want  of  a  con- 
sideration, they  have  also  decided  with  great  unanimity,  that  if 
the  promise  itself,  or  any  other  promise,  upon  which  it  is  founded, 
contains  a  request,  or  that  which  by  any  fair  construction  can  be 
construed  as  a  request  to  the  trustees,  or  others  representing  the 
institution  for  whose  benefit  the  promise  is  made,  to  do  any  act, 
or  incur  any  expense,  or  to  undergo  any  inconvenience,  and  such 
institution  does  the  act,  or  incurs  the  expense,  or  submits  to  the 
inconvenience,  this  request  and  performance  on  the  behalf  of  the 
institution  is  a  sufficient  consideration  to  support  the  promise.'*  ^ 

§  1207.  Illustrations  of  this  Principle. — Applying  this  princi- 
ple, where  the  subscriber  gave  his  note  for  his  subscription  to  endow  a 
college,  and  the  payee,  upon  the  faith  of  it,  had  incurred  expense,  it  was 
held  that  it  was  enforcible.^  -  -  -  -  It  has  been  held  that  a  sub- 
scription  by  citizens  in  pursuance  of  an  act  of  the  legislature,  to  a  fund 
for  the  building  of  a  state  house,  is  not  void  for  want  of  consideration, 
but  may  be  supported  on  the  theory  that  the  State,  through  the  act 
of  the  legislature,  has  undertaken  to  apply  the  funds  for  that  pur- 
pose.^ _  -  -  _  The  defendant  subscribed  toward  the  payment  of  a 
debt  due  for  the  building  of  a  church  edifice.  The  trustees  of  the 
chui'ch,  in  their  corporate  capacity,  but  on  the  faith  of  the  subscription 
list,  borrowed  money  with  which  to  pay  the  church  debt.  It  was  held 
that  tlie  subscriber  was  bound ;  since  ' '  the  lender  of  the  money  may 
have  relied  for  his  payment,  not  merely  on  the  credit  of  the  trustees  in 
their  corporate  capacity,  but  on  the  subscription  list  in  their  hands."  * 

§  1208.  Contrai-y  View  that  Money  not  Deemed  Expended 
on  the  Faith  of  the  Subscription:  Formation  of  Corporation 
not  Authorized  Thereby.  —  It  has  been  reasoned  upon  this  subject 
that  the  consideration  which  is  necessary  to  support  a  subscription,  and 
indeed  any  other  contract,  with  the  exception  of  negotiable  paper,  must 
be   a   consideration  derived  by  one  party  from  another  party  to  the 

1  Philomath  College  v.  Hartless,  6  2  philomath  College  v.  Hartless,  6 

Ore.  158;   s.  c.  25  Am.  Kep.  510,  511;  Ore.  158;  s.  c.  25  Am.  Rep.  510. 
opinion  by  "Watson,  J. ;  citing  Barnes  ^  state  Treasurer   v.   Cross,  9  Vt. 

V.  Ferine,    12   N.  Y.   18;  Trustees  v.  289;  s.  c.  31  Am.  Dec.  626.    Compare 

Garvey,  53  111.  401;   s.  c.   5  Am.  Rep.  University  v.    Buell,    2    Vt.   48,   and 

51;  McAuley  v.  Billenger,  20  Johns.  Carpenter  v.  Mason,  3  Scam.  (111.)  376. 
(N.  Y.)  89;  Thompson  v.  Mercer  Co.,  ^  Trustees  v.  Garvey,  53   111.  401; 

40  111.379.  s.  c.  5  Am.  Rep.  51. 
MS 


THEORIES    AS    TO    CONSIDERATION.       [1   Thomp.  Corp.    §   1209. 

action.  When,  therefore,  a  subscription  is  made,  but  the  subscription 
paper  does  not  authorize  the  formation  of  a  corporation  to  carry  out  its 
purposes,  and  nevertheless  some  of  the  subscribers  thereafter  undertake 
to  form  a  corporation  for  that  purpose,  the  corporation  cannot  maintain, 
on  the  contract  of  subscription,  an  action  against  a  subscriber  who 
does  not  assent  to  its  formation.  Nor  can  such  an  action  be  maintained 
on  the  theory  that  the  corporation,  by  expending  money  on  the  faith  of 
the  subscription,  has  raised  a  consideration  such  as  makes  it  binding. 
*'  There  is  no  proof,"  said  Shepley  C.  J.,  spealdng  of  such  a  case,  "  of 
an  expenditure  of  money  by  the  corporation  at  the  request  of  the 
defendant,  exjjress  or  impUed,  or  for  a  purpose  from  which  he  could 
derive  any  benefit.  The  corporation  does  not  appear  to  have  expended 
money  except  for  property  or  purposes  of  its  own,  in  which  the  defend- 
ant had  no  interest. ' '  ^ 

§  1209.  Consideration  where  the  Corporation  is  in  Exist- 
ence. —  Where  the  corporation  is  in  existence  at  the  time  when 
the  subscription  is  made,  no  room  is  left  for  these  speculations ; 
since  there  is  a  mutuality  of  promise  on  the  part  of  each  of 
the  parties  that  mast  be  performed. ^  But  even  here  the  courts 
have  frequently  discovered  the  consideration  in  additional  cir- 
cumstances. Thus,  where  the  corporation  had  been  chartered, 
and  a  subscription  to  its  stock  was  in  the  following  terms,  which 
were  the  terms  prescribed  by  its  charter,  it  was  held  to  embody 
a  good  contract:  "We,  whose  names  are  hereunto  subscribed, 
do,  for  ourselves  and  our  legal  representatives,  promise  to  pay  to 
the  president,  directors  and  company  of  the  Union  Turnpike 
Road,  the  sum  of  $25,  for  every  share  of  stock  in  such  company, 
set  opposite  to  our  respective  names,  in  such  manner  and  pro- 
portion, and  at  such  time  and  place,  as  shall  be  determined  by 
the  said  president,  directors  and  company."  **  That  form,"  said 
the  court,  "  contains  an  absolute  promise  to  pay  the  money  to 
the  president,  directors  and  company.  On  the  one  side  the  in- 
terest of  the  company  selling  the  shares,  and  the  public  advan- 
tage to  be  derived  from  the  success  of  the  institution,  and  on 
the  other,  the  expected  profits  to  accrue  from  the  stock,  were 
suflBcient  consideration  to  uphold  the  promise."  ^ 

1  Machias  Hotel  Co.  v.  Coyle,  35  ^  Union  Turnpike  Co.  v.  Jenkins,  1 
Me.  405;  s.  c.  58  Am.  Dec.  712.                   Caines  (N.  Y.)  381,  390. 

2  Selma  &c.  R.  Co.  ■».  Tipton,  5  Ala. 
787;  s.  c.  39  Am.  Dec.  344,  852. 

949 


1  Thomp.  Corp.  §  1213.]     the  contract  of  subscription. 

§1210.  Effect    of   the  Words    "Value    Received."  —  The 

words  "  value  received  "  in  a  subscription  paper  have  been  held 
to  import  prima  facie  a  consideration,  and  to  render  the  sub- 
scriber liable,  irrespective  of  the  question  whether  he  actually 
became  a  member  of  the  corporation.  This  will  appear  from  a 
case  where  the  defendant  subscribed  an  instrument,  promising, 
for  value  received,  to  pay  the  amount  of  certain  shares  to  two 
persons,  for  the  purpose  of  building  a  plank  road  designated,  and 
authorizing  those  persons  to  transfer  the  subscriptions  to  a  com- 
pany to  be  formed  ;  and  the  company  was  organized  for  this 
purpose.  It  was  held,  in  an  action  by  the  comp-iny  to  enforce 
the  contract,  that,  though  the  defendant  never  signed  articles  of 
association,  nor  accopted  stock,  and  could  not  be  considered  a 
member  of  the  company,  he  was  liable  on  his  promise  for  the 
amount  of  his  subscription;  that  the  words  "value  received" 
were  prima  facie  evidence  of  consideration  for  his  promise;  and 
that  no  consideration  need  be  shown  for  the  transfer  by  said  per- 
sons to  the  company,  other  than  that  arising  on  the  facts  stated.^ 

§  1211.  Subscription  a  Good  Consideration  for  Other  Un- 
dertakings.—  A  subscription  for  stock  of  a  company,  being  a 
legal  obligation,  which  can  be  enforced  by  action,  and  by  for- 
feiture for  non-payment,  is  therefore  a  good  consideration  for  a 
mortgage  to  secure  the  payment  of  the  amount  subscribed.^  On 
a  principle  already  considered,^  such  a  subscription  is  a  good 
consideration  for  a  promise  on  the  part  of  other  persons  to  pay 
money  towards  the  undertaking.* 

§  1212.  Subsequent  Failure  of  Consideration.  —  Where 
payment  for  the  shares  has  been  secured  by  a  mortgage,  as 
stated  in  the  preceding  section,  the  neglect  or  omission  of  the 
company  to  issue  to  the  mortgagor  scrip  for  his  shares  before 
payment,  will  not  amount  to  a  failure  of  the  consideration, — 
especially  where  it  appears  that,  by  so  doing,  they  will  make 

1  Eastern  Plank  Road  Co.  v.  Vau-  3  ^nte,  §  1206. 

ghan,  14  N.  Y.  546;  affirming  s.  c.  20  *  Ashuelot  Boot  &c.  Co.  v.  Hoit,  50 

Barb.  (N.  Y.)  155.  N.  H.  648. 

2  Buttershall  v.  Davis,  31  Barb.  (N. 
Y.)  323. 

950 


THEORIES    AS    TO    CONSIDERATION.        [1   TllOmp.  Coip.    §  1213. 

themselves  personally  liable  to  the  creditors  of  the  company.* 
Moreover,  as  we  shall  hereafter  see  more  fully ,2  such  a  consider- 
ation does  not  fail  in  the  theory  of  the  law,  because  of  the  fail- 
ure of  the  corporation,  at  the  time  when  the  action  is  brought, 
to  enforce  the  contract  to  construct  their  works  in  accordance 
with  the  declarations  of  the  promoters  of  the  corporation,  on 
the  faith  of  which  the  promise  of  the  subscriber  was  made; 
since  the  very  object  of  the  subscription  is  to  assist  in  affording 
the  means  to  construct  their  works.  The  agreement  to  construct 
remains  a  sufficient  consideration  for  the  subscription.^ 

§  1213.  No  Consideration  where  the  Company,  and  not  the 
Subscriber,  Gets  the  Shares.  —  One  court  has  rendered  a  de- 
cision which  is  tantamount  to  holding  that  where  a  subscriber 
gets  no  direct  personal  benefit  from  his  subscription  —  more 
briefly  where  he  does  not  get  the  shares,  —  there  is  no  considera- 
tion for  the  promise,  —  as  where  the  subscription  contract,  not 
under  seal,  of  a  mining  company,  was  conditioned  that  two 
thousand  of  the  capital  shares  should  be  paid  to  trustees,  to  be 
by  them  held  for  the  benefit  of  and  subject  to  the  direction  of 
the  company.  Here  it  was  held  that,  the  trustees  being,  7J?-o 
hac  vice,  the  servants  of  the  company,  and  their  possession,  its 
possession,  the  consideration  was  too  shadowy  to  support  a  con- 
tract.^ But  it  has  already  been  sufficiently  shown  that  a  direct 
benefit  to  the  promisor  is  not  at  all  necessary  to  support  the 
contract.  It  may  consist  in  detriment  to  others,  or  in  the  fact 
of  others  acting  on  the  faith  of  it.^ 

1  Buttershallv.  Davis,  31  Barb.  (N.  <  New  York  &c.  Co.  v.  Martin,  13 
Y.)  323.                                                              Minn.  417. 

2  Post,  §  1975.  fi  Ante,  §  1205. 

3  First    Nat.  Bank  v.   Hurford,  29 
Iowa,  579. 

951 


1  Thomp.  Corp.  §  1316.]     the  contract  of  subscription. 


Article  III.     Theories  as  to  the  Necessity   op  Paying  the  Stat- 
utory Deposit. 


Section 

1216.  View   that    payment     of    cash 

deposit  is  necessary  to  the 
validity  of  the  subscrip- 
tion. 

1217.  Reasons    given    in  support  of 

this  view. 

1218.  Rule  that  payment  of    deposit 

must  be  made  in  specie  or  its 
equivalent. 

1219.  Statute  not    complied  with  by 

giving  a  note. 

1220.  A  contrary  view. 

1221.  Whether  payment  by  bank  check 

sufficient. 

1222.  Simulated  payments  by  giving 

checks  which  are  not  col- 
lected. 

1223.  Further  as    to  the  manner  of 

-payment. 


Section 

1224.  View  that  the  payment  of  such 

a  deposit  is  not  necessary. 

1225.  A  similar  view  in  England. 

1226.  Subscription  valid  though  pay- 

ment at  a  subsequent  time. 

1227.  Invalidity  of  secret  agreement 

that  the  check  shall  not  be  paid. 

1228.  Subscription  void  for  non-pay- 

ment of  deposit  made  good 
by  estoppel. 

1229.  Where  subscription  made  after 

the  organization. 

1230.  What  if  the  question  arises  un- 

der a  by-law  merely. 

1231.  Illustration  in  case  of  surrender 

and  re-i&sue  of  shares. 

1232.  Effect  of  statutes  requiring  a 

certain  amount  to  be  paid  in 
before  commencing  business. 


§  1216.  View  that  Payment  of  Cash  Deposit  is  Necessary 
to  the  Validity  of  the  Subscription. — Where  the  charter  or 
governing  statute  requires  the  payment  in  cash  of  a  certain  per- 
centage of  the  amount  subscribed,  at  the  time  of  making  the 
subscription,  there  is  a  division  of  judicial  opinion  upon  the 
question  whether  this  payment  is  necessary  to  give  binding 
force  to  the  contract.  Many  of  the  courts  hold  that  it  is  neces- 
sary where  the  subscription  is  made  before  organization.^ 


1  Fiser  v.  Mississippi  &c.  R.  Co., 
32  Miss.  359;  State  lus.  Co.  u.  Red- 
mond, 1  McCrary  (U.  S.),  308;  Perry 
V.  Hoadley,  19  Abb.  N.  Cas.  (N.  Y.) 
76;  People  v.  Chambers,  42  Cal.  201; 
Charlotte  &c.  R.  Co.  v.  Blakely,  3 
Strobh.  (S.  C.)  245;  Wood  v.  Coosa 
&c.  R.  Co.  32  Ga.  273;  Jenkins  v. 
Union  Turnp.  Co.,  1  Caines  Cas.  (N. 
Y.)  86,  94  (recognized  in  Goshen 
Turnp.  Co.  v.  Ilurtin,  9  Johns.  (N^.  Y.) 
217;  s.  c.  6  Am.  Dec.  273)  ;  Highland 
952 


Turnp.  Co.  v.  McKean,  11  Johns.  (N. 
Y.)  98;  Dutchess  Cotton  Manufactory 
V.  Davis,  14  Johns.  (N.  Y.)  238;  s.  c. 
7  Am.  Dec.  459.  These  three  last 
decisions  state  that  this  was  the 
ground  on  which  the  case  of  Jenkins 
V.  Union  Turnp.  Co.,  SMj)ra,  was  fin- 
ally determined  in  the  Court  of  Er- 
rors. But  as  hereafter  seen,  they  no 
longer  express  the  law  of  New  York 
on  the  subject,  Post,  §1224.  The  same 
view  was  taken  of  the  necessity  of 


PAYING   THE   STATUTORY   DEPOSIT.       [1  Thomp.  Corp.   §  1217. 

§  1217.  Reasons  in  Support  of  this  View. — These  decis- 
ions proceed  upon  the  rule  that  the  provisions  of  the  charter  of 
the  corporation  are  to  be  strictly  pursued^  and  that,  the  charter 
having  provided  that  subscriptions  to  the  capital  stock  shall  be 
taken  in  a  certain  way,  they  cannot  be  taken  in  any  other  way. 
They  reason  that  the  payment  of  the  deposit  required  by  the 
statute  is  a  condition  precedent  io  the  \aMi\\ty  of  the  contract; 
that  the  subscription  stands  as  a  mere  proposal  until  the  deposit 
is  paid ;  and  that  it  is  neither  competent  for  the  commissioners 
nor  for  the  corporation  to  accept  this  proposal  until  the  condi- 
tion prescribed  by  the  statute  has  been  complied  with.  Until 
then,  there  is,  under  this  theory,  no  contract  which  binds  either 
party,  or  through  which  either  party  can  derive  any  rights  against 
the  subscriber.^  The  subscriber  cannot  demand  any  rights  in  the 
corporation  ;  the  corporation  cannot  maintain  an  action  against 
him  to  enforce  his  subscription  ;  ^  nor  can  the  creditors  of  the 
corporation  enforce  their  demands  against  him.^  "  A  corpora- 
tion," said  one  court,  "being  the  creature  of  the  law,  can 
act  in  no  other  manner  than  the  law  prescribes,  and  cannot  be 
permitted  to  enter  into  a  contest  in  the  legislature  concerning 
the  policy  or  expediency  of  the  terms  which  have  been  dic- 
tated." ^     In  the  leading   case    in  Pennsylvania,  Chief  Justice 

complying  with  the  charter  provision  M'Kean,     11    Johns.     (N.    Y.)    100; 

requiring  the  payment  of  a  deposit,  in  Goshen  Turnp.  Co.  v.  Hurtin,  9  Johns. 

Hibernia  Turnp.  Corp.  v.  Henderson,  (N.  Y.)  218;  s.  c.  6  Am.  Dec,  273;  Hi- 

8  Serg.  &  R.  (Pa.)  219;  s.  c.  11   Am.  hernia  Turnp.   Co.    v.   Henderson,  8 

Dec.  593.     And  this  decision  was  re-  Serg.   &  R.  (Pa.)   219;  s.  c.    11  Am. 

affirmed  in  Leighty  v.  President  &c.,  Dec.  593. 

14  Serg.  &  R.  (Pa.)  434.    The  same  3  Perry  y.  Hoadley,  19  Abb.  N.  Cas. 

view  was  taken  in  Taggart  v.  Western  (N.  Y.)  76. 

Maryland  R.  Co.,  24  Md.  563;  s.  c.  89  *  Hibernia  Turnp.  Corp.  v.  Hender- 
Am.  Dec.  760.  Compare  Hanover  son,  8  Serg.  &  11.  219;  s.  c.  11  Am. 
Junction  &c.  R.  Co.  v.  Grubb,  82  Pa.  Dec.  593 ;  opinion  by  Tilghman,  C.  J. 
St.  36;  Erie  &c.  Plank  Rd.  Co.  v.  The  learned  judge  referred  to  Mitch- 
Brown,  25  Pa.  St.  156.  ell  w.  Smith,  1  Binn.  (Pa.)  110  (s.  c.  2 

1  Reasoning  in  Perry  u.  Hoadley,  Am.  Dec.  417)  and  Maybini;.  Conlon,4 
19  Abb.  N.  Cas.  (N.  T.)  76,  and  cases  Dall.  (U.  S.)  298,  as  settling  the  point 
cited  below.  that  a  contract  made  in  violation  of 

2  Boyd  V.  Peach  Bottom  R.  Co.,  90  an  act  of  the  legislature  cannot  be  en- 
Pa.  St.  169 ;  Excelsior  Grain  Binder  forced  in  a  court  of  justice.  The 
Co.  V.  Stayner,  68  How.  Pr.  (N.  Y.)  legislatures  have  sometimes  been 
273;  Wood  v.  Coosa  &c.  R.  Co.,  32  obliged  to  pass  curative  acts  to  vali- 
Ga.    273;    Highland   Turnp.    Co.    v.  date    subscriptions  thus  made    and 

953 


1  Thorap.  Corp.  §  1219.]     the  contract  of  subscription. 

Gibson,*  whose  opinions  have  always  been  held  in  high  respect 
by  the  profession,  expressed  the  view  that  the  design  of  this 
provision  of  the  statute  was  to  prevent  the  subscription  list  be- 
ing filled  hj  fictitious  subscribers,  who  should  be  favorites  of  the 
commissioners,  or  the  creatures  of  other  interested  persons. 
He  reasoned  that  it  would  be  a  fraud  on  the  law  and  on  the  fair 
subscriber,  to  admit  to  equal  participation  in  the  administration 
of  the  corporate  affairs,  men  who  had  not  paid  the  required 
deposit,  with  men  who  had.^ 

§  1218.  Rule  that  Payment  of  Deposit  must  be  Made  in 
Specie  or  its  Equivalent. — Under  this  strict  rule,  the  theory 
of  several  courts  was  that  specie  or  its  equivalent,  current  bills 
of  specie  paying  banks,  could  only  be  received  in  payment  of 
the  sum  required  to  be  paid  at  the  time  of  subscribing  the  stock.^ 

§   1219.  Statute  not   Complied   with  by  Giving  a  Note.  — 

The  courts  which  take  this  view  hold  that  the  giving  of  a  prom- 
issory note  for  the  amount  required  to  be  paid,  is  not  a  payment, 
nor  a  sufficient  compliance  with  a  statute  which  requires  payment 
in  cash  ;  and  where  such  a  payment  was  attempted  the  subscrip- 
tion was  void  and  imposed  no  obligation  on  the  subscriber.^ 
Where  the  charter  of  a  railroad  company  required  that  "its 
treasurer  and  president  should,  before  receiving  an  installment 
from  the  State,  satisfactorily  assure  the  board  of  internal  im- 
provements, by  a  certificate  under  the  seal  of  the  company,  that 

prevent  the  subscribers  from  taking  subject  are  reviewed  at  considerable 

advantage  of  their  own  wrong.     See  length. 

Clark    V.    Navigation    Co.,   10  Watts  ^  Crocker  v.  Crane,  21   Wend.  (N. 

(Pa.),  364.  Y.)211;  Peoples.  Troy  House  Co.  44 

1  He  was  not  chief  justice  at  the  Barb.  (N.  Y.)  .625;  Neuse  River  &c. 
time  of  this  decision.  Co,  v.  Newburn,   7  Jones  L.  (N.  C), 

2  See  his  opinion  in  Hibernia  275;  Henry  v.  Vermillion  &c.  R.  Co., 
Turnp.  Corp.  V.  Henderson,  8  Serg.  &  17  Ohio,  187;  McRae  v.  Russell,  12 
R.   (Pa.)  219;  s.  c.  II  Am.  Dec.   593,  Ired.  (N.  C)  L.  224. 

597.    These  views  were  quoted  with  *  Leighty  v.  Susquehanna  &c.  Co., 

approval  by  the  Court  of  Appeals  of  14  Serg.    &  R.    (Pa.)    434;  Boyd  v. 

Maryland  inTaggartw.  Western  Mary-  Peach  Bottom  R.  Co.,  90  Pa.  St.  1G9; 

land  R.  Co.,  24  Md.  5G3;  s.  c.  89  Am.  McRae  v,  Russell,  12  Ired.  L.  (N.  C.) 

Dec.  760,  where  the  authorities  ou  the  224 ;  Hayne  v.  Beauchamp,   5   Smed. 


&  M.  (Miss.)  515. 


954 


PAYING   THE    STATUTORY   DEPOSIT.        [1  Thomp.  Corp.   §  1220. 

an  amount  of  the  private  subscription  had  been  paid,  in  equal 
proportion  to  the  payment  required  by  the  State,"  it  was  held 
that,  for  the  railroad  company  to  take,  as  cash,  the  notes  of  indi- 
viduals made  for  the  occasion  to  enable  the  officers  to  make  the 
certificate,  under  a  promise  that  such  notes  were  not  to  be 
enforced,  was  immoral  and  against  public  policy^  and  such  indi- 
viduals being  in  pari  delicto,  had  no  equity  to  be  relieved  against 
such  notes. ^ 

§  1220.  A  Contrary  View.  —  Other  courts  take  the  view  that 
it  may  be  paid  by  a  promissory  note  of  the  subscriber,  if  the  cor- 
poration is  willing  to  receive  it  as  money,  and  to  give  a  receipt 
for  it  as  money. ^     Where,  as  stated  in  a  subsequent  section,  the 


1  McRae  v.  Atlantic  &c.  E.  Co.,  5 
Jones  Eq.  (N.  C.)  395. 

2  Greenville  &c.  R.  Co.  v.  Wood- 
sides,  5  Rich.  L.  (S.  C)  145;  s.  c.  55 
Am.  Dec.  708.  Compare  Clark  v.  Far- 
rington,  11  Wis.  330,  where  this  case 
is  cited.  As  to  when  the  giving  and 
accepting  of  a  promissory  note  for  an 
indebtedness  will  be  presumed  to  be 
due  payment  and  when  not,  see  Mil- 
ledge  V.  Boston  Iron  Co.,  5  Cush. 
(Mass.)  158;  s.  c.  51  Am.  Dec.  59; 
Arnold  v.  Delano,  4  Cush.  (Mass.)  33; 
s.  c.  50  Am.  Dec.  754;  Wolf  v.  Fink, 
1  Pa.  St.  435;  s.  c.  44  Am.  Dec.  141; 
Steamship  Charlotte  v.  Hammond,  9 
Mo.  59;  .".  c.  43  Am.  Dec.  53G;  Brooks 
V.  Mastyn,  69  Mo.  63:  Bertiaux  v.  Dil- 
lon, 20  Mo.  App.  C05;  McMurray  •;;. 
Taylor,  30  Mo.  263;  s.  c.  77  Am.  Dec. 
611;  Howard  v.  Jones,  33  Mo.  583; 
Powell  V.  Blow,  34  Mo.  485;  Block  v. 
Dorman,  51  Mo.  31 ;  Leabo  v.  Goode, 
67  Mo.  126;  Appleton  v.  Kinnon,  19 
Mo.  637;  Steamboat  v.  Lumm,  9  Mo. 
64;  Lee  v.  Fontaine,  10  Ala.  755;  s.  c. 
44  Am.  Dec.  505;  Judge  v.  Fiske,  2 
Spears  L.  (S.  C)  436;  s.  c.  42  Am. 
Dec.  380;  Jones  v.  Johnson,  3  Watts 
&S.  (Pa.)  276;  s.  c.  38  Am.  Dec.  760. 
The  prevailing  view  is  that  the  giviug 
and  accepting  of  a  promissory   noe 


does  not  extinguish  a  debt,  unless 
the  parties  so  intend,  but  that  if  the 
note  is  not  paid  the  creditor  may  sue 
on  the  original  cause  of  action.  This 
is  held  in  many  of  the  cases  above 
cited,  and  also  in  the  following:  Pate- 
shall  V.  Apthorp,  Quincy  (Mass.),  179; 
s.  c.  1  Am.  Dec.  3;  Murray  v.  Gouver- 
neuret.  al.  2  Johns.  Cas.  (N.  Y.)  438; 
s.  c.  1  Am.  Dec.  177;  Tobey  v.  Barber, 
5  Johns.  (N.  Y.)  58;  s.  c.  4  Am.  Dec. 
326;  Johnson  v.  Weed,  9  Johns.  (N. 
Y.)  310;  s.  c.  6  Am.  Dec.  279;  Barelli 
V.  Brown,  1  McCord  (S.  C.)  449;  s.  c. 
10  Am.  Dec.  683;  Muldon  v.  Whitlock. 
1  Cow.  (N.  Y.)  290;  s.  c.  13  Am.  Dec. 
533;  Patapsco  Ins.  Co.  v.  Smith,  6 
Harr.  &  J.  (Md.)  166;  s.  c.  14  Am.  Dec. 
268;  Hart  v.  Boiler,  15  Serg.  &  R. 
(Pa.)  162;  s.  c.  16  Am.  Dec.  536;  Cos- 
telo  V.  Cave,  2  Hill  (N.  Y.),  528;  s.  c. 
27  Am.  Dec.  404;  Estate  of  Davis  et 
al.,5Whart.  (Pa.)  530;  s.  c.  34  Am. 
Dec.  574.  But,  contra,  see  Newell  v. 
Hussey,  18  Me.  249;  s.  c.  36  Am.  Dec. 
717;  Wright  v.  Crockery  Ware  Co.,  1 
N.  11.  281;  8.  c.  8  Am.  Dec.  68;  Var- 
ner  v.  Noblcborough,  2  Greenl.  (Mc.) 
121;  s.  c.  11  Am.  Dec.  48;  Hutchins  v. 
Olcutt,  4  Vt.  519;  s.  c.  24  Am.  Dec. 
634;  Homes  v.  Smyth,  16  Me.  177; 
s.  c.  33  Am.  Dec.  650.     If  the  creditor 

955 


1  Thomp.  Corp.  §  1231.]     the  contract  of  subscription. 

commissioners  are  held  to  have  a  discretion  to  allow  a  reasonable 
time  to  the  subscriber  for  the  payment  of  this  deposit,  a  sub- 
scription will  not  be  deemed  void  for  the  reason  that  payment 
of  the  deposit  was  made  in  a  draft  maturing  in  tJdrtij  days.^ 
Such  a  subscription  is  good,  even  as  against  those  who  subse- 
quently apply  for  shares,  and  whose  applications  are  rejected 
for  the  reason  that  the  shares  are  all  subscribed  for,  although 
they  actually  tender  the  deposit  in  cash  within  the  thirty  days.^ 
But,  in  the  theory  of  these  courts  wliich  do  not  regard  the  pay- 
ment of  the  deposit  as  a  condition  precedent  to  the  validity  of 
the  subscription,  it  will  not  be  held  void  merely  because  pay- 
ment was  made  in  a  note  maturing  at  a  future  time;  and  it  has 
been  so  held  even  where  the  charter  required  the  payment  of 
the  deposit  to  be  made  in  cash  at  the  time  of  the  subscription, 
and  declared  that  the  subscription  should  be  void  if  the  deposit 
were  not  so  paid.^  Such  a  note,  according  to  these  holdings, 
is  given  upon  a  sufficient  consideration,  and  is  enforceable.* 

§  1221.  Whether    Payment   by    Bank    Check  Sufficient. — 

Analyzing  further  the  cases  which  take  this  view,  we  find  that 
one  of  them  has  gone  to  the  extreme  length  of  holding  that, 
under  a  statute  requiring  payment  of  the  required  deposit  to  be 
made  in  cash,  the  payment  by  many  subscribers  of  their  deposits 
in  check,  drawn  upon  banks,  is  void  as  contrary  to  the  policy  of 
the  statute,  in  such  a  sense  as  to  prevent  the  corporation  from 
going  into  existence  for  the  want  of  proper  payments  as  a  condi- 
Hon  precedent.^  But  the  soundness  of  a  conception  which 
ignores  the  well  known  and  ordinary  habits  of  business  life  may 
well  be  questioned,  though  the  particular  case,  upon  its  peculiar 
facts,  may  have  been  well  decided.  It  is  obvious  that  a  provis- 
ion in  the  statute  under  which  a  corporation  is  organized,  requir- 
ing, as  a  condition   precedent  to  incorporation,  that  a  certain 

sues  on  the  original  contract,  he  must  ^  j^id. 

produce  the  note  at  trial,  or  prove  its  ^  McRea    v.    Russell,    12   Ired.   L. 

loss.   Holmes  v.     DeCarap,    1  Johns.  (N.  C.)  224. 

(N.   Y)   34;  s.   c.   3    Am.    Dec.    293;  *  Ihid;  Vermont  Central  R.  Co.  v. 

Homes  V.   Smyth.'    Many  other  cases  Clayes,  21  Vt.  30. 

are  collected  on  this  subject  in  various  ^  Crocker  v.   Crane,  21  Wend.  (N. 

notes  in  the  American  Decisions.  Y.)  211;  s.  c.  34  Am.  Dec.  228,  234. 
1  Napier  ».  Poe,  12  Ga.  170. 
956 


PAYING    THE    STATUTORY    DEPOSIT.       [1   TilOmp.   Coip.    §  1223. 

amount  of  stock  should  be  subscribed  for  and  that  ten  percent. 
in  cash  thereof  should  be  paid  in  good  faith,  —  is  complied  with 
by  the  payment  of  the  ten  per  cent,  in  good  faith  by  a  check 
drawn  against  sufficient  funds  in  the  hands  of  a  banker,  which 
check  would  be  paid  by  the  banker  on  presentation. ^  It  is 
equally  obvious  that  it  maybe  made  in  a  check  drawn  on  a  solv- 
ent banker  and  certified  by  the  banker  as  good,  where  the  prac- 
tice prevails  of  regarding  cer^/^etZ  checks  0.3  equivalent  to  money  .^ 

§  1222.  Simulated  Payments  by  Giving  Checks  which  are 
not  Collected:  —  But  a  payment  by  a  subscriber  by  a  check 
drawn  upon  a  banker  with  whom  he  has  no  funds  to  his  credit, 
wliere  the  check  is  never  presented  for  payment,  but  is  long 
afterwards  surrendered  to  the  drawer  on  a  settlement  of  accounts 
between  him  and  the  corporation,  has  been  held  to  be  not  a  pay- 
ment in  cash,  within  the  meaning  of  this  statute.^  And  where 
the  cheek  is  in  fact  not  paid,  and  is  countermanded  by  the  sub- 
scriber before  being  presented  for  payment,  there  is,  in  the 
view  we  are  now  considering,  no  binding  subscription.*  It  may 
also  be  conceded  that  where  the  giving  of  the  check  is  simidated, 
and  it  is  held  up  in  pursuance  of  an  understanding  that  it  will 
not  be  presented,  it  is  no  payment  such  as  complies  with  this 
theory  of  the  law  ;  for  it  has  been  justly  reasoned  that  the  sub- 
scriptions must  be  real,  actual  and  honest,  as  distinguished  from 
fictitious,  pretended  and  deceptive ;  and  the  payments  must  be 
actual  payments  in  cash,  not  merely  parting  with  the  temporary 
control  over  the  money.  Nothing  short  of  actual  subscription 
and  actual  payment  in  cash  is  a  compliance  with  the  law  ;  and 
any  attempt  to  acquire  corporate  functions  by  a  pretentious  or 
evasive  compliance  is  a  fraud. ^  Accordingly,  where  the  charter 
required  the  paj'ment  often  per  cent,  at  the  time  of  the  subscrip- 
tion, it  was  held  that  such  payment  was  not  made  by  the 
subscriber  handing  the  amount  to  the  treasurer  of  the  corpora- 

1  People  V.  Stockton  &c.  R.  Co.,  45  payment  treated  of  in  Croker  v.  Crane, 
Cal.  306;  s.  c.  13  Am.  Rep.  178.  ante  §  1221. 

2  Re  Staten  Island  &c.  R.  Co.,  37  ^  Excelsior  Grain  Binding  Co.  v. 
Hun(N.  Y.),  422;  Compare  Thorp  v.  Stayner,  CI  How.  Pr.  (N.  Y.)  450; 
Woodliull,  1  Sandf.  Ch.  (N.  Y.)  411.  s.  c.  25  Ilim  (N.  Y.),  91. 

3  Peoples.  Ciiambers,  42  Cal.  201.  «  Jersey  City  Gas  Co.  v.  Dwight,  29 
This  was  substantially   the   kind  of  N.  J.  Eq.  242. 

957 


1  Thomp.  Corp.  §  1224.]     the  contract  of  subscription. 

tion  and  immediately  receiving  it  back,  on  the  treasurer  giving 
the  subscriber  a  receipt  for  so  much  on  account  of  work  to  be 
done  by  the  subscriber  for  the  corporation  ;  and  this,  although 
the  charter  provided  that  subscriptions  might  be  paid  for  in 
work.  The  State  was  also  a  subscriber,  and  the  transaction  was 
challenged  by  the  State  as  sufficient  to  release  it  from  its  obliga- 
tion under  its  subscription  ;  but  it  was  held  that,  if  done  without 
actual  fraud  and  affirmed  by  the  State  directors,  the  State  would 
be  bound  by  its  subscription.^ 

§   1223.  Further  as    to  the    Manner  of  Payment.  —  As  in 

any  other  case  of  payment,  the  payment  of  the  deposit  that  is 
required  may  be  made  for  the  subscriber  by  a  third  person^  even 
though  acting  officiously,  if  his  act  is  ratified  by  the  subscriber. '' 
It  may  be  made  in  services,  such  as  the  corporation  under  its 
charter  has  power  to  receive  and  at  a  fair  valuation.^ 

§  1224.  View  that  the  Payment  of  Such  a  Deposit  is  not 
Necessary. —  Other  courts  take  the  view  that,  although  the  char- 
ter or  governing  statute  provides  that  a  certain  percentage  of  the 
sura  subscribed,  or  a  certain  round  sum  shall  be  paid  by  the  sub- 
scriber at  the  time  of  tho  subscription,  the  non-payment  of  this 
installment  or  deposit  does  not  render  the  subscription  void  ;  *  but 

1  State  V.  Jefferson  Turnpike  Co.,  3  was  indebted  to  him  in  an  amonn 
Humph,  (Tenn  )  S05.  greater  than  the  cash    payment  re- 

2  Mississippi  &c.  R.  Co.  v.  Harris,  quired,  in  which  account  he  applied 
37  Mi<s.  13.  Compare  Ogdensburg  and  credited  $50  for  10  per  cent,  upon 
&c.  R.  Co.  V.  Frost,  21  Barb.  (N.  Y.)  his  subscription,  and  $50  for  the  first 
541.  call  made  thereon.     The  account  was 

s  Beach  v.    Smith,  30   N.   Y.    116;  allowed  by  the  company,  and  the  bal- 

affg.   s.  c.  28  Barb.  (N.   Y)  254.     In  ance  paid  to  S.      It  was  held  that  this 

this    case  S.  subscribed  for  $500    of  was   a  sufficient  compliance  with  the 

stock  in    a  railroad  company,    upon  statute  in  respect  to  the  payment  of 

the   understanding  that  the    first    10  the  first  10  per  cent,   and  made  the 

per  cent,  required  by  law  to  be  paid  subscription  obligatory  upon  S.     As 

in    cash    on    subscribing,  should    be  to  payment  of  shares  in  property  or 

paid     by    his   services    in    procuring  services,  see  po.s^,  §1604,  et  seg. 
subscriptions  and  right  of  way.     He  *  Union  Turnpike  Co.  v.  Jenkins,  1 

subsequently    presented    an    account  Caines  (N.   Y),    381,  390;    Abbott  v. 

against    the    company    for    services,  Aspinwall,    26    Barb.    (N.    Y.)    202; 

from  which   it  appeared  that,  at  the  Chaffin  v.   Cummings,  37  Mc.  76,  83; 

date  of  the  subscription,  the  company  Cheslcy    v.    Pierce,    32    N.    IT.    402; 

958 


PAYING   THE    STATUTORY    DEPOSIT.       [1  Thomp.  Corp.   §  1224:. 

that  subsequent  payment -^iW.  operate  as  a  waiver  of  the  condition, 
and  the  party  making  it  will  be  considered  as  recognizing  his 
orjo-inal  liability.^  In  the  view  of  these  courts,  the  failure  of  the 
subscriber  to  pay  upon  his  subscribing  the  sum  required  as  a 
deposit  by  the  terms  of  the  governing  statute  and  contract  of  sub- 
scription cannot  be  set  up  by  him  as  a  defense  to  an  action  for 
calls,  since  he  can  not  be  allowed  thus  to  take  advantage  of  his 
own  wron"".  "Even  if  the  commissioners  might  have  refused 
to  receive  the  stock  unless  the  payment  had  been  made,  yet, 
as  they  did  not  do  it,  the  contract  was,  after  the  stock  had  been 
received  without  the  payment,  binding  upon  both  sides."  ^     ^g 


Haynes  w.  Brown,  36  N.  H.  545,  563; 
McEuen  v.  West  London  «&c.  Co.,  L.R. 
6  Ch.  655;  East  Gloucestershire  R  .Co. 
u.Bartholomew,L.R.3Ex.  15;  Purdcy's 
case,  16  W.  R.  660;  Beach  v.  Smith, 
28  Barb.  (N.  Y.)  254;  Black  River  &c. 
R.  Co.  V.  Clark,  25  N.  Y.  208 ;  Hay- 
wood Plank-road  Co.  v.  Bryan,  6 
Jones  L.  (N.  C.)  82;  Hall  u.  Selma 
&c.  R.  Co.,  6  Ala.  741;  Thorp  v. 
Woodhull,  1  Sandf.  Ch.  (N.  Y.)  411; 
Vicksburg  &c.  R.  Co.  v.  McKtan,  12 
La.  An.  638;  Piscitaqua  F  rry  Co.  v. 
Jones,  39  N.  H.  491;  Smith  v.  Plank- 
road  Co.,  30  Ala.  650;  Lake  Ontario 
&c,  Co.  V.  Mason,  16  N.  Y.  451; 
Rensselaer  &c.  Co.  v.  Barton,  16  N. 
Y.  457,  note;  Spear  v.  Crawford,  14 
Wend.  (N.  Y.)  20;  s.  c.  28  Am.  Dec. 
513;  Minneapolis  &c.  R.  Co.  v.  Bassett, 

20  Minn.  635;  s.  c.  18  Am.  Rep.  376; 
Henry  v.  Vermillion  &c.  R.  Co.,  17  Oh. 
1 87 ;  Vermont  Central  R.  Co.  v.  Clayes, 

21  Vt.  35;  Mitchell  u.  Rome  &c.  R. 
Co.,  17  Ga.  575,  591;  Chamberlains. 
Plainsville  &c.  R.  Co.,  15  Oh.  St.  225; 
Ashtabula  &c.  R.  Co.  v.  Smith,  15  Oh. 
St.  328;  niinois  River  R.  Co.  v.  Zim- 
mer,  20  111.  654. 

»  Beach  v.  Smith,  28  Barb.  (N.  Y.) 
254;  Black  River  &c.  R.  Co.  v.  Clarke, 
25  (N.  Y.)  208;  affg.  s.  c.  31  Barb. 
(N.  Y.)  258;  Haywood  Plank  Rd.  Co. 
V.  Bryan,  6  Jones  L.  (N.  C.)  82;   Hall 


V.  Selma&c.  R.  Co.,  6  Ala.  (n.  s.)  741; 
Eastern  Piank  Rd.  Co.  v.  Vaughn,  20 
Barb.  (N.  Y.)  155;  Ryder  v.  Alton 
&c.  Co.,  13  111.  516;  Pittsburg  &c.  R. 
Co.  V.  Applegate,  21  W.  Va.  172;  Blair 
V.  Rutherford,  31  Tex.  465;  Mitchell 
V.  Rome  R.  Co.,  17  Ga.  574.  Compare 
Magee  v.  Badger,  30  Barb.  (N.  Y.), 
246;  Fiser  v.  Miss.  .&c.  R.  Co.,  32 
Miss.  359;  Barrington  u.  Miss.  &c.  R. 
Co.,  32  Miss.  763;  Kiein  v.  Alton  &c. 
R.  R.  Co.,  13  111.  514.  It  has  been 
held  that  if  the  subscriber  is  also 
one  of  the  persons  to  whom  the  sub- 
scription is  to  be  paid,  its  non-pay- 
ment does  not  render  it  void.  Ryder 
V.  Alton  &c.  R.  Co.,  13  111.  521.  It  has 
been  so  held,  although  the  charter 
recited  that  the  commissioners  should 
"receive  no  subscriptions  to  said 
stock,  unless  five  per  cent,  thereof  in 
cash  shall  be  paid  to  them  at  the  time 
of  subscribing,  and  should  they  receive 
subscriptions  to  said  stock  without 
payment,  they  shall  be  personalty 
liable  to  pay  the  same  to  said  corpora- 
tion when  organized."  This  clause 
was  held  not  a  condition  precedent  to 
the  organization  of  the  company,  but 
a  mere  personal  liability  imposed  on 
the  commissioners.  Blair  v.  Ruther- 
ford, 31  Tex.  465. 

2  Wight   V.   Shelby  R.   Co.,   16  B. 
Monr.  (Ky.)   4;  s.  c.  63  Am.  Dec.  523. 


959 


1  Thonip.  Corp.  §  1226.]     the  contract  of  subscription. 

already  seen,^  reasons  of  j^ublic  policy  have  been  invoked  in 
support  of  the  conchision  that  the  payment  of  such  installment  or 
deposit  is  a  condition  precedent.  But  there  are  reasons  of  public 
policy  which  operate  quite  as  strongly  the  otlier  way.  A  sub- 
scription will  operate  just  as  effectively  to  deceive  the  public 
into  subscribing  for  other  shares,  or  giving  credit  to  the  corpora- 
tion, whether  the  statutory  earnest-money  is  paid  or  not. 

§  1225.  A  Similar  View  in  England. — The  English  courts 
have  proceeded  on  a  similar  view.  Thus,  where  the  act  of 
Parliament  creating  a  company  provided  that  the  company 
should  not  issue  any  share  under  the  authority  of  that  act,  nor 
should  any  share  vest  in  the  person  accepting  the  same,  until 
one-fifth  of  the  amount  of  the  share  was  paid  up,  it  was  held 
that  the  word  issue  referred  to  the  issuing  of  certificates  of 
shares,  and  the  word  vest  to  the  vesting  of  shares,  so  as  to  be 
property  and  capable  of  transfer;  but  that  the  section  did  not 
make  the  payment  of  one-fifth  a  condition  precedent  to  the 
liability,  as  a  shareholder,  of  the  person  accepting  the  share.'^ 

§  1226.  Subscription  Valid  though  Payment  Made  at  a  Sub- 
sequent Time.  —  Where  this  theory  prevails  the  payment  need 
not  be  contemporaneous  with  the  subscription ;  but  if  the  sub- 
scriber pay  the  deposit  before  the  subscription  books  are  closed 
he  will  be  held  to  the  payment  of  the  residue,  though  he  did  not 
pay  the  deposit  at  the  time  of  subscribing.^  It  has  been  rea- 
soned that  the  commissioners  appointed  under  an  act  of  the 
legislature  to  take  subscriptions  for  the  purpose  of  organizing  a 
corporation  are^jw6?ic  agents;  *  that  the  statute  is  in  the  nature 
of  a  power  of  attorney  to  them ;  and  that  the  authority  thereby 
conferred  includes  the  right  to  exercise  the  usual  and  appropriate 
means  to  accomplish  the  purpose  of  the  agency.  When,  there- 
fore, the  statute  in  terms  recited  that  the  subscription  should  be 
bona  fide,  and  required  the  commissioners   to  receive  ten  per 

1  Ante,  §  1217.  ^  Klein  v.  Alton  &c.  R.  Co.,  13  111. 

2  East  Gloucestershire    R.    Co.     .  514. 
Bartholomew,  L.  R.  3  Ex.  15;  Purdey's  ^  See  ante,  §  44. 
case,  16  W.  R.  GGO;  McEuen  v.  West 

London  &c.  Co.,  L.  R.  6  Ch.  665. 
960 


PAYING   THE   STATUTORY   DEPOSIT.       [1  Thomp.  Corp.   §   l'^28. 

cent,  thereon  in  gold  or  silver,  but  designated  no  time  for  the 
payment  of  such  deposit,  —  it  was  held  that  the  commissioners 
had  discretion  to  allow  a  reasonable  time.^  Where  the  charter 
of  an  incorporated^company  required  the  payment  at  the  time  of 
subscribing  of  a  certain  sum  on  each  share  by  the  subscriber,  it 
was  held  that  a  payment  subsequent  to  that  time,  made  before 
the  calls  for  installment,  was  an  affirmance  of  the  previous  act  of 
subscription  and  a  sufficient  compliance  with  the  requirements 
of  the  charter. '"^  Where,  under  a  similar  charter,  the  subscriber 
failed  to  pay  the  deposit  at  the  time  of  subscribing,  but  adjudg- 
ment was  afterwards  rendered  against  him  therefor,  which  he 
satisfied,  it  was  held  that  he  could  not  object  to  a  suit  brought 
for  other  assessments,  that  he  did  not  pay  the  five  per  cent,  in 
cash  when  he  subscribed."  ^ 

§  1227.  Invalidity  of  Secret  Agreement  that  the  Check 
Shall  not  be  Paid.  —  On  grounds  which  we  shall  more  fully 
consider  hereafter,*  where  a  subscription  is  merely  colorable, 
made  to  induce  others  to  subscribe,  and  with  a  secret  under- 
standing between  the  subscriber  and  the  agent  or  promoter  who 
receives  the  subscription,  that  it  shall  not  be  enforced,  the  law, 
on  grounds  of  public  policy  and  to  prevent  fraud,  holds  the 
subscriber  to  his  ostensible  agreement  and  discharges  the  secret 
condition.  When,  therefore,  the  subscriber  gave  his  check  to 
the  agent  of  the  corporation  for  the  sum  of  $1,000,  being  the 
amount  of  the  deposit  of  ten  percentum  of  his  subscription 
required  by  the  statute  to  be  paid  in  cash,  but  with  a  secret 
understanding  with  the  agent  that  he  should  neither  be  required 
to  pay  the  check  nor  to  pay  for  the  shares,  which  agreement  the 
agent  had  no  authority  to  make,  it  was  held  that  the  company 
could  maintain  an  action  upon  the  check. ^ 

§  1228.  Subscription  Void  for  Non-Payment  of  Deposit  Made 
Good  by  Estoppel. — The  injustice  and  inconvenience  of  a  rule 

1  Napier  v.  Poe,  12  Ga.  170.  ^  Syracuse  &c.   K.   Co.   v.  Gere,  6 

2  Barrington  v.  Mississippi  &c.  R.  Thomp.  &  C.  (N.  Y.)  63G;  s.  c.  4  Hun 
Co.,  32  Miss.  370.  (N.  Y.),   392.     Compare  Crocker  v. 

3  Hal  V.  Selma  &c.  Railroad,  6  Ala.  Crane,  21  Wend.  (N.  Y.)  211;  «.  c.  34 
741.  Am.  Dec.  228;  an«e,  §  1221. 


*  Post,  §§1311,  1400. 


61  961 


1  Thomp.  Corp.  §  1228.]     the  contract  of  subscription. 

which  allowed  the  subscriber  to  set  up  his  own  delinquency  for  the 
purpose  of  escaping  the  liability  which  he  had  assumed  by  his 
subscription,  was  such  as  drove  some  of  the  courts  to  a  way  out 
of  the  difficulty  by  another  road,  —  a  thing  which  often  happens 
in  judicial  proceedings.  They  h:ive  held  that,  although  the  sub- 
scription was  originally  void  because  of  the  failure  to  pay,  at  the 
tiuie  of  making  the  subscription,  the  deposit  required  by  the 
governing  statute,  yet  the  subscriber,  who  subsequently  acted  as  a 
corporator,  became  thereby  estopped  from  denying  his  liability 
to  pay  for  his  stock  and  from  controverting  the  validity  of  his 
subscription,  after  thus  exercising  the  rights  and  privileges  con- 
ferred by  it.i  Again,  although  the  subscriber  may  not  have 
paid  at  the  time  of  his  subscription  the  deposit  of  ten  per  cent, 
required  by  the  governing  statute  to  be  paid  at  that  time,  yet 
where  he  subsequently  paid  that  much  and  more, —  e.  ^.,  forty 
per  cent,  of  his  subscription,  it  was  held  that  it  was  thereby 
made  valid .^  So  also  if  the  subscriber  gives  a  note  for  his  sub- 
scription, maturing  at  a  future  day,  and  the  company  disposes  of 
the  wo^e  before  maturity  to  an  innocent  taker  without  notice,  and 
he  collects  it  from  the  maker  after  a  litigation,  this  will  validate 
the  subscription  under  tiie  same  statute.^  The  Supreme  Court 
of  Pennsylvania,  which  was  one  of  the  first  courts  to  hold  that 
the  payment  at  the  time  of  the  subscription  of  the  deposit  re- 
quired by  the  statute  was  a  condition  precedent  to  its  validity,*  has 
finally  fallen  into  line  with  the  prevailing  doctrine,^  so  far  as  to 
hold  that,  while  a  subscription  without  the  payment  of  the  re- 
quired deposit  is  provisional  only  and  not  binding  before  the 
articles  of  association  are  filed,  so  that  the  subscriber  may  with- 
draw before  that  time, —  yet  if  he  suffers  his  name  to  remain 
subscribed  to  the  articles  until  the  articles  are  filed,  his  subscrip- 
tion becomes  final,  and  he  cannot  afterwards  withdraw  nor  set 
up  his  omission  to  pay  the  required  deposit  against  his  associates.^ 

1  Clark  V.  Monongahela  Nav.  Co.,  ^  Ogdensburgh  &c.  R.  Co.  v. 
10  Watts  (Pa.),  304;  Erie  &c.  R.  Co.  Wooley,  3  Abb.  App.  Dec.  (N.  Y.)  398; 
V.    Brown,    25     Pa.     St.   156;    Selma     post,  § 

&c.  R.  Co.  V.  Tipton,  5  Ala.  787;  s,  c.  *  Ante,  §  1217. 

39  Am.  Dec.  344,  356.  ^  Ante,  §  1224. 

2  Black  River  &c.  R.  Co.  v.  Clarke,  ^  Garrett  u.  Dillsburg  &c.  R.  Co., 
25  N.  Y.  208.  78  Pa.  St.  465. 

962 


PAYING   THE    STATUTORY   DEPOSIT.        [1  Thomp.  Corp.    §  1231. 

Ill  Canada  it  has  been  held  that  although  a  statutory  provision, 
requiring  payment  of  ten  per  cent,  by  the  shareholder  within 
thirty  days  after  his  subscription,  is  a  part  of  his  contract  to  take 
the  shares,  it  is  competent  for  the  parties  to  waive  it;  and  that, 
■where  the  rooney  has  been  paid  to  and  accepted  by  the  corpora- 
tion, and  stock  certificates  have  issued  recognizing  the  party  as 
a  shareholder,  and  dividends  on  the  shares  have  been  paid  to 
hira,  both  parties  (the  corporation  and  the  shareholder)  are 
thereby  estopped  from  denying  that  he  is  a  shareholder  in  the 
corporation.^ 

§  1239.  Where  Siibscriptiou  Made  after  the  Organiza- 
tion. —  The  rule  which  requires  the  payment  of  the  deposit  in 
order  to  the  validity  of  the  subscription,  has  been  held  not  to 
apply  where  the  subscription  is  made  after  the  organization  of 
the  corporation,  because  in  such  a  case  the  requirement,  being 
for  the  benefit  of  the  corporation,  is  one  which  it  may  waive. "^ 

§  1230.  What  if  the  Question  Arises  under  a  By-law 
merely.  — Accordingly,  where  the  obligation  to  pay  a  deposit  at 
the  time  of  making  the  subscription  is  not  declared  in  the  charter 
or  governing  statute,  but  in  a  hy-law  of  the  corporation  merely, 
the  failure  to  pay  the  deposit  will  not  avoid  the  subscription,  but 
will  render  it  voidable  only,  at  the  election  of  the  corporation. 
The  corporation  may  waive  this  by-law,  and  elect  to  treat  the 
subscription  as  valid,  and  upon  its  doing  so  the  subscriber  will 
be  bound.' 

§  1231.  Illustration  in  Case  of  Surrender  and  Re-issue  of 
Shares. —  A  good  illustration  of  this  is  found  in  a  case  where  the  act 

1  Be,  Central  Bank  of  Canada,  25  This  was  conceded  by  the  Court  of 
Can.  L.  J.  238,  opinion  by  Hodj^ins,  Appeals  of  Maryland  iu  Taggart  v. 
Master-iu-Ordinary;  citing  and  fol-  Western  Mary hiud  R.  Co.,  24  Md.  6G3; 
lowing  Day's  case,  decided  by  the  s.  c.  8'J  Am.  Dec.  760.  So  held  in  the 
same  judicial  ofTicer  and  afterwards  Canadian  cases  cited  in  the  preceding 
affirmed  on  appeal.    Compare    Union  section. 

Fire    Ins.   Co.   v.    Shoolbred,  4   Out.  ^  pjscataqua  &c.  Co.   v.  Jones,  39 

(Pan.)   359;    Porli  Whitby  &c.  II.  Co.  N.  11.481;   Smith  r.  Plank  Road  Co., 

•y.  Jones,  31  Up.  Can.  Q.  B.  170.  30   Ala.   G.50;     McRea  v.   Russell,    12 

2  Miimcapolis&c.  R.Co.  w.  Bassett,  Irod.  L.  (N.  C.)  224;  Blair  v.  Ruther- 
20  Minn.  535;  s.  c.   18- Am.  Rep.  37G.  ford,  .'31  Tex.  4C5. 

963 


1  Thomp.  Corp.  §  1232.]     the  contract  of  subscription. 

of  incorporation  of  a  banking  company  required  that  ten  per  cent, 
should  be  paid  to  the  commissioners  on  each  share  of  the  capital  stock 
at  the  time  of  subscribing.  As  soon  as  all  the  capital  stock  was  taken, 
and  ten  per  cent,  thereon  paid  in,  the  trustees  were  to  be  elected  and 
the  company  fully  organized.  Subsequently,  an  amendment  of  the 
charter  authorized  the  company,  in  its  disccetion,  to  allow  any  stock- 
holder to  surrender  his  certificate  of  capital  stock,  and  take  a  certificate 
of  full  paid  stock  equal  to  the  amount  of  payment  on  the  stock  surren- 
dered, and  the  company  were  to  hold  or  re-issue  such  overplus  stock. 
It  was  held  that  the  company  were  not  bound  to  require  of  the  purchasers 
of  tliis  surrendered  stock  a  payment  of  ten  per  cent,  on  each  share  of 
their  purchase.  The  terms  of  the  original  charter  had  exclusive  refer- 
ence to  subscribers  before  the  corporation  was  organized,  and  before  it 
had  existence ;  and  the  amendatory  act  gave  the  company,  and  not  the 
commissioners,  the  right  of  re-issuing  its  surrendered  stock. ^ 

§  1232.  Effect  of  Statutes  Requiring  a  Certain  Amount  to 
be  Paid  in  before  Commencing  Business.  —  Statutes  requiring 
a  certain  amount  of  the  capital  stock  of  a  corporation  to  be  paid 
in  before  it  shall  commence  business,  stand  on  a  similar  footing 
to  those  requiring  the  payment  by  subscribers  of  a  certain  per- 
centage of  their  subscriptions  at  the  time  when  their  subscriptions 
are  made.  The  non-compliance  with  such  a  charter  or  statutory 
provision  cannot  be  set  up  either  by  the  corporation  nor  by  the 
stockholders,  to  avoid  a  liability  resting  upon  them.'^ 

1  Social  Life  Ins.  &c.  Co.  v.  Lanier,  Bank,    3    Strobh.    (S.    C.)    Eq.    263. 

5  Fla.  110;  s.  c.  58  Am.  Dec.  448.  Compare  Patterson  v.  Wyomissing  &c. 

*  Johnston    v.    Southwestern    &c.  Co.,  40  Pa.  St.  117. 
964 


FULL  AMOUNT  MUST  BE  SUBSCRIBED.      [1  Thomp.  Corp.  §  1335. 


Article  IV.     Theory  that  the  Full  Amount  of  the  Capital  must  be 

Subscribed. 


Section 

1235.  Shareholder  not  liable  until  full 

amount  subscribed. 

1236.  Illustration:     subscription     on 

condition  that  "  sufficient  is 
subscribed  for  the  purpose." 

1237.  Instance  of  a  faulty  instruction 

submitting  this    question  to 
the  jury. 

1238.  Subscriptions      by     insolvents, 

persons  not  sui  juris,  etc. 


Section 

1239.  Subsequent  declaration  of  sub- 

scriber inadmissible. 

1240.  View  that  the  judgment  of  the 

commissioners      is     conclu- 
sive. 

1241.  Taking  subscription  in  property 

at  excessive  valuation. 

1242.  Waiver  of  right  to  object  on  this 

ground. 


§  1235.  Shareholder  not  Liiahle  Until  Full  Amount  Sub- 
scribed.—  Where  the  act  of  incorporation,^  or  the  articles  of 
association,^  or  certificate  of  incorporation,^  or  subscription 
agreement,*  or  in  England  the  prospectus  which  is  published  to 
induce  subscriptions  to  the  stock  of  the  projected  company,* 
fixes  its  capital  at  a  certain  sum,  divided  into  shares  of  a  speci- 
fied amount,  a  subscriber  cannot  be  required  to  pay  assessments 
until  the  amount  so  fixed  has  been  fully  and  bo7ia  fide  subscribed, 
unless,  by  taking  part  in  the  organization  of  the  corporation  or 
otherwise,  he  has  waived  his  rights  in  the  premises  or  estopped 


1  Contoocook  Valley  R.  Co.  v.  Bar- 
ker, 32  N.  H.  303;  People  v.  National 
Savings  Bank,  129  111.  618;  s.  c.  22  N. 
E.  Rep.  288;  Masonic  Temple  Asso. 
V.  Channell  43  Minn.  353;  s.  c.  45  N. 
W.  Rep.  71G. 

2  Rockland  &c.  Steamboat  Co.  v. 
Sewall,  78  Me.  167;  s.  c.  3  Atl.  Rep. 
181;  1  New  Eng.  Rep.  791;  4  East. 
Rep.  G21;  Bray  v.  Farwell,  81  N.  Y. 
600  (overruling,  it  seems,  Plank  Road 
Co.  V.  Wetzell,  21  Barb.  (N.  Y.)  156)  ; 
Allman  v.  Havana  &c.  R.  Co.,  88  111. 
521. 

3  Haskell  v.  Worthington,  94  Mo. 
660. 

*  People's  Ferry  Co.  v.  Balch,  8 
Gray     (Mass),    303;     Rockland    &c. 


Steamboat  Co.  v.  Sewall,  78  Me.  167; 
Santa  Cruz  R.  Co.  v.  Schwartz,  53  Cal. 
106.  It  has  been  held  no  defense  in 
an  action  for  calls  that  the  full  amount 
of  capital  stock  contemplated  in  the 
agreement  of  subscription  has  not  been 
subscribed,  provided  the  amount  re- 
quired by  the  governing  statute  has 
been  yo  subscribed.  Hamilton  &c. 
Plauk  Road  Co.  v.  Rice,  7  Barb.  (N. 
Y.)  157. 

^  Pitchford  v.  Davis,  5  Mees.  &  W. 
2;  Galvanized  Iron  Co.  v.  Westoby, 
16  Jurist,  892;  Martin  B.,  in  How- 
beach  Coal  Co.  V.  Teagler,  6  Jurist 
(N.  s.),275;  8.  c.  6  Hurl.  &  N.  151;  Eu- 
ropean &c.  R.  Co.  V.  McLeod,  1  Pugs- 
ley  (N.  B.),  314,  per  Weldon,  J. 
965 


1  Thomp.  Corp.  §  1237.]     the  contuact  of  subscription. 

himself  from  setting  up  this  defense. ^  Until  then  his  subscrip- 
tion is  deemed  to  be  conditional  merely.  The  reason  of  the  rule 
is  plain.  He  is  invited  to  become  a  subscriber  to"  a  venture  to 
be  commenced  and  carried  on  by  means  of  a  certain  capital, 
divided  into  a  certain  number  of  shares,  and  he  cannot  be  com- 
pelled against  his  will  to  be  a  contributor  to  a  venture  com- 
menced and  carried  on  with  a  smaller  capital  or  a  smaller  number 
of  shares.  The  rule  has  been  held  otherwise  where  the  question 
arose  collaterally,  and  under  a  charter  couched  in  such,  terms 
as  not  to  disclose  a  clear  legislative  intention  to  make  the  sub- 
scription of  the  whole  capital  stock  a  condition  to  the  corporate 
existence.''^ 

§  1236.  Illustration  :  Subscription  on  Condition  that  **  Suf- 
ficient is  Subscribed  for  the  Purpose."  —  Upon  a  contract  iu 
wi'iting,  by  which  subscribers  ' '  agree  to  pay  the  sums  set  against  their 
respective  names,  to  such  persons  as  shall  be  authorized  to  receive  the 
same,  for  the  establishment  and  support  of  a  new  feriy  from  East 
Boston  to  Boston,  the  location  of  which  shall  be  determined  by  the 
committee  recently  appointed  at  a  meeting  of  the  citizens,  provided 
sufficient  is  subscribed  for  the  purpose,  the  same  to  be  represented  by 
the  certificates  of  stock  to  be  created  by  the  company  hereafter  to  be  or- 
ganized," —  a  corporation  established  after  the  date  of  the  agreement 
can  not  maintain  an  action,  against  one  who  subscribes  it  after  such 
organization,  for  the  amount  of  his  subscription  ;  at  least  until  a  suffi- 
cient sum  has  been  subscribed  to  pay  for  all  lands,  structures,  and 
boats  of  the  ferry,  free  of  incumbrances. ^ 

§  1237.  Instance  of  a  Faulty  Instruction  Submitting  this 
Question  to  the  Jury. — In  an  action  by  a  corporation  against  a 
subscriber  for  an  assessment  the  court  instructed  the  jury  to  the  effect 
that,  ' '  where  an  act  of  incorporation  fixes  the  amount  of  the  capital 
stock,  and  the  number  of  shares  into  which  it  shall  be  divided,  the  cor- 
poration can  make  no  assessment,  nor  call  upon  the  stockholders,  until 

1  Hale    V.     Sanborn,    16    Neb.     1;  rule.     Masonic  Temple  Asso.  v.  Ch.-ui- 

Temple  v.   Lemon,  112  111.  51.     Com-  nell,  43  Minn.  353;  s.  c.  45  N.  W.  Kep. 

pare  Penobscot  R.  Co.  v.   White,   41  716. 

Me.  572;  «.  c.  66  Am.   Dec.   257,  and  2  Minor  u.  Mechanics'  Bank,  1  Pet. 

Boston  &c.  R.  Co.  v.  Midland  R.  Co.,  (U.  S.)  46,  65. 

1  Gray  (Mass.),  368.      The    general  3  peoples  Ferry  Co.    v.    Batch,   8 

statutes  of  Minnesota  abrogate  this  Gray  (Mass.),  303. 

9  no 


FULL    AMOUNT   MUST    BE    SUBSCRIBED.       [1   Thomp.   Corp,    §   1238. 

the  stock  has  been  subscribed,  unless  either  expressly  or  by  implication 
a  different  intent  appears  in  the  charter  or  in  the  subscription.  And  if 
they  believe  that  the  act  incorporating  plaintiff's  company  required  the 
sum  of  $300,000  to  be  paid  in  before  any  call  could  be  made  upon  the 
subscribers,  and  plaintiff  had  failed  to  show  that  this  had  been  done, 
they  must  find  for  defendant."  It  was  held  that  this  instruction  was 
faulty,  in  submitting  to  the  jury  the  legal  construction  of  the  plaintiff's 
charter,  the  legal  effect  of  written  instruments  being  a  question  for  the 
court,  and  not  for  the  jury;  and  in  raising  the  question  whether  the 
company  was  duly  organized,  which  could  only  be  done  b}'^  a  plea  under 
oath,  denying  the  character  assumed.^ 

§  1238.  Subscriptions  by  Insolvents,  Persons  not  Sui 
Juris,  etc. —  The  principle  of  the  foregoing  section  will 
obviously  apply  where  the  commissioners,  promoters,  or  others 
having  control  of  the  subscription  list  accept  in  bad  faith,  idiots, 
lunatics,  married  women  (where  the  common  law  disabilities  of 
married  women  prevail),  or  persons  who  are  notoriously  insolv- 
ent. But,  in  view  of  the  policy  and  necessity  of  holding  solvent 
subscribers  to  their  eno^ao-ements,  the  courts  have  admitted 
defenses  of  this  kind  sparingly  and  with  great  caution.  It  has 
been  held  no  defense  to  an  action  by  creditors  that  some  of 
those  who  were  accepted  as  subscribers,  were  notoriously  insolv- 
ent at  the  time. 2  Another  court  has  held  that  it  is  not  a  good 
defense  to  such  an  action  that  the  corporation  had  accepted  sub- 
scriptions from  persons  who  were  not  pecuniarily  responsible,  and 
who  were  reputed  to  be  not  responsible  for  the  amount  for  which 
they  subscribed, —  subject,  however,  to  the  qualification  that  the 
defendant  might  offer  any  evidence  tending  to  show  that  these 
subscriptions  were  not  made  in  good  faith.  The  court  sanctioned 
the  principle  that  the  subscriber  cannot  be  held  to  his  contract 
of  subscription,  until  the  least  sum  required  by  the  charter 
should  be  subscribed.^  This  was  in  accordance  with  what  the 
same  court  hud  ruled  in  a  previous  case,  that  *'  if  the  com- 
pany obtains  subscriptions  to  the  amount  required,  in  good 
faith,   from    persons    apparently    able   to    pay   or    to    procure 

^  Selma  &c.  R.  Co.  v.  Anderson,  51  '  Penobscot  &c.  R.  Co.  v.  White,  41 

Miss.  829.  Me.  512;  s.  c.  G6  Am.  Dec,  257. 

2  Jewell  V.  Rock  River  Paper   Co., 
101  111.  57. 

967 


1  Thomp.  Corp.  §  1339.]     the  contract  of  subscription. 

others  to  pay  for  the  shares,  it  could  not  have  been  the 
intention  to  render  its  proceedings  illegal  and  void,  if  those 
subscriptions  should  finally  prove  to  be  of  little  value. ^  The 
court  added  to  this  the  observation  that  "  if  the  corporation 
should,  for  the  purpose  of  making  up  the  amount  of  stock 
required  before  an  organization,  accept  a  list  of  subscribers  and 
shareholders  which  was  composed  in  part  oS  idiots  or  town  pau- 
pers, as  suggested  by  the  counsel  for  the  defense,  such  a  sub- 
scription would  not  be  a  compliance  with  the  provisions  of  the 
charter;  but  if,  on  the  other  hand,  the  list  appeared  to  the  com- 
pany to  consist  of  names  which  might  be  relied  on  for  the  fulfill- 
ment of  the  subscription,  they  would  be  justified  in  proceeding 
to  organize,  and  their  proceedings  would  be  valid,  even  though 
it  might  subsequently  be  made  to  appear,  that  some  of  the  sub- 
scribers, at  the  time,  were  not  of  sufficient  pecuniary  responsibil- 
ity to  pay  for  their  stock,  and  were  not  reputed  to  be  so,  pro- 
vided the  corporation  acted  in  good  faith  on  their  part  in  the 
acceptance  of  such  list.  From  the  very  nature  of  the  contract 
of  subscription,  it  must  have  been  within  the  contemplation  of 
the  parties  that  the  shareholders  or  corporators  should  deter- 
mine who  were  apparently  responsible  as  subscribers ;  and  when 
they  had  done  so  in  good  faith,  the  subscribers  to  the  stock 
must  be  regarded  as  bound  by  such  decision.  The  reputation  or 
fact  of  pecuniary  inability  could,  at  most,  only  be  evidence  upon 
the  question  of  good  faith,  and  for  that  purpose  the  defendant 
was  permitted  to  prove  them  if  he  desired."  ^  Another 
court  regarded  it  as  not  a  good  defense  to  such  an  action 
that  certain  small  subscriptions  were  void  because  made  by 
married  women,  the  defendant  having  subscribed  after  these 
married  women  and  with  a  knowledge  of  their  subscriptions.^ 

§  1239.  Subsequent  Declaration  of  Subscriber  Inadmissi- 
ble.—  On  the  soundest  principles,  the  subsequent  declaration  of 
a  subscriber  to  the  effect  that  his  subscription  was  coloi'able  and 
not  made  in  good  faith,  will  not  be  admitted,  in  an  action  ngainst 

1  Penobscot  &c.  R.  Co.  v.  Dummer,  ^  Comell's  Appeal,  114  Pa.  St. 
40  Me.  172 ;  s.  c.  63  Am.  Dec.  654.               153.     See  ante,  §  1096  et  seq. 

2  Penobscot  E.   Co.    v.   White,  41 
Me.  512;  s.  c.  66  Am.  Dec.  257,  262. 

968 


FULL   AMOUNT    MUST    BE    SUBSCRIBED.        [1  TllOmp.   Corp.   §    1241. 

another  subscriber  for  calls,  for  the  purpose  of  showing  that  such 
was  the  fact,  in  order  to  create  a  defense  within  the  rule  stated 
in  the  preceding  paragraph.^ 

§  1240.  View  that  the  Judgment  of  the  Commissioners  is 
Conclusive.  —  Where  the  commissioners  appointed  to  receive  the 
subscriptions  are  vested  with  the  power  of  deciding  when  the 
requisite  amount  has  been  6ona^tZe  subscribed,  and  of  certifying 
that  fact  to  the  secretary  of  state,  who  is  thereupon  required  to 
issue  a  certificate  that  the  corporation  has  been  organized,  the 
decision  of  the  commissioners  upon  the  point  named  is  deemed 
conclusive,  and  consequently  the  certificate  issued  by  the  secre- 
tary of  state  is  deemed  conclusive  evidence  of  the  fact  that  the 
corporation  has  been  duly  organized. ^  The  theory  of  this  hold- 
ing is  that  found  in  the  following  observation  of  Lord  Tenterden  ; 
"  If  a  matter  is  left  to  the  discretion  of  any  individual,  or  body 
of  men,  who  are  to  decide  according  to  their  own  conscience  and 
judgment,  it  would  be  absurd  to  say  that  any  other  tribunal  is  to 
inquire  into  the  grounds  and  reasons  on  which  they  have  decided, 
and  whether  or  not  they  have  exercised  their  discretion  properly 
or  not.  If  such  a  power  is  given  to  any  one,  it  is  sufficient  in 
common  sense  for  him  to  say  that  he  has  exercised  that  power  to 
the  best  of  his  judgment."  ^ 

§  1241.  Taking  Subscription  in  Property  at  Excessive 
Valuation.  —  A  just  principle  would  seem  to  avoid  the  bona  fide 
subscriptions  taken  where  those  in  charge  of  the  subscription  list 
fraudulently  accept  subscriptions  in  specific  property  at  grossly 
excessive  valuations;  *  though  in  the  era  of  early  railroad  build- 
ing when  some  of  the  western  courts  seem  to  have  been  strangely 
affected  in  favor  of  the  railroad  companies,  even  this  was  held 
to  be  no  defense.^ 

1  Penobscot  R.  Co.  v.  White,  41  Justices  of  Norfolk,  1  Nev.  &  M.  67; 
Me.  512;  s.  c.  66  Am.  Dec.  257.  Clarke  v.  Brooklyn   Bank,  1  Edw.  Ch. 

2  Connecticut  &c.  E.  Co.  v.  Bailey,  (N.  Y.)  361,  371. 
24  Vt.  405;  s.  c.  58  Am.  Dec.  181,  186.  *  Post,  §  1608. 

2  Rex  V.  Mayor    &c.  of  London,  3  ^  Maccoun  v.  Indiana  &c.  E.  Co.,  9 

Bam.  &  Adolph.  271.     See  in  support  Ind.   262;  Ilornaday  v.   Lane,  9   Ind. 

of  the  same  doctrine.  Walker  j>.  Dev-  263.     No  opinion  was  written  in  either 

ereux,  4  Paige    (N.   Y.),229;  Rex   v.  of  these  cases. 

969 


1  Thomp.  Corp.  §  1245.]     the  contract  of  subscription. 

§   1242.  Waiver  of  Right  to  Object  on  this  Ground But, 

as  already  suggested,^  the  subscriber  may  waive  his  right  to  de- 
fend against  the  action  on  his  subscription  on  this  ground  ;  and 
here,  as  in  other  cases,"  he  may  estop  himself  from  showing  tliat 
the  corporation  has  been  illegally  organized,  by  his  conduct  in 
participating  in  its  organization,  or  otherwise.  Any  acts  done 
by  him,  either  as  a  corporator,  or  as  a  director,  which  evince  a 
willingness  on  his  part  that  the  corporation  should  enter  upon  its 
business  with  no  more  stock  than  that  already  subscribed,  will 
amount  to  a  waiver  of  the  condition  that  payment  of  his  subscrip- 
tion cannot  be  required  until  the  whole  capital  stock  is  subscribed.^ 
So,  if  a  corporation  has  already  commenced  business  at  the  time 
wh^n  the  subscription  is  made,  and  the  subscriber  knows  this 
fact,  and  also  knows  that  its  whole  capital  stock  has  not  been 
taken,  a  like  waiver  on  his  part  may  be  inferred.* 

Article  V.     Other  Theories  and  Holdings. 

Section  Section 

1245.  What  agents  can  receive  sub-       1254.  Distinction    between    subscrip- 

scriptious.  tions  and  purchases  of  shares. 

1246.  Nature  of  the  authority  of  com-       1255.  Promise    to    take  and    pay  for 

missioners.  stock  in  unincorporated  coin- 

1247.  Apportionment  of  stock  by  the  pany  actionable. 

commissioners.  1256.  Each  subscription  several,  not 

1248.  Proportion  allowed  to  the  com-  joint. 

missioners  themselves.  1257.  Subscription    by  a  partnership 

1249.  Remedy  of  the    subscriber  for  name. 

refusal  to  issue  shares.  1258.  Subscriptions  construed  by  the 

1250.  Apportionment    upon    incorpo-  court. 

rating  a  mining  property.  1259.  Construed    according    to  what 

1251.  Subscription  void  after  all  stock  law- 

taken.  1260.  Taking  shares  to  qualify  as  di- 

1252.  Instances    of    insufficient    sub-  rector. 

scriptions.  1261.  Continued. 

1253.  Subscriptions  delivered    as    an      1262.  Limit  of  option  to  take  shares 

escrow.  on  reorganization. 

§  1245.  What  Agents  can  Receive  Subscriptions.  —  Where 
commissioners  have  been    appointed  under  the  charter  to  take 

^  Ante,  §  1235.  •*  Musgraveu.  Morrison,  54  Md.  161. 

2  Post,  §          .  See   also   Go££  v.    Hawkeye  Pump   & 

3  Masonic  Temple  Asso.  v.  Channell  Windmill  Co.,  62  Iowa,  691. 
43  Minn.  353 ;  s,  c.  45  N.  W.  Rep.  716. 

970 


'  OTHER   THEORIES    ABD    HOLDINGS.       [1  Thoilip.  Corp.    §    1245. 

subscriptions,  after  the  corporation  is  organized  and  a  board  of 
directors  elected  the  functions  of  the  commissioners  cease,  and 
the  directors  alone  have  the  power  to  receive  further  subscrip- 
tions to  the  stock  of  the  company.     But,  of  course,  they  may 
appoint  an  agent  to    receive  subscriptions,  and   subscriptions 
so  received  will  be  binding.^     This,  of  course,  assumes  that  its 
stock  is   not  all   filled  up.     The   theory  here   invoked  is   that 
receiving  subscriptions  to  the  capital  stock  of  a  corporation  is 
a   ministerial    act,    under  a    statute   authorizing    commission- 
ers   to    take    such    subscriptions     and    subsequently    to    dis- 
tribute   the    stock,    and    that     such    act    may     therefore    be 
performed  by  an  agent  or  deputy,  or  by  any  one  without  author- 
ity whose  act  is  afterwards  ratified  by  the  commissioners. 2     But 
where  the   governing  statute   provides  for  the  organization  of 
a  corporation  and  nominates  a  particular  agent,  official,  or  board 
of  commissioners  to  receive  subscriptions  to  its  stock,  subscrip- 
tions can  only  be  received  by  such  agent,  official  or  board  of  com- 
missioners, or  they  will  not  be  binding.     The  reason  is  that  the 
statutory  direction  must  be  pursued.     Thus,  if  the  power  of  allot- 
ting shares  to  applicants  is  conferred  by  the  governing  statute 
upon  the  board  of  directors,  they  cannot  delegate  it  to  a  committee 
of  their  number,  and  no  valid  allotment  can  be  made  by  such  a 
committee.^     So,  if  a  statute  providing  for  the  organization  of 
railroad  companies  provides  that  certain  commissioners,  to   be 
named  in  the  articles  of  association,  shall,  after  the  corporation 
is  organized,  open  books  for  subscriptions,  and  keep  the  same 
open  until  the  capital  has  been  subscribed,  and,  in  case  of  an 
excess  of   subscriptions,  make   a  distribution   among  the  sub- 
scribers,—  subscriptions  received  by  an  «^en^  appointed  by  the 
directors  will  not  be  binding.*     The  theory  is  that  the  commis- 
sioners, under  such  a  statute,^  act    as  a  statutory  board,  and 
derive  their  powers  from  the  law,  and  not  from  the  corporation  ; 

1  Lohman  v.  New  York  &c.  R.  Co.  23;    Northern   Central  &c.   R.   Co.   v. 
2Sandf.  (N.  Y.)  39.  Eslow,  40  Mich.   222;    Essex  Turnp. 

2  Crocker  v.  Crane,  21   Wend.  (N.  Co.  v.  Collins,  8  Mass.  292.     Contra, 
Y.)  211 ;  s.  c.  34  Am.  Dec.  228.  Railroad  Co.  v.  Rodriguez,  10  Rich.  L. 

3  Howard's  case,  L.  R.  1  Ch.  561.  (S.  C.)  278.     See  also  cases  cited  in 

4  Schurtz  V.  Schoolcraft  &c.  R.  Co.,      Mor.  Corp.,  3d  cd.,  §  65. 

9  Mich.  269,  272.     See  also  Parker  u.  ^   Here,  the  general  railroad  law  of 

Northern  Central  &c.  R.  Co.,  S3  Mich.      Michigan. 

971 


1  Thomp.  Corp.  §  1247.]     the  contract  of  subscription. 

and  since  it  is  the  intent  of  the  law,  to  enable  all  persons  to 
subscribe  equally,  any  subscription  not  made  through  them,  act- 
ing regularly  in  the  discharge  of  their  duty,  is  void  for  want  of 
mutualit3^l  Therefore,  subscriptions  taken  by  an  agent  ap- 
pointed by  the  directors,  not  being  binding,  did  not  operate  to 
prevent  other  parties  from  taking  the  entire  amount  not  sub- 
scribed by  the  original  articles,  whenever  the  commissioners 
should  see  fit  to  proceed  and  perform  their  duty.^  But  here,  as 
in  other  cases,  although  the  subscription  may  not  be  binding, 
because  procured  by  an  agent  having  no  authority,  yet  the  in- 
firmity of  the  contract  may  be  cured  by  a  subsequent  ratification.^ 

§  1246.  Nature    of   the  Authority   of  Commissioners.  —  A 

commissioner  appointed  by  or  under  a  statute  to  receive  subscrip- 
tions to  the  capital  stock  of  a  corporation  is  said  to  be  an  agent 
appointed  by  the  law  with  a  special  power  of  attorney,  which 
power  is  found  in  the  statute.  It  follows  that,  as  in  the  case  of 
other  public  agents  and  officers,  all  who  deal  with  him  must  look 
to  the  source  of  his  authority.* 

§  1247.  Apportionment  of  Stock  by  the  Commissioners.  — 

In  the  days  when  corporations  could  only  be  organized  under 
special  charters  granted  by  the  legislature,  corporate  franchises 
were  of  great  value,  and  shares  in  corporate  ventures  were  in 
many  cases  subscribed  for  with  great  eagerness.  This  was 
especially  so  in  the  State  of  New  York  in  the  case  of  banking 
corporations,  which  in  many  cases  enjoyed  a  monopoly  of  the 
banking  business,  which  mistaken  notions  of  public  policy  were 
interested  in  protecting ;  so  that  informations  in  the  nature  of 
quo  loarranto  were  frequently  exhibited  against  insurance   and 

1  Schurtz  V.  Schoolcraft  &c.  R.  Co.,      that    he  might  forfeit    his  stock  at 
9  Mich.  269.  pleasure.     Railroad  Co.  v.  Rodriguez, 

2  Ibid.     It  has  been  held,  contrary      10  Rich.  L.  (S.  C.)  278. 

to  the  principle  on  which  this  case  ^  Walker  v.  Mobile  &c.   R.  Co.,  84 

proceeds,  that  a  subscription  to  tlie  Miss.  245;  Mobile  &c.  R.  Co.  v.  Yan- 

capital  stock  of  a  railroad  company  is  dal,  5  Sneed  (Tenu.),  294. 

valid,  though  made  to  one  who  was  ■*  Nippenose  Manuf .  Co.  v.  Sladon, 

not  a  commissioner  to  receive  sub-  68  Pa.   St.  256.     See  also  Schurtz  v. 

scriptions,  and  though  made  by  the  Schoolcraft  &c.  R.   Co.,  9  Mich.  269; 

subscriber    under  a  mistaken  belief  Napier  v.  Poe,  12  Ga.  170. 
972 


OTHER   THEORIES   AND   HOLDINGS.       [1  Thomp.  Corp.   §  1247. 

other  non-banking  corporations  which  assumed  to  do  a  banking 
business. 1  In  the  eagerness  to  subscribe  for  shares  in  a  pro- 
jected corporation,  it  often  happened  that  more  shares  were 
subscribed  for  than  the  aggregate  capital  stock  which  the 
charter  allowed  the  corporation  to  have.  In  this  state  of  things 
disputes  naturally  arose  as  to  the  apportionment  of  the  shares, 
and  the  courts  were  frequently  appealed  to  to  settle  these  disputes. 
The  holdings  of  the  courts  in  settling  these  disputes  were  in  most 
cases  influenced  by  the  language  of  particular  charters;^  but 
these  charters  were  generally  very  similar  to  each  other  in  re- 
spect of  the  steps  pointed  out  for  organizing  the  company.  In 
one  case,  where  the  act  of  incorporation  made  no  provision  for 
the  case  of  an  excess  of  subscriptions  over  the  prescribed  capital 
stock,  it  was  held  that  the  commissioners  were  impliedly  author- 
ized to  make  an  equitable  apjportionment  of  the  stock  among  all 
the  subscribers ;  but  that  they  had  no  power  entirely  to  exclude 
any  of  the  subscribers,  or  to  take  an  inordinate  proportion  of 
the  stock  themselves  ;  and  where  they  made  an  apportionment 
which  the  court  regarded  as  unjust,  a  re-apportionment  was 
directed,  and  the  choice  of  directors  in  the  mean  time  was 
restrained  by  injunction.^  In  another  case  the  act  incorporating 
a  bank  directed  the  commissioners,  in  case  of  an  excess  of  sub- 
scriptions, to  apportion  the  stock  among  the  subscribers,  as 
might  seem,  to  a  majority  of  the  commissioners,  to  be  most  for 
the  interest  of  the  institution  ;  but  each  subscriber  for  twenty 
shares  or  upwards  was  to  receive  at  least  twenty  shares,  unless 
the  subscriptions  for  smaller  quantities  should  exceed  the  capital 
stock.  The  subscriptions  for  twenty  shares  and  under  did 
exceed  the  capital  stock.  It  was  held  that  the  apportionment  of 
the  stock  rested  in  the  uncontrolled  discretion  of  the  commis- 
sioners; and  that  an  apportionment  made  in  good  faith  was 
valid,  though  some  subscribers  received  more  than  twenty 
shares,  to  the  entire  exclusion  of  others.*     It  was  an  essential 

1  Post,  Ch.  152.  '  Meads  v.  Walker,  Hopk.  (N.  Y.) 

2  That  the  right  of  the  public  to      587. 

participate  in  the  stock  of  an  incor-  ^  Clark  v.  Brooklyn  Bank,  1  Edw. 

porated  bank  depends  entirely  upon      (N.  Y.)  361. 
its  charter,  see     State    v.    Bank    of 
Charleston,  Dudley  (S.  C),  187. 

973 


1  Thomp.  Corp.  §  1218.]     the  contract  of  subscription. 

premise    to    the  foregoing    conclusion    that   an    apportionment 
of  the  shares  by  the  commissioners  among  the  subscribers  was 
necessary  to  each  sharehokler's  title,  —  in  other  words,  that  the 
contract  was  not  complete  for  want  of  mutuality,  but  remained 
a  proposal  merely,  until  the  commissioners  made  the  apportion- 
ment.    Under  this  theory  no  subscriber  acquired  any  interest  in 
the  stock  of  the  company  as  owner,  so  as  to  authorize  him  to 
transfer,  or  vote  upon  it,  until  the  commissioners  had  apportioned 
the  stock,  and  designated  the  stockholders,  and  the  amount  each 
was  to  receive. 1     It  followed  from  the  same  theory  that  a  dis- 
tribution of  the  stock  by  a  number  of  commissioners,  not  suflS- 
cient  to  constitute  a  quorum  or  a  legal  board,  was  void;  and  it 
was  therefore  held  that  in  such  a  case  an  obligation  given  for  the 
payment  of  the  first  installment  was  void  for  want  of  considera- 
tion.2     But,  under  a  statute  of  South  Carolina  chartering  certain 
banks,  it   was  held  that  the   commissioners  appointed  to   take 
subscriptions,  had  no  power,  in. case  of  over-subscription  to  the 
stock,  to  apportion  it  among  the  subscribers.     It  belonged   to 
the  corporation  to  reduce  the  subscriptions  joro  rata}     There  is 
a  curious  holding  to  the  effect  that  if  a  person,  for  the  purpose 
of  deceiving  the  commissioners,  under  an  act  of  incorporation, 
procures  stock  to  be  subscribed  for  in  the  name  of  another  person, 
for  his  benefit,  it  will  be  a  fraud  upon  the  commissioners,  and 
upon  the  law,  and  the  legal  title  to  the  stock  will  vest  in  the 
person  subscribing,  for  the  benefit  of  the  corjmration.^ 

§  1248.  Proportion  Allowed  to  the  Commissioners  Them- 
selves.   The  commissioners  appointed  by  the  act  of  incorpora- 
tion to  take  subscriptions  were,  as  already  suggested,  entitled  to 
reserve  a  reasonable  quantity  to  themselves  ;5  but  where  the  act 
of  incorporation  piovided  that  no  one  of  the  commissioners  for 
taking  subscriptions  should  be  allowed  more  than  a  certain 
quantity,  —  it  was  held  that  they  were  entitled  to  that  quantity, 

1  Walker  v.  Devereaux,  4  Paige  *  Walker  v.  Devereaux,  4  Paige 
fN.  Y.),  229.  CN.Y.),229. 

2  Crocker  v.  Crane,  21  Wend.  ^  Meads  v.  Walker,  Hopk.  (N.  Y.) 
(N.  Y.)  211;  s.  c,  34  Am.  Dec.  228.  587;   Walker    v.    Devereaux,  4  Paige 

8  State    V.  Lehre,  7   Rich.  (S.  C.)       (N.  Y.),  229. 
234. 

974 


OTHER   THEORIES    AND    HOLDINGS.        [1  TllOmp.  Corp.    §   1249. 

though  the  subscriptions  greatly  exceeded  the  authorized  capital 

stock. ^ 

§  1249.  Remedy  of  the  Subscriber  for  Refusal  to  Issue 
Shares.  —  In  the  case  of  the  unjust  apportionment  of  the  shares, 
or  of  a  refusal  to  issue  the  shares  for  which  a  party  has  sub- 
scribed, his  remedy,  if  he  has  any,  is  in  equity;  and  we  have 
already  referred  to  a  case  where  a  re-apportionment  was  directed 
and  the  election  of  directors  was  in  the  meantime  restrained  by 
injunction. 2  It  has  been  held  that  where  a  corporation  issues 
new  stock,  to  be  distributed  among  its  existing  stockholders  in 
prop®rtion  to  their  respective  holdings,  —  which  is  the  case  with 
what  is  termed  a  *'  stock  dividend,"  ^  if  the  directors  refuse  to 
issue  to  a  particular  shareholder  his  due  portion  of  the  new  stock, 
he  may  maintain  an  action  in  equity  to  compel  its  issue,  so  long  as 
unissued  stock  remains  which  may  be  applied  to  the  purpose,  and 
that  he  may  also  maintain  an  action  for  damages  for  the  refusal; 
and  further,  that  such  an  action  should  be  brought  by  each  indi- 
vidual stockholder  who  is  thus  injured,  since  the  rights  and  obli- 
gations of  stockholders  are  several  and  not  joint;*  that  it  should 
not  be  brought  in  behalf  of  the  plaintiff  and  all  other  stockhold- 
ers who  may  come  in;  and  that  it  should  be  brought  against  the 
corporation,  and  not  against  the  directors  as  individuals.^  It 
has  been  held,  in  such  a  case,  that  the  stockholder  cannot  main- 
tain an  action  against  the  corporation  for  refusing  to  permit  him 
to  subscribe  for  the  new  stock,  without  first  proving  that  he  de- 
manded and  offered  to  subscribe  for  such  stock. ^  Subscribers 
who  have  not  paid  the  deposit  required  by  the  charter  or  govern- 
ing statute,  in  the  case  of  subscribers  to  the  stock  of  a  projected 
corporation,  have,  in  the  view  of  one  court,  no  standing  in 
equity  to  undo  an  illegal  organization  of  the  corporation  by  their 
co-subscribers.'     If  their  co-adventurers    illegally  organize  the 

1  Clark  V.   Brooklyn  Bank,  1  Edw.  "  Wilson  v.  Bank  of   Montgomery 
(N.  Y.)  361.  County,   29  Pa.  St.   537;    see  further 

2  Meads  v.  Walker,  Hopk.  (N.  Y.)  Smith  v.  Chicago  &c.  R.  Co.,  18  Wis. 
587.  17;    Miller  v.  Illinois  &c.   R.    Co.,  24 

3  Tost,  §  1079.  Barb.  (N.  Y.)  312. 

*  Ante,  §  1079.  '  Ante  §  1235,  et  seq. 

s  Dousman  v.  Wisconsin  &c.  Min- 
ing Co.,  40  Wis.  418. 

975 


1  Tliomp.  Corp,  §  1251.]     the  contract  of  subscription. 

corporation  and  illegally  elect  a  treasurer,  they  cannot  have  any 
relief  against  them  in  equity,  because  they  have  not  paid  the  first 
installment  to  the  treasurer  so  illegally  elected.  If  a  minority  of 
the  sul)scribers,  a  number  not  sufficient  under  the  terms  of  the 
charter  to  organize  the  corporation,  meet  by  themselves  and  as- 
sume to  organize  it,  the  objecting  subscribers  have  no  standing  in 
equity  to  have  the  wrong  undone,  because  they  are  estopped  to 
deny  the  validity  of  the  corporate  organization,  in  a  case  where 
they  have  never  admitted  it,  where  they  are  not  proceeding 
against  the  supposed  corporation,  and  where  the  very  foundation 
of  their  proceeding  involves  a  denial  of  it.^ 

§  1250.  Apportionment  on  Incorporating  a  Mining  Prop- 
erty. —  Upon  the  incorporation  of  a  mining  or  other  property, 
owned  by  several  persons  in  common,  each  of  the  co-adventurers 
will  be  entitled  to  a  proportion  of  the  stock  corresponding  to  his 
interest  in  the  property,  unless  the  constating  instrument  clearly 
excludes  that  conclusion  and  establishes  a  different  rule  of  ap- 
portionment. Thus,  upon  the  organization  of  a  mining  corpora- 
tion by  the  owners  of  undivided  third  interests  in  mining  property 
which  they  conveyed  to  the  corporation  in  payment  of  all  its 
stock,  the  certificate  of  incorporation,  providing  that  the  stock 
was  to  be  "  divided  half  and  half  between  the  parties,"  was 
construed  to  mean  that  each  owner  and  incorporator  was  entitled 
to  one-third  of  the  stock. ^ 

§  1251.  Subscription  Void  after  All  Stock  Taken. — This 
leads  us  to  inquire  what  will  be  the  efi'ect  of  a  subscription  made 
after  all  the  stock  has  been  subscribed  for.  A  corporation  can- 
not increase  its  stock  at  will,  in  any  manner  or  to  any  extent, 
unless  it  is  authorized  to  do  so  by  its  charter  or  by  the  governing 
statute,  and  then  only  in  the  manner  prescribed.^  When  a  cor- 
poration has  issued  valid  shares  to  the  full  extent  of  all  the  shares 
which  by  its  constitution  or  by  the  general  law  it  is  empowered 
to  issue,  no  court  can  order  it  to  issue  others,  because  in  that 

1  Busey  w.  Hooper,  35  Md.  15;  s.  c.  ^  Lathrop  xi.    Kneeland,   46  Barb. 

6  Am.  Rep.  350,  359.  (N.  Y.)  432;  ^osi,  §  2079. 

2  Bates  V.  Wilson,  14  Colo.  140;  s, 
c.  24  Pac.  Rep.  99. 


OTHER   THEORIES    AND    HOLDINGS.       [1   Thomp.  Corp.    §   1252. 

respect  its  powers  have  been  exhausted. ^  When  all  the  stock  of 
a  corporation  is  once  subscribed  for  and  taken,  the  corporation 
cannot  issue  any  more  unless  it  shall  get  back  a  portion  of  that 
which  has  been  taken, by  forfeiture  or  otherwise;^  and  no  person 
can  then  become  a  shareholder  and  as  such  liable  to  creditors  of  the 
corporation,  except  by  purchase  from  the  original  subscriber,  or 
his  assignee,  and  by  having  the  stock  transferred  to  him.^  It  was 
hence  held,  where  all  the  stock  of  a  corporation  was  subscribed  for 
and  taken  at  the  time  the  articles  of  incorporation  were  tiled,  and 
the  certificate  of  incorporation,  made  and  filed  as  required  by  law, 
si^ecified  the  names  of  all  the  stockholders,  and  there  was  no 
evidence  that  the  corporation  had  come  into  possession  of  any  of 
its  stock  by  forfeiture  or  otherwise,  —  that  no  subsequent  sub- 
scribers, by  merely  writing  their  names  in  the  corporation  book 
and  affixing  a  number  of  shares  to  their  respective  names,  could 
acquire  a  right  to  any  share  of  its  stock,  or  become  by  such  act 
stockholders  of  the  corporation,  and,  as  such,  liable  for  its  debts. 
Nor  does  such  a  subscription  for  stock,  where  there  is  none  to 
issue,  estop  the  subscriber,  when  proceeded  against  by  creditors 
of  the  corporation,  from  denying  the  relation  of  stockholder.* 
The  foregoing  observations  have  no  reference  to  the  case  men- 
tioned in  the  preceding  section,  where  the  commissioners  ap- 
pointed by  and  under  an  act  of  incorporation  are  empowered  to 
apportion  the  shares  among  the  subscribers;  though  it  will 
manifestly  apply  after  the  apportionment  has  been  made  and  the 
stock  has  thus  been  filled  up  with  valid  subscriptions  which  have 
been  accepted  by  the  commissioners.^ 

§  1252.  Instances  of  Insufficient  Subscriptions.  —  A  subscrip- 
tion by  one  of  several  heirs,  as  follows,  —  "  Estate  of  A.,  100  shares 

^  Smith  V.  North  American  Mining  insurance  company,  the  paper  sub- 
Co.,  1  Nev.  428;  Mechanics'  Bank  v.  scribed  referring  to  a  previous  sub- 
New  York  &c.  R.  Co.,  13  N.  Y.  599.  scription  of  $40,000,  not  then  paid  in, 

2  See  Evans's  Case,  L.  R.  2  Ch.  427;  as   being    part   of    the  full     sura   of 

post,  §  2080.  $300,000,   to    be   subscribed,  thereby 

*  Lathrop  v.  Kneeland,  40  Barb.  has  notice  of  such  fact,  and  also  of 
(N.  Y.)  4  32.  the  fact  tliat  such  sum  of  $40,000,  is 

*  Lathrop  v.  Kneeland,  4G  Barb.  (N.  to  be  taken  as  part  of  the  full  sub- 
Y.)  432.  To  the  same  effect  is  Mack-  scription.  New  York  &c.  R.  Co.  v, 
ley's  Case,  L.  R.  1  Ch.  247.  l)e  Wolf,  5  Bosw.  (N.  Y.)  693. 


5  A  subscriber  to   the  stock  of  an 


V.-2  977 


1  Thonip.  Corp.  §  1253.]     the  contract  of  subscription. 

$10,000,"  — binds  neither  him  nor  his  co-heirs,  as  the  statute  provides 
that  the  associates  shall  severally  subscribe. i  -  -  -  -  In  connec- 
tion with  a  conditional  contract  with  Y.  to  continue  him  as  employe,  a 
corporation  drew  up  a  certificate  of  stock  to  Y. ,  which  it  retained  in  the 
stock-book,  and  indorsed  thereon  a  receipt  by  it  for  him.  It  was  held 
that  there  was  no  delivery  of  the  certificate,  and  that  Y.  acquired 
no  I'ights  thereby ;  although  owning  no  other  stock,  he  had  been  al- 
lowed to  vote  in  meetings  of  the  stockholders. ^  _  .  .  _  Several 
persons  signed  a  paper  purporting  to  be  an  agreement  to  take  stock  in 
a  corporation,  which,  as  the  paper  recited,  was  about  to  be  formed. 
Afterwards  the  paper  was  signed  by  the  president  and  secretary,  and 
the  corporate  seal  was  aflfixed,  and  an  action  was  brought  to  recover 
from  one  of  the  subscribers  the  price  named  in  the  paper.  The  com- 
plaint did  not  state  when  the  company  was  incorporated,  and  it  was  not 
shown  that  any  of  the  subscribers  joined  in  its  formation  or  membership, 
or  was  authorized  to  sell  any  of  the  stock.  It  was  held  that  the  action 
could  not  be  maintained,  for  want  of  mutuality  under  the  civil  code  of 
California.  2 

§  1253.  Subscription  Delivered  as  an  Escrow. —  A  sub- 
scription cannot  be  delivered  as  an  escrow  to  commissioners 
appointed  to  receive  subscriptions  for  the  corporation,  to  take 
effect  only  on  a  specified  condition ;  but  the  subscription 
becomes  absolute  when  delivered  to  such  persons,  and  the  non- 
performance of  the  condition  is  no  defense  in  an  action  for 
calls.  "  The  well  settled  doctrine  is  that,  to  make  a  writing 
an  escrow  merely,  it  must  be  placed  in  the  hands  of  a  third 
person  by  the  party  making  it,  to  be  delivered  to  the  other 
party  on  the  happening  of  a  specified  contingency.  Here  the 
subscribers  were  the  parties  on  the  one  side,  and  the  com- 
missioners  on    the   other."*     But   it   has    been    held    that    a 

1  Troy  &c.  E.  Co.  v.  Warren,  18  tion  that  it  shall  operate  as  an  escrow 
Barb.  (N.  Y.)  310.  merely,    and  take  effect  upon  a  sub- 

2  York  V.  Passaic  Rolling  Mill  Co.,  sequent  condition,  but  that  the  deed 
30  Fed.  Rep.  471.  takes  effect  absolutely  upon  such  de- 

3  California  Sugar  Manuf.  Co.  v.  livery,  see  the  following  authorities: 
Schafer,  57  Cal.  396;  Cal.  Civ.  Code,  Fairbanks  v.  Metcalf,  8  Mass.  238; 
§§  343,  344.  Gilbert  v.  Insxu-anceCo.,  23  Wend.  (N. 

<  Wright   V.   Shelby  Railroad  Co.,  Y.)45;  s.  c.  35  Am.  Dec.  543;  Clarku. 

16  B.Monr.  (Ky.)  4;  s.  c.  63  Am.  Dec.  Gifford,  10  Wend.  (N.  Y.)  313;  Wor- 

522.     That  a  deed  cannot  be  delivered  rail  v.  Munn,  5  N.  Y.  229;  s.  c.  55  Am. 

to  the  grantee  or  kis  agent  on  condi-  Dec.  330;  Foley  v.  Cow  gill,  5  Blackf. 

978 


OTHER    THEORIES    AXD    HOLDINGS.        [1   Thouip.  Coip.    §   1253. 

delivery  may  be  made  to  a  director  of  the  corporation  in  escrow, 
to  become  binding  only  on  the  happening  of  a  certain  condition  ; 
so  that  if  the  director  delivers  it  to  the  corporation  without  the 
happening  of  such  condition,  it  will  not  be  binding. ^  In  another 
case  a  committee  was  appointed  by  the  inhabitants  of  a  town, 
to  obtain  subscriptions  to  the  stock  of  a  railroad  company, 
which  were  to  be  delivered  to  the  company  only  upon  certain 
parol  conditions.  It  was  held  that  a  member  of  the  committee, 
acting  as  such,  was  not  an   agent    of  the  railroad  company  in 


(Ind.)  18;  s.  c.  32  Am.  Dec.  49;  Hicks 
V.  Goode,  12  Leigh  CVa.),  479;  Ward 
V.  Lewis,  4  Pick.  (Mass.)  520;  Lawton 
V.  Sager,  11  Barb.  (N.  Y.)  351 ;  Cocks  v. 
Barker,  49  N.  Y.  110;  Braman  v.  Biug- 
liam,  26  N.  Y.  491 ;  Berry  v.  Anderson, 
•22  Ind.  39 ;  Seymour  v.  Cowing,  1 
Keyes  (N.  Y.),  535;  s.  c  4  Abb.  App. 
(N.  Y.)  204;  Brackett  v.  Barney,  28  N. 
Y.  341;  Beers  V.  Beers,  22  Micii.  44, 
Madison  &c.  Co.  v.  Stevens,  10  Ind.  2; 
DeardorfE  v.  Foresman,  24  Ind.  485; 
Co.  Litt.  3fia:  Shep.  Touch.  58,  59. 
The  practical  meaning  of  the  rule  is 
tliat  parol  evidence  qualifying  a  deliv- 
ery of  the  deed  to  the  grantee  or  to 
his  authorized  agent  is  inadmissible. 
Stephens  v.  Buffalo  &c.  R.  Co.,  20 
Barb.  (N.  Y.)  339 ;  Cocks  v.  Barker,  49 
N.  Y.  110.  But,  on  the  contrary,  if  it 
is  intended  that  the  deed  shall  take 
effect  upon  conditions,  those  condi- 
tions must  be  written  in  or  upon  the 
deed.  Berry  v.  Anderson,  22  Ind.  39. 
But  it  has  been  held  that  leaving  a 
deed  in  the  hands  of  a  grantee,  to  be 
by  him  transmitted  to  a  third  person, 
to  hold  in  escrow  until  the  happening 
of  a  certain  event,  is  not  a  delivery  to 
the  grantee,  so  as  to  vest  title  in  him. 
Gilbert  v.  Insurance  Co.,  23  Wend.  43; 
.s.  c.  35  Am.  Dec.  543.  It  is  only  where 
the  deed  is  delivered  to  the  grantee  or 
to  his  authorized  agent,  with  intent 
to  part  with  it  as  a  deed  and  that  it 
shall  ultimately  take  effect  as  a  deed, 
that  thi.s  rule  applie«.     If  the  deed  is 


delivered  without  this  purpose  the 
law  will  not  disappoint  the  intention 
of  the  parties  and  hold  the  delivery 
absolute.  Dietz  v.  Farish,  12  Jones  & 
S.  (N.  Y.)  252;  s.  c.  53  How.  Pr.  (N. 
Y.)  223;  Brackett  v.  Barney,  28  N.  Y. 
341.  Another  distinction  suggested  is 
that  the  rule  applies  only  to  those 
forms  of  deeds  whichconvey  an  es^7ie, 
and  not  to  those,  such  as  bonds,  which 
convey  merely  a  right  of  action. 
Campbell,  J.,  obiter,  in  People  v. 
Bostwick,  32  N.  Y.  447.  But  this  dis- 
tinction seems  not  to  be  souud,  and 
the  contrary  was  decided  in  Cocks  v. 
Barker,  49  N.  Y.  110,  and  in  Foley  v. 
Cowgill,  5  Blackf.  (Ind.)  18;  s.  c. 
32  Am.  Dec.  49. 

1  Ottawa  &c.  R.  Co.  v.  Hall,  1 
Bradw.  (111.)  612.  In  this  case  a  per- 
son subscribed  to  the  capital  stock  of 
a  railroad  company,  and  delivered  the 
subscription  to  a  director  in  escrow, 
not  to  be  de  ivcred  to  the  corporation 
unless  a  certain  county  failed  to  vote 
therefor.  It  was  held:  1.  That,  with- 
out proof  of  such  failure,  there  could 
be  no  valid  delivery  to  the  corpora- 
tion, and  no  recoveiy  on  the  subscrip- 
tion. 2.  That  a  vote  regularly 
adjudged  void  was  not  such  failure. 
3.  That  the  delivery  to  the  director 
was  not  a  delivery  to  the  corporation, 
he  not  being  an  agent  to  receive  the 
agreement.  4.  That  the  condition  of 
the  delivery  could  be  shown  by  parol 
i  vidence. 

079 


1  Thomp.  Corp.  §  1255.]     the  contract  of  subscription. 

such  a  sense  as  to  prevent  his  receiving  the  subscription  list  as 
an  escrow;  and  if  he  delivered  it  to  the  company  without  the 
consent  of  the  subscribers,  and  without  a  fulfillment  of  the 
conditions,  such  delivery  was  not  binding.* 

§  1254.  Distinction  between  Subscriptions  and  Purchases  of 
Shares. — A  distinction  has  been  taken  between  a  subscrii)tion 
to  the  capital  stock  of  a  corporation  and  a  purchase  of  its 
shares  from  the  corporation. ^  Thus,  where  a  contractor  agreed 
to  build  a  railroad,  and  to  accept  in  payment  a  certain  amount 
of  its  capital  stock,  the  agreement  was  a  purchase,  and  not  a 
subscription.^  A  contract  to  take  shares  of  a  company  is  not 
discharged  by  purchasing  the  same  number  of  paid-up  shares  of 
another  member ;  for  this  is  taking  shares  from  another  member, 
and  not  from  the  company.  Thus,  where  M.  subscribed  the 
memorandum  of  a  company  for  five  shares,  and,  eight  months 
afterwards,  five  fully  paid-up  shares,  which  the  company  had 
agreed  to  allot  to  C.  as  part  of  the  purchase-money  of  property 
sold  by  them  to  C,  were,  by  C.'s  direction,  allotted  to  M.,  and 
the  company  was  wound  up,  it  was  held  that  M.  was  a  contrib- 
utory in  respect  of  five  shares  on  which  nothing  had  been  paid.* 

§  1255.  Promise  to  Take  and  Pay  for  Stock  in  Unincor- 
porated Company  Actionable.  —  A  promise  to  take  and  pay 
for  stock  in  an  unincorporated  joint-stock  association  may  be 
enforced  by  an  action  at  law  by  the  trustees  to  whom  the  prom- 
ise is  made,  although  the  plaintiffs  and  defendants,  being  mem- 
bers of  the  same  association,  are  in  a  legal  sense  partners.^ 
The  principle  is  that  one  partner  may  sue  another  upon  a  con- 
tract to  make  specific  advances  for  the  purpose  of  launching  the 
partnership.^  But  it  is  only  an  express  promise  to  contribute  to 
the  common  stock  or  to  make  advances  thereto  that  can  be 

1  Beloit  &c.  R.  Co.  v.  Palmer,  19  facts  in  Forbes  and  Judd's  Case,  L. 
Wis.    574.  R.  5C]i,  270. 

2  1  Mor.  Priv.  Corp.,  2d  ed.,  §  61.  ^  Towusend  v.  Goewey,    19  Wend. 

3  New  York  &c.  R.  Co.  v.  Hunt,  39  (N.  Y.)  424;  s.  c.  32  Am.  Dec.  514. 
Conn.  75.     Compare  Ridgfleld  &c.  R.  ^  Glover  v.  Tuck,  24  Wend.  (N.  Y.) 
Co.  V.  Brush,  43  Conn.  86.  158;  Paine  v.  Thacher,  25  Wend.  (N. 

4  Migottl's  Case,  L.  R.  4  Eq.  238.  Y.)  452;  Robinson  v.  Mcintosh,  3  E. 
The  same  ruling  was  made  on  similar  D.  Sm.  (N.  Y.)  231. 

980 


OTHER   THEORIES   AND   HOLDINGS.       [1  Thomp.  Corp.   §  1257. 

enforced  in  an  action  at  law  ;  ^  the  law  will  not  imply  a  promise 
from  one  partner  to  another  in  respect  of  their  common 
concerns. 2 

§  1256.  Each  Subscription  Several,  not  Joint. — Each  sub- 
scription to  tiie  capital  stock  of  a  corporation  is  an  independent 
undertaking,  and  is  in  no  way  affected  by  the  terms  of  other  sub- 
scriptions ;  ^  and  the  obligation  of  each  of  several  subscribers  to 
the  same  agreement  of  subscription  is  several  and  not  joint,*  and 
each  subscriber  is  liable  only  for  the  amount  set  opposite  his  own 
name.^  Thus,  A.  subscribed  for  fifty  shares  in  a  railroad  com- 
pany in  his  own  name,  and  for  fifty  others,  adding  the  abbrevia- 
tion "  Exr."  to  his  signature,  saying  that  he  would  take  fifty 
shares  for  an  estate  of  which  he  was  executor.  These  were 
separate  contracts,  and  the  pendency  of  a  suit  to  enforce  the 
former  could  not  be  pleaded  in  abatement  of  a  suit  to  enforce 
the  latter.^ 

§  1257.  Subscription  by  a  Partnership  Name.  — A  subscrip- 
tion by  a  partnership  name  is  a  sufficient  compliance  with  a 
statute  which  requires  that  a  subscriber  to  the  articles  of  incor- 
poration shall  subscribe  thereto  "  his  name,  place  of  residence, 
and  amount  by  him  subscribed."  ^ 

§  1258.  Subscriptions  Construed  by  the  Court.  —  As  in  the 

case  of  all  other  written  instruments,^  the  subscription  is  inter- 

1  Townsend  w.  Goewey,  swpra.  1    Anstr.    50;    Coffey     w.    Brian,    10 

2  Crater  v.  Bininger,  45  N.  Y.  548;  Moore,  341;  s.  c.  3  Bing.  54. 
Townsend    v.   Goewey,   snpra.    That  ^  Connecticut  &c.  R.  Co.  v.  Bailey, 
one  partner  may  sue  another  at  law  24  Vt.  465;  s.  c.  58  Am.  Dec.  181;  Erie 
upon  a   breach  of    a  covenant,    see  &c.  R.  Co.  w.  Patrick,  2  Keyes  (N.  Y.), 
Duncan  v.  Lyon,  3  Johns  Ch.  (N.  Y.)  266. 

351;  3.   c.   8  Am.   Dec.   514   (learned  *  Price  u.  Grand  Rapids  R.  Co.,  18 

opinion  by  Chancellor  Kent);  Ron-  Ind.  137;  Herron  r.  Vance,  17  Ind.  595. 
deau  V.  Pedesclaux,  3  La.   510;  s.  c.  *  Price  v.   Grand  Rapids    R.   Co., 

23  Am,  Dec.  4G3.     That  actions  at  law  supra, 

may  lie  by  one  partner  against  another  *'  Erie    &c.    R,    Co.    v.   Patrick,  2 

on  an  express  covenant   touching  the  Keyes  (N.  Y.),  256.      As  to  joinder  in 

partnership  affairs  is  recognized  in  Equity, see Ilerronp.Vance,  17 Ind. 596. 
the  following  Englisli  cases:  Venning  '  Ogdensburg  &c.  R.  Co.  v.  Frost, 

V.   Leckie,  13  East,  7;  Neale  v.   Tur-  21  Barb.  (N.  Y.)  541. 
ton,  4  Bing.  140;  Preston  t?.  Strutton,  «  1  Thomp.  Tr.,  §  1065  et  seq. 

981 


1  Thomp.  Corp.  §  1260.]     the  contract  of  subscription. 

preted  by  the  court,  and  not  by  the  jury,  unless  in  cases  where 
parol  evidence  is  admitted  to  explain  latent  ambiguities  therein.^ 

§  1259.  Construed  Accordingr  to  what  Law.  —  The  prevail- 
ing and  only  sound  view  is  that  tlie  contract  of  subscription  is  to 
be  construed  according  to  the  law  of  the  domicil  of  the  corpora- 
tion; for  it  is  by  that  law  that  the  corporation  is  called  into 
existence  and  governed,  and  the  reasonable  assumption  is  that 
both  parties  contract  with  reference  to  that  law. ^  One  court  has 
reached  the  same  conclusion,  by  applying  the  familiar  rule 
that,  where  a  contract,  either  expressly  or  by  implication,  is  to 
be  performed  in  a  place  other  than  that  where  it  was  executed, 
then,  according  to  the  presumed  intent  of  the  parties,  its  valid- 
ity, effect  and  interpretation,  are  to  be  governed  by  the  law  of 
the  place  of  performance  ;  so  that,  where  the  subscription  is  to 
the  capital  stock  of  a  railroad  company  chartered  by  another 
State  and  having  its  place  of  business  there,  it  is  equivalent  to  an 
agreement  to  pay  the  sum  subscribed  to  the  treasurer  of  the  cor- 
poration or  other  duly  authorized  agent ;  and  where  no  place  of 
payment  is  specified,  it  is  presumed  to  have  been  the  intention 
of  the  parties  to  pay  the  assessments  in  the  State  where  the  cor- 
poration is  established  and  carries  on  its  business.^ 

§  1260.  Taking  Shares  to  Qualify  as  Director. — Where  it 
is  necessary  to  hold  a  certain  number  of  shares  in  order  to  be 
qualified  to  act  as  a  director,  it  has  been  held  that  the  mere  fact 
that  a  person  accepts  the  office  of  a  director  does  not  make  him 
a  shareholder  in  respect  of  the  number  of  shares  necessary  to 
qualify  him  so  to  act;  it  merely  implies  an  agreement  that  he 
will  qualify  himself  within  a  reasonable  time;  and  he  may  so 
qualify  himself  by  purchasing  shares  from  other  members  as 
well  as  from  the  company.^     But  the  English  courts  have  several 

1  Monadnock  &Co.  V.  Felt,52N.  H.  parte  Van  Riper,  20  Wend.  (N.  Y.) 
379.                       '  614;  ante,  §  1137. 

2  Payson  v.  Withers,  5  Biss.  (U.  ^  Penobscot  &c.  R.  Co.  v.  Bartlett, 
S.)  207,278;  Seymour  v.  Stuigess,  26  12  Gray  (Mass.),  244;  s.  c.  71  Am. 
N.Y.  134;   Merrick  V.  Van  Santvoord,  Dec.  753. 

34    N.   Y.   208,    210;    McDonough   v.  *  Brown's  Case,   L.  R.  9  Ch.   102; 

Phelps,  15  How.  Pr.    (N.  Y.)  372;  Ex.        Karuth's  Case,  L.  R.  20  Eq.  506;  Mar- 

982 


OTHER  THEORIES   AND   HOLDINGS.       [1  Thomp.  Corp.   §  1260. 

times  held  that  where  a  person  accepts  the  office  of  director, 
and  is  advertised  and  acts  as  such  for  a  considerable  length  of 
time,  he  will  be  held  as  a  contributory  in  respect  of  the  number 
of  shares  necessary  to  qualify  him  to  act  as  such.^  In  his  de- 
cision in  Harward's  case,^  Vice-Chancellor  Malins  proceeded  on 
the  broad  ground  that  if  a  man  knows  that,  by  the  constitution 


quis  of  Abercorn's  Case,  4  De  G.  F. 
&J.  78;  Hamley's  Case,  5  Ch.  T>iv. 
705;  Barber's  Case,  5  Ch.  Div.  963. 
See  also  Forbe's  Case,  L.  R.  8  Ch.  768 ; 
Chapman's  Case,  L.  R.  2  Eq.  667; 
Lord  Claud  Hamilton's  Case,  L.  R.  8 
Ch.  548;  Maitland's  Case,  3  Gif.  28. 
See  Lind.  Comp.  L.  794,  where  other 
authorities  are  reviewed.  In  Tot- 
hill's  Case,  L.  R.  1  Ch.  85,  a  di- 
rector of  a  company,  in  which  fifty 
shares  was  the  necessary  qualifica- 
tion of  a  director,  signed  the  articles 
of  association  as  a  holder  of  twenty- 
five  shares,  but  applied  for  and  paid 
the  deposit  on  fifty  shares.  A  resolu- 
tion was  passed  at  a  meeting  of  the 
directors,  which  incidentally  recited 
the  list  of  shareholders,  and  among 
them  this  director  as  the  holder  of 
fifty  shares.  No  allotment  of  the 
shares  was  made.  The  director  was 
not  present  at  the  meeting  at  which 
the  resolution  was  passed,  and  denied 
all  knowledge  of  the  resolution,  al- 
though he  was  present  at  the  next 
subsequent  meeting.  In  the  absence 
of  proof  that  the  minutes  of  the  pre- 
vious meeting  were  duly  read  and 
confirmed  at  the  subsequent  meeting 
(which,  it  appears,  was  not  always 
done),  the  lords  justices  held  that  the 
director  should  be  a  contributory  only 
in  respect  of  the  twenty-five  shares 
for  which  he  had  executed  the  memo- 
randum of  association.  In  Austin's 
Case,  L.  R.  2  Eq.  435,  the  promoter  of 
a  bank  invited  Austin  to  become  one 
of  the  board  of  directors,  and  a  pros- 
pectus (marked  "  preliminary  and 
private,"  in  which  his,  Austin's  name, 


appeared  as  a  director)  was  shown  to 
him.  To  this  proposition  Austin  as- 
sented, provided  he  should  be  satisfied 
that  a  certain  proportion  of  the  capi- 
tal had  been  subscribed,  and  that  cer- 
tain persons  named  in  the  prospectus 
as  directors  would  actually  join  the 
board.  With  a  view  of  ascertaining 
the  correctness  of  statements  con- 
tained in  the  prospectus,  Austin  at- 
tended a  board  meeting,  and  so  far 
identified  himself  with  the  board  as 
to  sign  a  check  for  £500  with  another 
director.  Stock  was  taken  by  others 
(in  at  least  one  instance)  on  the  faith 
of  statements  contained  in  the  pros- 
pectus to  which  his  name  was  attached 
as  a  director.  On  receiving,  a  few 
days  after  the  meeting,  a  letter  of 
allotment  of  the  shares  necessary  to 
qualify  him  as  a  director,  Austin  at 
once  returned  it,  declining,  at  the 
same  time,  to  act  as  director,  as  he 
was  not  satisfied  upon  the  two  points 
stipulated  for  by  him.  The  secretary 
wrote  back,  stating  that  his  "  resigna- 
tion "  had  been  accepted.  Austin  had 
nothing  more  to  do  with  the  bank.  In 
considering  these  facts,  the  vice- 
chancellor  pronounced  this  a  very 
doubtful  case;  but,  in  view  of  the  fact 
that  the  letter  of  allotment  was  prop- 
erly returned,  thought  that  it  must  be 
taken  that  the  whole  matter  was  not 
finally  concluded,  and  that  his  name, 
therefore,  must  be  removed  from  the 
list  of  contributories. 

1  Harward's  Case,  L.  R.  13  Eq.  30; 
Stephenson's  Case,  45  L.  J.  (Ch.)  488; 
Fowler's  Ca-c,  L.  R.  14  Eq.  316. 

■'  L.  R.  13  Eq.  30. 

983 


1  Tliomp.  Corp.  §  1260. J     the  contract  of  subscription. 

of  the  company,  the  qualification  of  a  director  is  a  certain  num- 
ber of  shares,  it  is  an  implied  contract  with  the  shareholders  that 
if  he  acts  as  director  he  must  take  at  least  that  number  of  shares.^ 
*'  I  cannot,"  said  he,  "  part  with  this  case,  without  expressing 
my  strong  opinion,  which  ought  to  be  universally  known  by  gen- 
tlemen, whether  they  are  commercial  men  or  otherwise,  that 
they  will  not  be  permitted  by  the  law  of  this  country  to  sit  at  a 
board  of  directors  upon  the  understanding  that  they  are  to  receive 
their  remuneration  as  directors,  and  if  the  affair  is  profitable 
take  the  profit,  but  if  losses  occur  they  are  not  to  be  liable." 
The  decision  of  Vice-Chancellor  Malins  in  which  this  language 
was  employed  was  reversed  by  the  lords  justices,  upon  a  con- 
struction of  a  resolution  passed  by  the  company  relating  to  the 
qualification  of  directors ;2  but  the  wholesome  doctrine  thus 
expressed  was  not  denied.  Language,  if  possible  more  strong, 
was  used,  in  an  earlier  case,  by  Vice-Chancellor  Bacon.  "  In 
my  opinion,"  said  he,  *'  the  case  is  as  plain  as  anything  can  be. 
Being  named  as  a  director,  he  became  liable  to  take  twenty-five 
shares.  By  acting  as  a  director  he  recognized  his  liability  in 
that  respect.     That  is  indelible."  ' 

1  See  his  language  in  Lord  Claud  shares,  applied,  March  1,  1867,  for 
Hamilton's  Case,  L.  R.  8  Ch.  548,  note,  twenty  shares,  which  were  allotted  to 
where  he  thus  explains  Harward's  him.  He  attended  meetings  and  acted 
Case.  as  director  until  just  before  Novem- 

2  Lord  Claud  Hamilton's  Case,  L.  ber,  1867,  at  which  date  the  company 
R.  8  Ch.  548.  was  ordered  to  be    wound    up.     His 

3  Fowler's  Case,  L.  R.  14  Eq.  316.  name  having  been  placed  upon  the 
In  this  case  the  articles  of  association  list  of  contributories  for  forty-five 
provided  that  no  person  should  be  shares,  he  made  application  to  be  re- 
eligible  as  director  unless  at  the  time  lieved  as  to  twenty  shares.  It  ap- 
of  his  appointment  he  should  hold  peared  that  he  was  present  at  the  next 
twenty  five  shares.  On  February  14,  meeting  subsequent  to  the  allotment 
1867,  the  directors  of  the  company  of  the  twenty-five  shares,  but  believed 
were  appointed,  and  at  the  same  time  he  was  not  present  during  the  reading 
it  was  resolved  to  allot  twenty  five  of  the  minutes  of  the  previous  meet- 
shares  to  each  of  the  persons  named  ing.  He  stated  that  he  did  not  become 
as  directors.  One  of  these  directors  aware  of  the  allotment  of  the  twenty- 
who  had  consented  to  act  as  such,  but  five  shares  until  June,  1867.  The 
in  ignorance,  as  he  stated,  that  any  vice-chancellor  considered  that  the 
shares  had  been  allotted  to  him,  and  circumstances  of  the  allotment  of  the 
under  the  mistaken  impression  that  twenty-five  shares  were  such  that  he 
the  necessary  qualiflcation  was  twen-  ought  to  have  known  they  were 
ty  £25  shares  and  not  twenty-five  £20  allotted;  and,  as   he  had  applied  for 

984 


OTHER  THEORIES   AND   HOLDINGS.       [1  Thomp.  Corp.   §    1261. 

§  1261,  Continued.  —  Where,  prior  to  the  formation  of  a 
company,  the  provisional  directors  had  agreed  to  take  100  shares 
each,  to  execute  the  articles  and  memorandum  of  association 
when  ready,  and  to  act  as  directors  of  the  company,  and  the 
articles  provided  that  the  subscribers  of  the  memorandum 
should  be  deemed  to  be  directors  until  others  were  appointed, 
and  that  each  director  should  hold  at  least  100  shares,  it  was 
held  that  they  were  contributories  to  the  extent  of  their  respect- 
ive qualification  shares.  The  decision  was  placed  on  the  ground 
that,  it  having  been  the  duty  of  the  provisional  directors  them- 
selves to  appoint  directors,  and  default  having  been  made  by 
them  in  so  appointing,  they  were  to  be  deemed  in  equity  as  hav- 
ing appointed  themselves,  and  were  chargeable  accordingly.^ 
Nor  is  it  to  be  inferred  that  if  a  person  consents  to  become  a 
director,  and  has  allotted  to  him  the  number  of  shares  necessary 
for  his  qualification,  and  in  fact  acts  as  a  director,  an  agreement 
will  not  be  implied  to  accept  the  shares.^  The  true  result  to  be 
drawn  from  the  English  authorities,  as  stated  by  Lord  Selborne, 
is,  "  that  the  fact  of  a  man  accepting  the  place  of  director,  for 
which  the  possession  of  a  certain  number  of  shares  is  a  neces- 
sary qualification,  is  most  material  in  determining  whether  he 
shall  or  shall  not  be  permitted  to  repudiate,  as  unauthorized  by 
himself,  the  registration  of  shares  which,  in  the  ordinary 
course  of  the  business  of  the  company,  have  actually  been 
placed  in  his  name,  and  which  were  needful  for  his  qualifica- 
cation.  "  ^  A  mere  colorable  device,  the  effect  of  which  is  that 
the  company  itself  furnishes  the  money  necessary  to  purchase 
and  pay  for  the  qualifying  shares  of  a  board  of  directors,  will  be 
set  aside  in  equity  ;  such  shares  will  be  deemed  not  to  have  been 
paid  for,  and  the  directors  will  be  put  upon  the  list  of  contrib- 
utories accordingly.* 

twenty  other  shares,  he  must  remain  •*  Re  Disderi   &  Co.,  L.  R.   11  Eq. 

upon  the    contributory   list  for    the  242.     In    this    case    a    company  was 

whole  forty-five.  formed  to  purchase  and  carry  on  the 

1  Currie's  Case,  3  De  G.  J.  &  S.  business  of  D.  The  shares  were  £10 
367;  s.  c.  32  L.  J.  (Ch.)  424.  each,  and  were  to  be  paid  up  In  fuU 

2  Brown's  Case,  L.  R.  9  Ch.  110,  on  acceptance.  The  qualification  of 
per  Mellish,  L.  J.;  Leeke's  Case,  L.  the  directors  was  twenty-five  shares 
R.  6Ch.  4C9.  each,  and  by  the  articles  of  associa- 

3  L.  R.  9  Ch.  107.  tion  £170,000   in   paid   up   shares    of 

1)85 


1  Thomp.  Corp.  §  r263.]     the  contract  of  subscription. 

§  1262.  Limit  of  Option  to  take  Shares  on  Reorganiza- 
tion. —  On  the  reorganization  of  an  English  company  by  a 
scheme  for  a  sale  of  its  property  to  a  new  company  and  an  ex- 
chano-e  of  shares  at  the  option  of  the  old  shareholders,  where  a 


the  company  -was  the  limit  in  price 
beyond  which  the  directors  were  not 
to   go  in  the  purchase.     Great  diffi- 
culty was  experienced  in  finding  the 
eight  necessary  directors  who  were 
willing  to  qualify  as  such  by  taking 
twenty-five     shares.       Finally,    eight 
persons  agreed  to  act  as  directors  on 
having  their  qualification  found.    The 
first  meeting    of    the    company  took 
place  on    June    22d,   at  which  these 
gentlemen    acted    as    directors,   and 
their  names  were   entered  on  the   list 
for  the  twenty-five    shares    required 
for  the  qualification  of  each  of  them. 
On  June  25th  they  signed  the  contract 
for  the  purchase  of  the  business  of  D. 
The    consideration    was    £108,000  in 
fully-paid  shares  of  the  company  and 
£2,000    in    cash.     At    this    time    the 
directors  paid  for  their  i^hares,  and  the 
company  paid  the  £2,000  in  cash  to  D. 
by  the    following  arrangement:  The 
directors  having  agreed  to  serve  only 
on  condition  that  their  shares  were 
found    by  D.,   his  agent  drew   eight 
checks  in  the  name  of  D.    for   £250 
each,  one  of  which  he  handed  to  each 
of  the  directors,  who  passed  over  the 
same  by  indorsement  to  the  secretary 
of  the  company    in  payment  of  their 
shares.    The  directors'  shares    were 
then  entered  as  fully  paid  up.     The 
secretary  of  the  company  then  handed 
the  eight  checks  to   D.'s  agent,  who 
drew  up    and    signed    a  receipt  for 
£2,000  paid  by  the  company  on  their 
purchase,  according  to  the  contract. 
The    company  was  subsequently  or- 
dered to  be  wound  up,  and  the  direct- 
ors having  been  placed  upon  the  list 
of  contributories,  on  the  ground  that 
nothing  had  ever  been  paid  upon  their 
shares,  the  directors  applied  to  have 
0S6 


their  names  struck  off.  The  vice- 
chancellor  (Malins)  was  unable  to  see 
that  the  transfer  of  checks  constituted 
a  payment  for  the  shares  of  the  direct- 
ors. He  does  not  appear  to  have 
brought  his  mind  down  to  a  conidera- 
tion  of  the  details  of  the  transaction, 
but  he  denounced  it  in  heated  language 
as  "unworthy  of  a  school-boy,"  "a 
ridiculous  farce,"  and  the  direct- 
ors as  "creatures,  dummies,  and 
nominees  "  of  D.,  the  vendor.  He 
considered  that  these  eight  persons 
were  bound  to  take  shares  before 
acting  as  directors,  and  that,  at  least, 
they  were  now  to  be  treated  as  per- 
sons who,  having  agreed  to  take 
shares,  had  not  paid  them  up,  and 
that  they  must  pay  them  up  in  full. 

It  is  not  clear  to  the  author  that 
the  transaction  merited  the  epithets  of 
the  learned  vice-chancellor.  Ou  the 
contrary  it  seems  bona  fide  through- 
out. In  fact  D.  foregoes  £2,000  of 
the  price  agreed  upon  in  order  that 
the  purchase  of  his  business  may  be 
consummated.  If  the  price  paid  for 
D.'s  business  had  been  exhorbitant, 
and  the  directors  had  willfully  violated 
their  trust  in  contracting  to  pay  the 
same,  and  as  a  consideration  for 
such  breach  of  trust  the  directors' 
qualification  of  shares  had  been  sup- 
plied as  above,  It  is  obvious  the 
transaction  could  not  stand.  But 
such  was  not  the  case;  the  price 
paid  was  within  the  limit  pre- 
scribed by  the  articles  of  associa- 
tion, and  nobody  could  be  found  who 
would  consent  to  ferve  as  director 
unless  his  qualification  of  shares  was 
found.  The  vice-chancellor,  in  this 
case,  based  his  decision  on  the  author- 
ity of  Gray  v.  Lewis,  L.  R.  8  Eq.  526. 


OTHER    THEORIES    AND    HOLDINGS.       [1   Thomp.  Coip.    §   1262. 

trustee  is  given  full  discretionary  power  to  dispose  of  sliares  not 
taken  by  them,  the  scheme  is  not  vitiated  by  the  insertion  of  a 
limited  time  within  which  the  shareholders  must  exercise  their 
option,  provided  the  time  is  reasonable. ^ 


In  this  case  the  Lafitte  Company  was 
formed,  to  purchase  the  business  of 
the  Paris  Bank  of  Lafitte.     The  Paris 
Bank  declined  to  transfer  its  business 
to    the    company    until  40,000  shares 
should  have  been  subscribed  for.     To 
effect    this  object,  the    International 
Contract  Company  guaranteed  a  sub- 
scription of  the  requisite  number  of 
shares.     The    latter     company    then 
applied  to  the  National  Bank  to  dis- 
count their  bills  for    £230,000,  which 
they  agreed  to  do  on  the  guarantee  of 
the  Lafitte  Company  that  they  would 
leave  in  their  hands  whatever  money 
should  be  paid  in  for  shares,  to  the 
amount  of  the  advance.     The  money 
was  thereupon  transferred  to  the  credit 
of  the   Contract  Company,  who   pro- 
vided  shareholders  and  paid  the  de- 
posits   out    of    the    advances  by  the 
bank.     In  order  to  procure  a  settling- 
day  on  the  stock  exchange,  the  bank 
certified    that   the  £230,000  had  been 
deposited  with    them    in  payment  of 
shares.    The  Lafitte  Company,  by  their 
articles  of  association,  were  prohibited 
from    purchasing    their  own  shares. 
The  Lafitte  Company  was  ordered  to 
be  wound  up,  having  never  acquired 
the    business    of  the  Paris  Bank.    A 
shareholder   of    the  Lafitte  Company 
filed    a  bill    against  the  directors  of 


that  company,  and  against  the  National 
Bank,  praying  for  the  restoration  of 
the  £230,000  to  the  Lafitte  Company  by 
its  directors  and  the  National  Bank. 
The  vice-chancellor  (Malins)  held  that 
the  directors  of  the  Lafitte  Company 
had  acted  ultra  vires,  and  committed  a 
breach  of  trust  in  applying  the  funds 
of  the  company  in  repaying  the  money 
so  advanced  by  the  bank;  and  that  the 
bank,  having  been  participators  in  the 
breach  of  trust,  must  refund  the 
amount.  As  to  the  meaning  of  the 
expression  in  English  articles  of  asso- 
ciation, applied  to  the  qualification 
shares  of  directors,  "shall  hold  the 
shares  in  his  own  right,"  see  Pul- 
brook  V.  Richmond  Consolidated  Min- 
ing Co.,  9  Ch.  Div.  610;  with  which 
compare  Bainbridge  v.  Smith,  41  Ch. 
Div.  462;  s.  c.  60  L.  T.  (n,  s.)  879.  As 
to  the  qualification  of  directors,  see 
po>t,  § 

1  Postlethwaite  v.  Port  Phillip  &c. 
Gold  Min.  Co.,  43  Ch.  Div.  452.  See 
ante,  §  274.  Legality  of  stock  issued 
pursuant  to  N.  Y.  Laws,  1874,  Chap. 
430,  authorizing  the  reorganization  of 
railroad  corporations  sold  in  fore- 
closure &c. :  Re  Brooklyn  Elev.  R.  Co. 
(Sup.  Ct.)  32  N.  Y.  St.  Rep.  1065;  II 
N.  Y.  Supp.  161. 

987 


1  Thomp.  Corp.  §  1367.]     the  contract  of  subscription. 


CHAPTER    XXII. 


ALTERATION  OF  THE  CONTRACT. 


1269. 


1270. 


Section 

1267.  Preliminary. 

1268.  Breach  by  tlie  corporation  of  its 

contract  with  the  subscriber. 
Alteration  of  the    subscription 

paper. 
Making  radical  changes  in  the 

purposes  of  the  corporation. 

1271.  Directors   departing   from    the 

charter. 

1272.  Abandonment  of  the  enterprise. 

1273.  Discharged  by  legislative  alter- 

ation of  the  contract. 

Change  must  be  material,  fund- 
amental or  radical. 

Increasing  capital  stock. 

Reducing  capital  stock. 

Increasing  the  number  of  shares . 

Enlarging  powers  and  privileges 
and  adding  new  responsibili- 
ties. 

Illustrations:  authorizing  ex- 
tension of  road  —  building  of 
branch. 

Illustrations  continued :  empow- 
ering a  slack  water  company 
to  extend  its  dams  and  incur 
additional  expense. 

1281.  Changing  the  nature  of  the  en- 

terprise. 

1282.  View  that  change  sanctioned  by 

majority  binds  minority. 


1274. 

1275. 
1276. 
1277. 
1278. 


1279. 


1280. 


Section 

1283.  Changing  the  name. 

1284.  Changing  the  termini  of  a  rail- 

road. 

1285.  Material  change  of  location  or 

route  will  release  subscriber. 

1286.  Reasons  of  the  rule. 

1287.  What  changes  of  route  or  loca- 

tion do  not  release  subscriber. 

1288.  What  change  of  route   by  di- 

rectors will  release  the  sub- 
scriber. 

1289.  How  the  defendant  must  plead 

the  change. 

1290.  Consolidation  with  another  cor- 

poration. 

1291.  Changes  authorized  by  existing 

statutes. 

1292.  Alteration  material  to  the  par- 

ticular subscriber. 

1293.  Changes  affecting  the  payment 

of  stock  subscriptions. 

1294.  Other  changes  in   the  internal 

arrangements  of  the  corpora- 
tion. 

1295.  Selling  out. 

1296.  Extending  time  for  completing 

the  enterprise. 

1297.  Elements  of  estoppel. 

1298.  Burden  of  showing  dissent. 

1299.  When    validity    of    amendment 

submitted  to  jury. 


§  1267.  Preliminary. —  The  question  what  amendments  of 
the  charter  of  a  corporation,  not  assented  to  by  a  stockholder, 
will  release  him  from  the  obligation  of  his  contract,  has  been 
considered  in  a  former  chapter. ^     The  question  presents  itself  in 


988 


1  Ante,  §  G6  et  seq. 


ALTERATION    OF    THE    CONTRACT.        [1   Thomp.  Corp.   §    1269. 

new  relations  where  the  change  has  taken  the  form  of  the  alter- 
ation of  the  articles  of  association,  of  the  subscription  paper  or 
of  the  prospectus,  by  the  act  of  the  directors  or  the  majority  of 
the  corporators  without  legislative  action ;  and  this  seems  to 
require  some  additional  treatment  of  the  subject,  though  at  the 
risk  of  repetition. 

§  1268.  Breach  by  the  Corporation  of  its  Contract  with 
the  Subscriber. —  Where  the  contract  of  subscription  contains 
interdependent  covenants,  a  substantial  breach  of  its  conditions 
by  the  corporation  will,  where  the  rights  of  third  persons  are 
not  concerned,  release  the  subscriber.^  The  usual  application  of 
this  rule  obtains  iu'England  where  the  prospectus  of  a  joint- 
stock  company  holds  out  certain  promises  to  subscribers,  on  the 
faith  of  which  they  put  down  their  names,  and  the  memorandum, 
when  drawn  up,  so  far  departs  from  the  prospectus  as  to  make 
substantially  a  diflerent  contract.  ^  It  obtains  in  America  where 
the  charter  is  radically  or  fundamentally  altered  by  the  legislature, 
or  the  articles  of  association  by  the  corporators,  or  the  contract 
of  subscription  by  the  directors,  without  the  authorization  of  an 
existing  statute,  and  without  the  consent  of  the  particular  sub- 
scriber, subsequently  to  his  subscription.  The  rule  has  refer- 
ence only  to  material  alterations.  The  liability  of  a  stock- 
holder, for  instance,  is  not  affected  by  immaterial  changes  in  the 
articles  of  incorporation.^ 

§  1269.  Alteration  of  the  Subscription  Paper.  —  A  mere 
mechanical  alteration  of  the  subscription  paper,  which  does  not 
have  the  effect  of  altering  the  contract  of  the  subscriber,  and 
which  is  not  so  intended,  will  not,  of  course,  release  him:  as 
where  printed  fonns  oi  the  contract  of  subscription,  which  had 
been  circulated  and  signed  separately  were  cut  from  the  rest  of 
the  pnpers,  and  all  the  written  parts  were  attached  to  one  of 
these  printed  forms,  which  was  then  filed  in  the  office  of  the 
Secretary  of  State  for  the  purpose  of  organizing  the  corpora- 

1  Hartford  &c.  R.  Co.  i;.  Croswell,  5  2  Lind.  Comp.,  5th  ed.,  p.  19. 

Hill   (N.  Y.),   383;  s.  c.  40  Am.  Dec.  ^  Union  Agricultural  &c.  Associa- 

364.  tion  v.  Neill,  31  Iowa,  95. 

989 


1  TJiomp.  Corp.  §  1370.]     the  contract  of  subscription. 

tion.^  But  if  the  certificate  of  incorporation,  prescribed  by  the 
governing  statute,  which  was  originally  executed,  is  abandoned 
by  the  co-adventurers,  and  a  new  and  different  certificate  exe- 
cuted, and  the  organization  takes  place  under  the  latter,  the 
association  cannot  hold  the  subscriber  under  the  provisions  of 
the  former;  ^  lor  this  is  a  contract  to  which  he  has  not  agreed. 

§  1270.  Making  Kadical  Changes  in  the  Purposes  of  the 
Corporation.  —  But  if,  as  hereafter  seen,^the  legishiture  cannot 
change  the  contract  of  the  subscriber  without  his  consent,  for 
stronger  reasons  the  directors,  or  the  executive  committee,  or 
the  other  stockholders,  will  not  be  permitted  to  make  a  radical 
change  in  the  business  of  the  corporation  which  shall  bind  a  dis- 
senting subscriber,  —  as  by  selling  its  entire  property  ;*  or  by 
exchanging  its  assets  upon  dissolution  for  stock  in  another  com- 
pany ;^  or  by  consolidating  the  corporation  with  another  to  form 
a  new  corporation,^  or,  in  case  of  a  railroad  company,  by 
departing  substantially  from  the  route  marked  out  in  its  charter ;  ^ 
or,  in  case  of  a  plank  road  company,  by  extending  the  road  and 
increasing  the  capital  stock  without  complying  with  the  provis- 
ions of  the  charter  on  that  point.^  And  one  court  has  gone  so 
far  as  to  say  that  any  material  departure  from  the  points  desig- 
nated in  the  charter  for  the  location  of  the  road,  is  a  violation  of 
the  charter,  for  which  the  franchise  of  the  corporation  may  be 
seized  upon  quo  warranto,  unless  the  legislature  has  waived  the 
right  of  the  State  to  seize  the  franchise,  by  acts  legalizing  the 
violations  of  the  charter.^ 

1  Sodus  Bay  &c.  R.  Co.  v.  Hamlin,  •  Blatchford  v.  Ross,  5  Abb.  Pr. 
24  Hun  (N.  Y.),  390.  See,  as  to  the  (n.  s.)  (N.  Y.),  437;  s.  c.  37  How.  Pr. 
effect  upou  the  liability  of  a  subscrib-  (N.  Y.)  113;  54  Barb.  (N.  Y.)  46; 
er  of  altering  the  articles  of  associa-  Clearwater  v.  Meredith,  1  Wall.  (U. 
tion,   note  in    19  Am.  &   Eng.  Corp.  S.)  40;  ante,  §  75. 

Cas.  258.  ^  Buffalo  &c.  R,   Co.  v.   Pottle,  23 

2  Burrows  v.  Smith,  10  N.  Y.  550.      Barb.  (N.  Y.)  23. 

3  Post,  §  1273.  ^  Macedoa   &c.  Plank  Road  Co.  v. 
*  Abbot  V.  American  Hard  Rubber      Lapham,  18  Barb.  (N.  Y.)  315. 

Co.,  21  How.  Pr.   (N.  Y.)  200;  s.  c.  20  ^  Dictum  in  Mississippi  &c.  R.  Co. 

How.  Pr.    (N.  Y.)   204;  11   Abb.   Pr.  u.  Cross,   20  Ark.  443;    citing  People 

(N.  Y.)  208;  33  Barb.  (N.  Y.)  584.  v.  Manhattan  Co.,   9  Wend.    (N.  Y.) 

''  Frothingham  v.  Barney,    6   Hun  351. 
(N.  Y.),  366. 

990 


ALTERATION    OF    THE    CONTRACT.       [1  Thomp.  Corp.    §  1271. 

§   1271.    Directors     Departing    from    the    Charter.  —  The 

directors  of  a  corporation  are  trustees  for  its  shareholders, 
and  if  they  depart  from  the  charter,  or  attempt,  or  threaten  to 
do  acts  which  are  ultra  vires  in  respect  of  their  granted  powers 
or  the  powers  of  the  corporation,  and  injurious  to  the  share- 
holders,—  the  latter  have  a  remedy  in  equity  to  restrain  them 
from  so  doing. ^  But  there  is  no  known  principle  on  which  the 
fact  that  the  directors  are  exercising  their  powers  wrongfully  can 
absolve  a  subscriber  from  the'  performance  of  his  contract. 
How  can  he,  as  against  other  subscribers,  suffering  in  common 
with  him,  claim  to  be  released,  upon  the  mere  ground  that  the 
officers  whom  a  majority  have  placed  in  power  are  exercising 
their  power  unlawfully?  It  has  accordingly  been  held  that  a 
corporation  cannot  be  enjoined  from  enforcing  a  judgment  for 
a  stock  subscription  on  the  ground  of  a  departure  from  its  char- 
ter in  respect  of  matters  not  connected  with  the  suit ;  ^  or  on  the 
o-round  that  the  work  of  building  a  railroad  which  the  corpora- 
tion was  chartered  to  build  was  not  progressing  in  the  manner 
prescribed  in  the  charter,  or  that  the  company  contemplated  a 
departure  from  the  route,  or  a  change  in  the  termini  designated 
therein.'  Nor  will  such  stockholders  of  a  corporation  created 
"  to  build  and  maintain  'a  flouring  tnill  "  be  so  relieved  because 
the  corporation  is  expending  its  money  in  building  a  dam  by 
means  of  which  to  obtain  power  to  run  its  mill.*  And  it  may 
easily  be  concluded  that  it  is  not  every  unimportant  change  in 
the  project,  as  marked  out,  which  will  dissolve  the  contract  cf 
subscription.^  Accordingly,  a  mere  cessation  of  work  on  a  road 
within  a  very  short  distance  of  the  terminus  designated  in  the 
articles  of  incorporation,  where  the  articles  are  not  changed, 
and  there  is  no  resolution  of  the  directors  providing  for  a  ter- 
mination of  the  road  at  the  point  where  the  work  is  stopped,  is 
not  such  a  change  as  will  work  a  release  of  the  contract  of  a  non- 
assenting  stockholder.®  But  it  has  been  observed  that  the 
power  of  a  corporation  over  the  rights  of  a  stockholder,  how- 
ever to  be   exercised,  is  limited  to  his  rights  in  the    corporate 

1  Post,  Ch.  90.  ^  Clearwater  v.  Meredith,   1  Wall. 

2  Ex  parte  Booker,  18  Ark.  338.  (U.  S.)  40. 

3  jfjid.  ^  Buffalo  &c.    R.    Co.  v.    Clark,  22 
-•Ginrich  v.  Patrons'  Mill  Co.,  21       Ilun  (N.  Y.),  359. 


Kan.  61. 


991 


1  Thomp.  Corp.  §  1273.]     the  contkact  of  subscription. 

property  and  corporate  concerns,  and  does  not  extend  to  his 
private  and  individual  'property^  over  wliich  the  corporation  has 
no  control  beyond  the  amount  of  his  subscription.  The  power 
of  a  majority  of  the  members  to  accept  an  amendment  to  the 
charter  so  as  to  bind  the  minority,  is  confined  to  such  modifica- 
tions thereof  as  are  reasonably  within  the  original  objects  of  the 
incorporation,  and  as  regard  the  corporate  property.  In  all 
other  cases,  the  stockholders  can  be  bound  only  by  their  individ- 
ual assent  and  acquiescence.^ 

§  1272.  Abandoument  of  the  Enterprise  for  which  the  cor- 
poration was  organized, —  as,  by  failing  to  commence  the  under- 
taking within  the  time  prescribed  by  its  charter,^  and  refunding 
some  of  the  subscriptions  ;^  or,  in  case  of  a  railroad  company, 
locating  the  road  on  an  entirely  different  route,*  —  will  discharge 
the  stockholder.  But  the  mere  fact  that  the  work  on  the  cor- 
porate undertaking  has  been  suspended  is  not  such  evidence  of  an 
abandonment  of  the  enterprise  as  will  discharge  a  subscriber 
from  his  obligation  of  payment;  since  the  refusal  of  the  sub- 
scribers to  pay  according  to  their  contracts  may  be  the  very 
cause  of  the  suspension,  and  the  very  object  of  the  attempt  to 
enforce  their  contracts  may  be  to  get  money  to  revive  or  con- 
tinue the  prosecution  of  the  work.* 

§  1273.  Discharged  by  Legislative  Alteration  of  the  Con- 
tract.—  The  general  rule  is  that  the  relation  between  a  corpora- 
tion and  a  stockholder  being  one  of  contract,  any  legislative 
enactment  which,  without  his  assent,  authorizes  a  material  or 
fundamental  change  in  the  powers  or  purposes  of  the  corporation, 
not  in  aid  of  the  original  object,  if  acted  upon  by  the  corpora- 
tion, is  not  binding  upon  him.^ 

1  Ireland  v.  Palestine  &c.  Turnp.  phis  &c.  R.  Co.,  35  Miss.  692.  Post. 
Co.,  19  Ohio  St.  369.  § 

2  McCully  W.Pittsburgh  &c.  R.  Co.,  ^  See,  in  illustration  of  this,  Buffalo 
32  Pa.  St.  25.  &c.  R.  Co.  v.  Clark,  22  Hun   (N.  Y.), 

3  Ibid,  359;  Buffalo  &c.  R.   Co.  v.  Gifford,  87 

4  Hester  v.  Memphis  &c.  R.  Co.,  N.  Y.  294.  Compare  Four  Mile  Valley 
.32  Miss.  378;  Winters.  Muscogee  Ry.,  R.  Co.  v.  Bailey,  18  Oh.  St.  208. 

11  Ga.   438;   Kenosha  &c.   R.   Co.   v.  e  McGray  ■;;.  Junction  R.  Co., 9  Ind, 

Marsh,  17  Wis.  13;  Champion  u.  Mem-      359;  First  National  Bank  v.  Charlotte , 


85  N.  C.  433.    Ante,  §  67  e«  seg. 


092 


ALTERATION  OF  THE  CONTRACT.     [1  Thomp.  Corp.  §  1276. 

§  1274.  Change  Must  be  Material,  Fundamental  or  Radi- 
cal.—  The  legislative  change  in  the  character  of  the  enterprise 
which  will  thus  release  a  subscriber,  has  been  often  described  as 
material,  fundamental  or  radical;  ^  but  it  is  more  frequently 
described  by  the  use  of  the  word  "  fundamental."  ^  If  it  vitally 
and  radically  affects  rights  established  and  fixed  by  charter,  it 
cannot  be  forced  upon  an  unwilling  stockholder.' 

§  1275.  Increasing  Capital  Stock. —  Of  this  nature,  as  already 
seen,"*  according  to  the  general  course  of  decisions,  are  amend- 
ments increasing  the  capital  stock.^  But  where,  in  addition  to 
an  amendment  authorizing  an  increase  of  its  capital  stock,  the 
legislature  authorizes  another  fundamental  change,  such  as 
changing  the  termini  of  a  railroad,-^  this  may  release  the  sub- 
scriber.^ 

§  1276.  Reducing  Capital  Stock.  —  And  it  should  seem  that 
the  same  must  be  affirmed  of  an  amendment  reducing  the  cap- 
ital stock  of  a  corporation,  and  thereby  rendering  the  success  of 
the  enterprise  more  doubtful.'  Accordingly,  it  was  held  that  a 
dissenting  stockholder  was  released  by  an  amendment  of  the 
charter  of  an  insurance  association,  providing  that  the  stock 
notes  should  be  reduced  by  a  credit  of  certain  net  profits.^  An- 
other court  has  taken  a  middle  ground  by  holding  that  such  an 
amendment  will  operate  to  discharge  the  existing  subscribers 
pro  tanto  from  the  obligation  of  payment  in  accordance  with  the 

*  Ante,  §  72;  Snook  v.  Georgia  the  original  charter,  the  latter  is  re- 
Imp.  Co.,  83  Ga.  61;  s.  c.  9  S.  E.  Rep.  leased  from  his  subscription,  though 
1104.  at  the  time  thereof  the  general  law, 

2  Nugent  V.  Supervisors,  19  Wall,  under  which    the  first    charter  was 

(U.  S  )  241.  obtained,  authorized  amendments  in- 

2  Hoey  V.   Henderson,  32  La.    An.  creasing  the  capital  stock,  and  chang- 

1069.  ing  the  route,  as  such  law  did  not 

<  Ante,  §  78.    Compare  post,  §  2088.  authorize   a  change    in  the  termini. 

*  Buffalo  &c.  11.  Co.  17.  Dudley,  U  Youngblood  v.  Georgia  Imp.  Co.,  83 
N.  Y.  336.  Ga.  797;  s.c.  10  S.  E.  Rep.,  124;  Snook 

«  Ante,  §  74;  post,  §  1284.     Where  v.  Georgia  Imp.  Co.  83  Ga.  61;  s.  c. 

a  railroad  company  obtains  author-  9  8.  E.  Rep.  1104. 
ity    from    the    legislature  to  change  '  Oldtown  &c.  R.  Co.  v.  Veazie,  39 

one  of    its  termini  and  to  increase  Me.  571. 

its    capital  stock  without    the  con-  «  Hoey  v.  Henderson,   32  La.    An. 

sent  of  a  subscriber  to  stock  under  1069. 

63  993 


I  Thomp.  Corp.  §  1378.]     the  contract  of  subscription. 

terms  of  their  subscriplious.  If,  therefore,  the  amendment  re- 
duces the  capital  one-half,  and,  before  the  passage  of  such  an 
amendment,  they  have  paid  one-half,  they  will  have  nothing 
further  to  pay.^ 

§  1277.  Increasing  the  Number  of  Shares. —  But  an  altera- 
tion of  the  contract  of  subscription,  increasing  the  number  of 
shares,  has  been  regarded  as  material,  in  the  sense  of  what  we 
are  considering. ^  A  strong  illustration  of  this  is  found  in  a  case 
where  A.,  with  others,  signed  a  paper,  which  recited  that  a  cer- 
tain company  had  been  incorporated,  the  capital  stock  of  which 
was  fixed  at  $50,000,  and  by  the  terms  of  which  the  subscribers 
iio-rced  with  each  other  and  with  the  corporation  to  take  the 
number  of  shares  affixed  to  their  respective  names,  and  to  pay 
therefor  $100  a  share.  Opposite  A.'s  name  was  a  certain  num- 
ber of  shares.  The  whole  number  of  shares  subscribed  for 
exceeded  $50,000.  At  a  meeting  called  for  the  purpose  of 
organization,  a  committee  was  appointed  to  report  the  names  of 
the  subscribers  to  the  original  capital  stock  of  $50,000.  The 
committee  reported  a  list  of  names  not  including  A.'s.  The 
meeting  then  voted  to  increase  the  stock  to  $100,000,  and  that 
all  the  subscribers  be  admitted  to  the  company  wiih  the  lights 
and  privileges  of  stockholders  under  the  agreement.  A.  subse- 
quently paid  three  assessments  on  his  stock.  It  was  held  that 
an  action  against  him  on  the  original  paper,  for  a  subsequent 
assessment,  could  not  be  maintained,  even  if  he  knew  of  these 
votes  before  paying  his  assessments.^ 

§  1278.  Enlarging  Powers  and  Privileges  and  Adding  New 
Responsibilities. —  On  principle,  any  amendment  which  enlarges 
the  undertaking  so  as  to  entail  new  responsibilities  or  new  haz- 
ards upon  the  corporation  will  release  dissenting  shareholders.* 

1  Woodhouse  v.  Commonwealth  by  adding  to  the  powers  of  a  railroad 
Ins.  Co.,  54  Pa.  St.  307.  company     the    power     to     purchase 

2  Bery  v.  Marietta  &c.  R.  Co.,  26  steamboats:  Hartford  R.  Co.  v. 
Ohio  St,  673.  Compare i^o.vt,  §  2088.  Croswell,    5   Hill  (N.  Y.),   383;  s.  c. 

"  Katama    Land  Co.   v.  Jernegan,  40  Am.   Dec.  354.     Compare  Chesa- 

126  Mass.  155.  peake  &c.  Co.  v.  Robertson,  4  Cranch 

*  Union  Locks  and  Canal  t>.  Towne,  C.  C.  (U.  S.)  291. 
IN.  H.  44;  s.  c.  8  Am.  Dec.  32.     As 

994 


ALTERATION  OF  THE  CONTRACT.      [1  Thomp.  Corp.  §  1279. 

But  this  effect  cannot  be  ascribed  to  an  amendment  of  a  charter 
or  act  of  incorporation  which  merely  enlarges  the  powers  or 
privileges ^  of  the  corporation,  without  materially  changing  its 
original  purposes,^  or  authorizing  a  material  departure  from  its 
original  design,^ — as  by  conferring  upon  it  the  power  of  declar- 
ing/br/e^7w>•es  of  its  stock.*  One  court  has  asserted  the  doctrine 
that  an  enlargement  by  the  legislature  of  the  powers  originally 
granted  to  a  corporation,  although  such  enlargement  may  embark 
the  corporation  in  more  expensive  schemes  which  will  require  a 
greater  capital,  does  not  have  the  effect  of  discharging  one  who 
had  subscribed  to  its  capital  stock  before  such  enlargemento  Such 
a  grant  of  additional  privileges  to  a  corporation  did  not  impair 
the  obligation  of  previous  contracts  of  subscription,  within  the 
meaning  of  the  constitutional  inhibition  against  the  passage  of 
laws  impairing  the  obligation  of  contracts.  That  inhibition,  the 
court  reasoned,  has  reference  to  direct,  and  not  to  merely  con- 
sequential  invasions  of  contracts.^  Upon  this  principle  State 
laws  have  been  upheld  as  valid  which  abolish  imprisonment 
for  debt;^  which  confirm  titles  imperfect  under  the  recording 
laws;'  which  levy  a  tax  upon  the  property  of  a  corporation 
previously  created;^  or  which  incorporate  a  rival  bridge  com- 
pany, with  power  to  construct  a  bridge  so  near  to  one  already 
existing  as  materially  to  diminish  the  profits  of  the  existing 
company.^ 

§  1279.  Illustrations:  Authorizing  Extension  of  Goad  — 
Building  of  Branch.  —  Such  a  consequence  is  not  to  be  ascribed 
to  an  amendment  to  a  charter  of  a  railroad  company,  which  authorizes 

1  Poughkeepsie  &c.  Plank  Road  Co.  &c.  R.  Co.  v.  Biggar,  34  Pa.  St.  455; 
V.  GrifBn,  21  Barb.  (N.  Y.)  454.  Pittsburgh  &c.  R.  Co.  v.  Woodrow,  3 

2  Peoria    &c.    Co.    ».    Preston,   35      Pliila.  (Pa.)  271. 

Iowa,  115.  6  Mason  ».  Halle,  12  Wheat.  (U.  S.) 

^  Pacific  Railroad  v.  Hughes,  22  Mo.  370. 
291 ;  s.  c.  64  Am.  Dec.  2fi5.  '  Watson  v.  Mercer,  8  Pet.  (U.  S.) 

*  Peoria  &c.   R.   Co.  v.   Elting,  17  88. 

111.  429.  8  Providence    Bank    v.   Billings,  4 

*  Gray  v.  Monongahela  Nav.  Co.,  2      Pet.  (U.  S.)  614. 

Watts&  S.  (Pa  )  15G;  s.  c.  37  Am.  Dec.  »  Charles  River  Bridge  v.  Warren 

500.     See  also  Everhartu.  Philadelphia      Bridge,  11  Pet.  (U.  S.)  420. 
&c.  R.  Co.,  28  Pa.  St.  353;  Pittsburgh 

995 


1  Thomp.  Corp.  §  1280.]     the  contract  of  subscription. 

it  to  extend  it3  road,i  or  to  build  a  branch  road  where  the  company  has 
not  undertaken  to  build  it,^  or  even  where  it  has.3 

§  1280.  Illustrations  Continued:  Empowering  a  Slack  Wa- 
ter Company  to  Extend  its  Dams  and  Incur  Additional  Ex- 
pense.   In  an  action  by  a  navigation  company  against  a  subscriber  to 

its  capital  stock,  to  recover  certain  assessments  made  thereon  by  the 
board  of  directors,  it  was  pleaded,  as  a  defense,  that  since  his  contract  of 
subscription,  the  legislature  had  passed  an  act  authorizing  the  corpora- 
tion to  extend  its  dams,  thereby  increasing  the  amount  of  its  indebted- 
ness beyond  what  its  charter  permitted  when  the  defendant  became  a 
stocldiolder.     It  was   held    that  this  was  not  a  good  defense  to  the 
action.     In  so  holding  Gibson,  C.  J.,  speaking  for  the  court,  reasoned 
as  follows:   "  An  act    to  incorporate  a  company  for  purposes  of  slack 
water  navigation  is  as  essentially  of  a  public  nature  as  is  an  act  to  incor- 
porate a  company  for  the  purpose  of  making  a  turnpike  road.     In  this 
instance,  then,  what  has  the  legislature  of  Pennsylvania  done?     It  has 
not  pretended  to  take  away  any  corporate  franchise,  or  to  impinge  upon 
any  right  before  granted.     That  is  not  pretended.     On  the  contrary, 
it  has  enlarged  a  corporate    pri\ilege.     But  the  exercise  of  it,  it  is 
alleged,  may  plunge  the  company  into  an  expense  not  originally  con- 
templated.    What  of  that?     The  defendant  is  not  bound  to  contribute 
to  it  beyond  the  amount  of  his  original  subscription,  and  as  to  that  his 
contract  remains  the  same.     But  it  is  said  that  by  taking  off  the  limita- 
tion of  the  company's  expenditure,  the  legislature  has  altered  its  power 
to  incur  responsibility  for  greater  damages  than  it  otherwise  could 
have  done.     In  that  hes  the  fallacy.     The  legislature  has  not  made  it 
incumbent  on  the  company  to  use  the  additional  privilege  granted  to  it, 
but  has  left  the  use  of  it  to  its  discretion.     It  may  in  fact  never  use  it ; 
and  whether  it  shall  do  so  will  depend  on  the  volition  of  the  defend- 
ant's corporate  agents,  the  president  and  managers,  by  whose  acts  he 
is  necessarily  to  be  bound  as  his  own,  even  in  the. acceptance  of  a  mod- 
ification of  the  charter  for  the  pubhc  good,  provided  it  do  not  extend 
to  a  change  of  the  structure  of  the  association.     *     *     *     Such  im- 
provements or   alterations   are   frequently  made,  and  subscriptions  to 
the   stock  are   consequently  in  subordination  to  the  practice.     At  all 
events     it  is   suflficient  for  the  argument  that   the   constitutional  re- 

1  Rice  V.  Rock  Island  &c.  R.   Co.,  2  Hawkins    v.   Mississippi  &c.    II. 

21  111.  93;  Cross  v.  Peach  Bottom  R.  Co.,  35  Miss.  688. 

Co.,  90  Pa.  St.  392;  Buffalo  &c.  R.  Co.  ^  Greenville  &c.  R.  Co.  v.  Coleman, 

V.  Dudley,  14  N.  Y.  336.  5  Rich.   (S.  C.)  118.     Contra,  Stevens 


V.  Rutland  &c.  R.  Co.,  29  Vt.  545. 


996 


ALTERATION    OF   THE    CONTRACT.       [1  Thomp.  Corp.    §    1282. 

striction  has  been  restrained  by  the  ultimate  tribunal,  to  interference 
directly  with  the  terms  of  the  contract,  and  not  merely  with  its 
incidents."  ^ 

§  1281.     Changing    the    Nature    of   the    Enterprise.  —  An 

amendment  to  the  charter  of  a  railway  company ^  adopted  with- 
out the  consent  of  one  who  has  previously  become  a  subscriber 
to  its  capital  stock,  which  superadds  to  the  original  object  of  the 
corporation  an  authority  to  establish  a  line  of  water  communica- 
tion in  connection  with  the  railroad,  which  will  involve  Luee  ad- 
ditional  expense,  which  amendment  provides  for  an  increase  of 
the  capital  stock  for  that  purpose,  releases  such  stockholder  from 
his  subscription,  although  the  amendment  is  accepted  by  the 
board  of  directors  and  also  by  a  majority  of  the  stockholders.' 
The  same  is  true  of  an  amendment  to  a  life  and  accident  insurance 
company,  changing  it  to  a  life^  accident,  fire,  marine  and  inland 
insurance  company.^ 

§  1282.  View  that  Change  Sanctioned  by  Majority  Binds 
Minority.  —  The  limitation  on  the  rule  of  the  majority  aoreed 
on  by  most  American  courts  has  already  been  pointed  out.*  An 
early  case  in  Virginia  seems  to  have  asserted  a  broader  doctrine. 
A  member  of  an  incorporated  insurance  company  was  held  to  be 
bound  by  a  statute  which  varied  the  terms  of  the  original  act  of 
incorporation,  such  act  being  passed  at  the  instance  of  a  legal 
meeting  of  the  company,  though  he  was  not  present  at  the  meet- 
ing. The  reasoning  of  the  judges  in  that  case  is  tantamount  to 
a  broad  declaration  that  the  charter  of  a  corporation  may  be 
surrendered  and  a  new  charter  accepted  by  the  act  of  a  majority 
of  the  corporators,  if  done  at  a  regular  meeting  duly  notified, 
and  that  there  is  no  distinction  in  this  respect  between  the  pas- 
sage by  an  incorporated  society  of  an  ordinary  regulation  and  a 
surrender  which  destroys  a    fundamental   one,  — Judge  Eoane 

1  Gray  v.  Monongahela  Nav.  Co.,  2  2  Penn.  184;  McCullough  v.  Moss,  6 
Watts  &  S.  (Pa.)  15G  (1841;  ;  s.  c.  37  Denio  (N.  Y.),  680;  Troy&c.  R.  Co.  v. 
Am.  Dec.  500,  603.  Kerr,  17  Barb.  (N.  Y.)  606. 

2  Hartford  &c.  R.  Co.  v.  Croswell,  »  Ashton  v.  Burbank,  2  Dill.  (U.  S.) 
6  Hill    (N.  Y.),    383   (1843);    a.  c.   40  435. 

Am.  Dec.  354.    To  the  same  effect  see  ♦  Ante,  §  72. 

Indiana  &c.  Turnpike  Co.  v.   Phillips, 

997 


1  Thomp.  Corp.  §  1384:.]     thk  contract  of  subscription. 

saying:  "  The  effect  as  to  the  question  before  us  is  precisely  the 
same."  Judge  Fleming  answered  the  objection  to  the  power  of 
the  majority  to  bind  the  minority  by  the  acceptance  of  the 
charter  by  saying:  "  It  would  be  misspending  time  to  refute  this 
argument,  as  in  all  institutions  of  this  kind  the  acts  of  a  majority 
are  binding  on  the  whole :  by  the  civil  law  that  majority  must 
consist  of  two-thirds  of  the  members."  ^ 


§  1283.  Changing  the  Name. — Changing  the  name  of  the 
corporation,  as  already  seen, ^  is  not  such  a  material  alteration  as 
releases  dissenting  subscribers.^  Where  the  name  of  the  cor- 
poration was  given  in  the  preliminary  subscription  paper,  but 
when  the  company  was  organized  the  words  "  Saint  Louis  "  were 
added  to  the  name,  —  it  was  held  that  this  was  no  defense  to  an 
action  on  the  subscription.* 

§  1284.  Changing  the  Termini  of  a  Railroad.  —  We  have 
already  seen  that  there  is  a  conflict  among  the  decisions,  growing 
out  of  opposing  theories  as  to  the  governing  principle,  on  the 
question  whether  an  amendment  of  a  charter  changing  the 
terminuSy  or  the  termini  of  a  railroad,  will  release  a  dissenting 
subscriber.^  Several  cases  not  there  cited  exhibit  the  same 
opposing  theories,  or  else  opposing  views  as  to  the  proper  appli- 
cation of  the  same  theory,  —  some  reaching  the  conclusion  that 
a  material  change  in  one  of  the  termini  of  a  railroad,  authorized 
by  the  legislature,  will  release  a  dissenting  stockholder;^  and 
others  holding  that  it  will  not.'  Under  the  theory  of  the  former 
cases,  where  the  route  is  not  expressly  stated  in  the  contract  of 
subscription,  the  charter  of  the  company,  as  it  exists  at  the  time, 
is  the  law  of  the  contract^  and  any  subsequent  change  of  termini 
from  those  therein  prescribed,  discharges  the  obligation  of  the 

1  Carrie  v.  Mutual  Assurance  So-  '  That  it  will  have  this  effect,  see 

ciety,  4  Henn.  &  M.  (Va.)  315;   s.   c.  ante,  §  74;  that  it  will  not,  see  ante, 

4  Am.  Dec.  617,  anno  1809.  §  77. 

«  Ante,  §  82.  «  Kenosha  &c.   R.  Co.  v.  Marsh,  17 

'  Racine  &c.  Bank  V.  Ayers,  12  Wis.  Wis.    13;    Delaware    &c.    R.    Co.    v. 

512.  Iriclj,  23N.  J.  L.  321. 

*  Haskell  v.   Worthington,  94  Mo.  ^  Terre  Haute  &c.  R.  Co.  v.  Earp, 

560.  21  111.  291. 
998 


J 


ALTERATION    OF    THE    CONTRACT.       [1     Thoilip.   Coi'p.    §  1285. 

subscriber,  unless  with  his  consent.^  The  difficulty  of  holding 
that  a  change  of  the  terminus  of  a  railroad  which  the  company- 
is  chartered  to  build  releases  the  dissenting  subscriber,  is  of 
course  lessened  where,  in  addition  to  changing  the  terminus,  the 
amendment  of  the  charter  otherwise  enlarges  the  project,  —  as 
by  authorizing  it  to  run  a  line  of  steamers  beyond  the  terminus, ^ 
or  to  increase  its  capital  stock. ^  On  the  other  hand,  the  Supreme 
Court  of  Illinois,  ignoring  all  sound  principle,  have  held  that  a 
subscriber  to  stock  in  a  railroad  company  cannot  avoid  payment 
because  the  charter  of  the  road  has  been  so  changed  as  to 
authorize  the  company  to  which  the  subscription  was  made  to 
purchase  stock  in  other  railroad  companies,  even  though  the 
terminus  of  the  road  in  which  the  stock  was  first  subscribed  is 
thereby  changed.*  It  is  needless  to  suggest  that  a  stockholder 
in  a  railroad  company,  who  seeks  to  avoid  the  payment  of  his 
subscription,  on  the  ground  that  one  of  the  termini  was  materially 
chansed  from  that  designated  in  the  charter,  must  show  that 
the  alteration  was  made  without  his  concurrence  or  consent.^ 

§  1285.  Material  Change  of  Ijocation  or  Route  will  Re- 
lease Subscriber.  —  There  is  also  a  division  of  opinion  among 
,  the  courts  upon  the  question  what  substantial  or  material  change 
in  the  route  of  a  railroad,  or  other  road  which  the  corporation  is 
created  to  build,  will  operate  to  release  a  dissenting  subscriber.^ 
In  some  cases  the  difference  of  opinion  is  more  apparent  than 
real,  involving  rather  the  question  of  the  nature  and  extent  of 
the  change,  than  affirming  or  disaffirming  the  principle  that  a 
material  change  releases  the  subscriber.  The  rule  established  by 
the  weight  of  authority,  and  supported  by  reason  and  justice,  is 
that  a  material  change  in  the  proposed  route  of  a  railroad  in- 
validates the  obligations  of  non-assenting  subscribers  to  stock. ^ 

1  Witter  V.  Mississippi  &c.  R.  Co.,      increasing  the  capital  stock  and  chang- 
20  Ark.  463.  ing  the  route,  but  without  authorizing 

2  Marietta  &c.  R.  Co.  v.  Elliott,  10      changes  of  termini.     Ibid. 

Oh.  St.  57.  ■»  Terre  Haute  &c.  R.  Co.  v.  Earp, 

8  Snook  V.   Georgia   Imp.    Co.,  83  21  111.  291. 
Ga.  61 ;  s.  c.  9  S.  E.  Rep.  1104.     Thus,  ^  North  Carolina  R.  Co.  v.  Leach,  4 
although  at  the  time  of  the  amend-  Jones  L.  (N.  C.)  340. 
ment,  the  general  law,  under  which  "  Ante,  §§  74,  77. 
the  first  so-called  charter  was  obtained  '  Noesen  v.  Town  of  Port  Wash- 
authorized  amendments    to    charters  ington,    37  Wis.    168;    Champion   ». 

999 


1  Thomp.  Corp.  §  1280.]     the  contract  of  subscription. 

But  uot  so  iu  an  immaterial  change. ^  While  some  of  the  courts 
have,  as  elsewhere  seen,^  taken  a  distinction,  so  refined  as  to  be 
almost  dishonest,  in  respect  of  an  agreement  to  hicate  a  road 
on  a  certain  route,  holding  that  a  promise  is  kept  if  they  locate 
the  road  on  that  route  though  they  do  not  build  it  there,  thus 
*'  kee})ing  the  word  of  promise  to  the  ear  and  breaking  it  to  the 
hope,"  —  one  court,  at  leaist,  has  gone  honestly  to  the  substance 
of  such  a  contract,  by  holding  that  a  stock  subscription  made 
on  the  condition  that  the  road  should  be  "  located  "  on  a  certain 
route  is  not  complied  with  by  locating  it  on  that  route  by  a  reso- 
lution of  the  board  of  directors,  and  then  building  it  on  another 
route;  but  that  the  word  "  locate  "  means  to  co7istruct,  and  that 
the  subscription  is  avoided  by  the  abandonment  of  the  route 
agreed  upon  therein.^  An  early  case  in  Massachusetts  goes  so 
far  as  to  hold  that  a  stockholder  is  released  by  such  a  change, 
although  he  had  acted  in  several  offices  of  the  corporation,  sub- 
sequently to  the  change,  and  had,  as  one  of  the  directors, 
petitioned  the  legislature  for  such  alteration.*  The  court  reached 
this  anomalous  conclusion  by  reasoning  that  the  contract  of  sub- 
scription between  the  shareholder  and  the  corporation  is  collateral 
to  his  contract  as  a  director  and  officer.  Under  this  rule,  if  all 
the  stockholders  were  to  join  in  a  petition  to  the  legislature  to 
make  such  an  amendment  to  the  charter,  and  the  legislature 
should  accede  to  the  request,  the  fact  would  enable  all  the  stock- 
holders to  retreat  from  their  obligations  and  dissolve  the  com- 
pany. This  decision  ignores  the  well-known  maxim  volenti  non 
fit  injuria.  It  is  a  sorry  illustration  of  the  primitive  ideas,  which 
sometimes  take  hold  of  judges  of  general  high  character  and 
learning. 

§  1286.  Reasons  of  the  Rule. — Three  reasons  have  been 
given  by  the  courts  for  the  conclusion  that  a  material  change  of 
route  releases  a  non-assenting  subscriber.     The  first  is  applicable 

Memphis  &c.   R.   Co.,   35  Miss.  692;  3  Nashville  &c.  K.  Co.  v.   Jones,  2 

Buffalo  &c.  R.  Co.  v.  Pottle,  23  Barb.  Coldw.  (Tenn.)  674. 
(N.  Y.)  21;  Hester  u.  Memphis  &c.  R.  <  Middlesex     Turnpike    Corp.    v. 

Co.,  32  Miss.  378.  Swan,  10  Mass.  384;  s.  c.  6  Am.  Dec. 

1  Cayuga    &c.    R.   Co.  v.   Kyle,    5  139.     See    also    Middlesex    Turnpike 

Thomp.  &  C.  (N.  Y.)  659.  Corp.  v.  Locke,  8  Mass.  268. 

«  Post,  §  1345. 
1000 


ALTERATION   OF   THE    CONTRACT.        [1  Thomp.  Corp.   §   1287. 

only  in  particular  cases,  depending  on  the  situation  of  the  sub- 
scriber, and  applies  in  the  case  where  the  subscriber  lives  on  the 
route  of  the  road  as  first  located.  Here  it  is  supposed  that  the 
benefit  which  will  accrue  to  him  from  building  the  road  near  his 
residence  and  property  may  fairly  be  presumed  to  have  been  a 
strong  inducement  for  his  giving  his  subscription.^  The  second 
is  that  he  may  well  consider  the  location  of  the  road  on  a  new 
route  as  an  abandonment  of  the  project  to  which  he  subscribed.* 
The  third  is  even  more  substantial.  It  is  that  he  subscribed  to 
one  venture,  and,  no  matter  what  his  motives  for  dissenting  are, 
it  is  not  competent  for  his  co-adventurers,  even  with  the  aid  of 
the  legislature,  to  compel  him  to  become  a  subscriber  to  a  differ- 
ent venture.  He  has  made  one  contract;  they  cannot  force  him 
into  another.^ 

§  1287.  What  Changes  of  Route  or  Liocation  do  not  Re- 
lease Subscriber.  —  On  the  other  hand,  it  has  been  held  that  a 
slight  change  or  deflection  adopted  by  the  company,  from  the 
route  of  a  railroad  first  selected,  does  not  absolve  a  stock- 
holder who  had  not  designated  the  route  he  desired  to  be 
selected,* —  as  where  the  road  is  made  to  pass  through  a  county 
not  named  in  the  original  articles  of  incorporation.^  Again,  it 
has  been  held  that  the  fact  that  directors  of  a  railroad  compuny 
have  procured  an  alteration  of  the  charter,  authorizing  a  change 
in  the  location  of  the  road,  and  have  changed  the  route  accord- 
ingly, if  the  actual  change  of  it  is  consistent  with  the  original 
design  and  object  of  the  enterprise,  not  materially  varying  the 
route,  nor  abandoning  a  terminus  actually  established  at  the  time 
of  subscription,  will  not  release  a  stockholder  from  his  subscrip- 

1  Hester  v.  Memphis  &c.  R.  Co.,  32  Hall  &c.  R.  Co.  v.  Myers,  16  Abb.  Pr. 

Miss.  378.  (N.  s.)  (N.  Y.)    34. 

^  Ibid.    That    a    material    change  ^  Jewett  y.  Valley  R.  Co.,  34  Oh. 

from  the  route  and  termini  named  in  St.  601;    Armstrong   v.    Karshner,   46 

the  contract  of   subscription   is  evi-  Ohio   State,  270;  s.  c.  24   N.  E.  Rep. 

dence  of  an  abandonment^  see  Caley  v.  897.      Compare    Buffalo    &c.    R.   Co. 

Philadelphia  &c.   R.  Co.,  80  Pa.    St-  e.  Pottle,  23  Barb.  (N.  Y  )  21  (where 

363.  the    road    abandoned    two    counties 

8  Ibid.;  ante,  §  71.  through  which  it  was  to  have    been 

*  Greenville  &c.  R.  R.  Co.  v.  Cole-  constructed,  and  it  was  held  that  the 

man,  5  Rich.  (S.  C.)  118.  See  White  subscriber  was  released). 

1001 


I  Thomp.  Corp.  §  1288.]     the  contract  of  subscription. 

tion,  though  made  without  his  consest.^  An  early  case  in  the 
Supreme  Court  of  Illinois,  relaxing  sound  principles  still  further, 
held  that  a  subscriber  to  railroad  stock  will  be  liable  to  the  pay- 
ment of  his  subscription,  although  the  legislature  may  have 
authorized,  and  the  directors  of  the  company  may  have  adopted, 
a  change  of  route  from  that  first  fixed  by  law,  provided  the 
change  does  not  make  an  improvement  of  a  different  char- 
acter, and  his  interest  is  not  materially  affected  by  the  altera- 
tion.^  Still  more  severe  and  indefensible  on  any  conception  of 
reason  or  justice  are  holdings  in  Pennsylvania  to  the  effect  that 
an  amendment  of  the  charter  of  a  railroad,  changing  the  loca- 
tion of  its  line,  cannot  be  set  up  at  all  as  a  defense  to  an  action 
for  a  previous  subscription  to  its  capital  stock,  nor  can  the  fact 
that  the  subscriber  became  such  upon  the  condition  that  the 
road  should  be  located  as  originally  projected.^  A  restored 
sense  of  justice  led  the  court,  at  a  more  recent  period,  to  hold, 
with  some  of  the  other  American  courts,  that  such  a  change  may 
be  treated  by  a  non-concurring  subscriber  as  an  abandonment  by 
the  corporation  of  the  contract  into  which  he  entered  with 
them.* 

§  1288.  What  Change  of  Koute  by  Directors  will  Release 
the  Subscriber. —  On  principle,  there  can  be  no  difference  be- 
tween the  case  where  a  material  change  of  route  has  been 
authorized  by  the  legislature,  or  made  by  the  directors  without 
the  consent  of  the  subscriber ;  for  the  legislature  has  no  more 
power  to  impair  the  obligation  of  his  contract  than  the  directors 
have.  When,  therefore,  a  party  has  given  a  subscription  on 
condition  that  the  road  is  to  be  located  on  a  certain  route,  a  vote 
by  the  directors  materially  changing  the  route  discharges  his 
contract  and  enables  him  to  recover  from  the  corporation  what 
he  has  paid  thereon  J"  But  it  has  been  held  that  where  the  charter 
gives  to  directors  power  to  determine  the  location  of  the  road, 

1  Wilson  r.  Wills  Valley  R.  Co.,  33  34  Pa.    St.  455;  Pittsburgh  &c.  R.  Co. 
Ga.  466.  V.  Woodron,  3  Phila.  (Pa.),  271. 

2  Banet  v.  Alton  &c.  R.  Co.,  13  111.  *  Caley  v.  Philadelphia  &c.  R.  Co., 
604.  80  Pa.  St.  363;  ante,  §  1272. 

»  Pittsburgh  &c.  R.  Co.,  v.  Biggar,  ^  Nashville  «S:c.  R.  Co.  v.  Jones,  2 

Coldw.  (Tenn.)  574. 
1002 


ALTERATION    OF   THE    CONTRACT.       [I  Thomp.  Coi'p.    §  1289, 

it  gives  them,  by  necessary  implication,  power  to  change  the 
location;  and  hence,  where  a  representation  has  been  made  to 
induce  a  subscription,  that  a  certain  location  has  been  adopted, 
a  subsequent  change  of  the  location  by  the  directors  does  not 
discharge  the  contract,  though  the  first  location  was  well  known 
to  be  the  inducement  for  the  subscription.^  But  this  decision 
must  be  ascribed  to  the  influences  which  affected  judicial  decis- 
ions in  this  country  in  the  era  of  railroad  building,  when  the 
courts  were  so  afiected  towards  railroad  enterprises  as  to  be  in 
many  cases,  when  appealed  to  by  scattered  individuals  against 
railroad  companies,  insensible  to  justice  and  careless  of  the  law. 
The  Kentucky  Court  of  Appeals,  in  a  case  where  a  similar  result 
was  reached,  were  able  to  support  their  conclusion  on  more 
plausible  grounds,  though  it  may  be  doubted  whether  the  same 
court  would  render  the  same  decision  now,  if  it  were  an  original 
question.  The  court  held  that  where  the  directors  of  a  railroad 
were  authorized  by  the  charter  to  vary  the  route  and  change  the 
location  of  the  road  whenever  a  cheaper  or  better  route  could  be 
had,  a  change  of  location  which  placed  the  road  upon  a  cheaper 
route,  and  procured  a  large  additional  subscription  of  stock,  and 
also  furnished  a  reasonable  probability  that  the  business  and 
profits  of  the  road,  when  finished,  would  be  thereby  considerably 
augmented,  would  not  "exonerate  the  subscribers  from  payment 
for  their  shares. 2  Under  a  statute  ^  permitting  a  change  of  loca- 
tion by  a  railroad  company  on  consent  of  the  stockholders^ 
provided  that  "any  subscription  of  stock  made  on  the  faith  of 
the  location  of  such  railroad,  *  «  *  upon  any  line  aban- 
doned by  such  change,  shall  be  cancelled  at  the  written  request  of 
the  subscriber  not  having  assented," — it  has  been  held,  that  a 
subscriber  who  expressly  stipulates  against  a  change  does  not 
waive  his  right  to  enforce  that  condition  by  failing  to  make  such. 
a  request.* 

§  1289.  How  the  Defendant  must  Plead  the  Change.  —  As 

an  immaterial  change  will  not  release  the  subscriber,  he  must,  ia 

1  Ellison  V.  Mobile  &c.  R.  Co.,  36  »  73  Laws  Ohio,  115. 

Miss.  572.  *  Railway  Co.  v.  Fisher,  89  Oh.  St. 

2  Fry  r.  Lexington  &c.  R.  Co.,  2      330. 
Mete.  (Ky.)  314. 

1003 


1  Thomp.  Corp.  §  1291.]     the  contract  of  subscription. 

defending  against  an  action  on  his  subscription  on  this  ground, 
state  facts  with  sufficient  particularity  that  the  judge  can  see 
whether  or  not  it  was  material.  Therefore,  a  plea  *'  that  said 
road  was  not  constructed  in  accordance  with  the  charter,"  is 
bad.^  A  plea  averring  that  a  part  of  the  stockholders  had  pro- 
cured the  passage  of  an  act  of  the  legislature,  changing  the 
provision  of  the  charter  as  to  the  location  of  the  road,  and  that 
the  board  of  directors  had  adopted  the  same,  but  failing  lo  show 
that  it  was  so  accepted  as  to  make  it  binding  upon  the  corporation, 
was  held  bad  on  demurrer. ^ 

§  1290.  Consolidation    with    Another    Corporation.  —  We 

have  twice  had  occasion  to  observe  already ,3  that  the  consolida- 
tion of  the  corporation  to  whose  shares  one  has  subscribed,  with 
another  corporation,  is  a  change  of  such  a.  fundamental  cha.Y3>GtQV 
as  to  discharge  his  contract  of  subscription,  provided  he  does  not 
assent  thereto,  unless,  at  the  time  of  the  subscription  there  is  a 
statute  authorizing  it,*  or  providing  for  the  purchase  of  the 
shares  of  the  dissenting  stockholder.^ 

§   1291.  Changes  Authorized  by  Existing  Statutes.  —  From 

what  has  already  been  said,*^  if  the  change  which  the  subscriber 
sets  up  as  releasing  him  from  the  obligation  of  his  subscription  is 
authorized  by  a  statute  existing  at  the  time  of  the  subscription, 
which  may  fairly  be  deemed  to  enter  into  the  contract,  to  affect 
it  and  to  form  a  part  of  it,  —  it  will  not  be  deemed  such  a  change 
as  discharges  his  contract.  He  is  deemed  to  have  contracted 
with  a  view  to  the  possibility  of  such  a  change  being  made  by 
the  will  of  the  majority,  and  to  have  impliedly  assented  to  it  in 
advance.'  If,  therefore,  a  statute  in  force  at  the  time  a  subscrip- 
tion to  the  capital  stock  of  a  railroad  company  is  made,  authorizes 

1  Champion  v.  Memphis  R.  Co.,  35  Co.,  20  Ind.  30.    Compare  Hayworth 
Miss.  G92.  V.  Junction  R.  Co.,  13  Ind.  348. 

2  Mississippi  &-c.  R.  Co.  v.  Gaster,  ^  That  it  makes  him  a  stoclsholder 
24  Ark.  96.  of    the    new    company,   see   Ridgway 

3  AntCy  §§  75,  343.  Township    v.    Griswold,    1    McCrary 

4  Bish    V.    Johnson,  21   Ind.   299;  (U.  S),  151. 
Sparrow  v.  Evansville   &c.  R.  Co.,  7  «  Ante,  §§  75,  343. 

lud.  3G9;  Hanna  v.  Cincinnati  &c.  R.  '  Mowrey  v.   Indianapolis    &c.   R. 


Co.,  4  Biss.  (U.  S.)  78. 


1004 


ALTERATION  OF  THE  CONTRACT.   [1  Thomp.  Coip.  §  1293. 

an  extension  of  the  line  of  the  road,i  or  the  sale  of  the  whole  or 
a  part  of  its  road,^  or  a  consolidation  with  another  company ,3  — 
the  exercise  of  this  power  will  not  affect  the  subscription.*  But 
the  principle  which  makes  an  existing  upplicatory  statute  a  part 
of  the  contract  of  subscription  operates  both  ways:  and  a 
material  departure  from  what  it  prescribes  discharges  the 
contract.^  It  has  been  also  held  that  the  fact  that  such  a  change 
is  made  under  an  amendment  to  the  charter,  in  a  State  where  the 
legislature  is  empowered  to  alter  or  repeal  acts  of  incorporation 
at  pleasure,  does  not  affect  the  application  of  the  rule  that  a 
fundamental  change  in  the  character  of  an  enterprise  will  release 
a  subscriber  thereto.^ 

§  1292.  Alteration  Material  to  the  Particular  Sub- 
scriber.—  Qualifying  its  earlier  holdings,^  the  Supreme  Court 
of  Pennsylvania  hold  that  an  alteration  departing  from  the 
terms  of  the  contract,  may  operate  to  discharge  a  particular 
subscriber,  on  the  ground  that  it  is,  as  to  him  and  his  interest,  a 
material  variation,  —  as  where  the  contract  of  subscription  pro- 
vided that  the  railroad  should  be  built  on  a  route  which  would 
bring  it  within  five  hundred  feet  of  the  subscriber's  mill,  and 
this  was  varied  so  as  to  adopt  a  route  twelve  hundred  feet  dis- 
tant therefrom.^  This  is  a  pleasant  contrast  with  the  obvious 
injustice  of  the  earlier  holdings  of  the  same  court. 

§  1293.  Changes  Affecting  the  Payment  of  Stock  Sub- 
scriptions. —  It  has  been  held  that  a  subscriber  to  the  capital 
stock  of  a  railroad  company,  who  agrees  to  be  subject  to  the  rules 
and  regulations  which  may  from  time  to  time  be  adopted  by  the 
directors,  cannot  avoid  payment  because  the  charter  has  been 
amended,  reducing  the  number  of  days  of  notice  to  be  given,  if 
the  amendment  of  the  charter  has  been  accepted.*     So,  where 

1  Jewett  V.  Valley  R.  Co.,  34  Ohio  «  Kenosha  &c.  R.  Co.  v.  Marsh,  17 
St.  601.                                                             Wis.  13. 

2  Armstrong  v.  Karsner,  47  Oh.  St-  ^  Ante,  §  1278. 

276;  s.  c.  24  N.  E.  Rep.  897.  ^  Moore  v.    Hanover  Junction  &c. 

8  Ante,  §§  75,  343.  R.  Co.,  94  Pa.  St.  324. 

*  Nugent  V.  Supervisors,  19  Wall.  »  Illinois  River  R.  Co.  v.  Beers,  27 

(U.  S.  )  241.  111.  185. 

5  Witter  V.  Mississippi  &c.  R.  Co., 
20  Ark.  463. 

1005 


1  Thomp.  Corp.  §  1296.]     the  contract  of  subscription. 

the  articles  of  incorporation  of  a  railroad  company  restricted 
the  installments  of  stock  that  might  be  called  for  in  any  one 
year  by  the  board  of  directors,  to  a  certain  percentage  of  the 
whole  amount,  and  also  provided  for  a  change  in  the  articles  by 
the  votes  of  the  directors,  a  change  in  the  amount  and  time  of 
payment  of  the  installments  so  made,  which  change  was  made  in 
compliance  with  the  governing  statute,  was  held  binding  upon 
stockholders  who  subscribed  previous  to  such  alteration  of  the 
articles.^ 

§  1294.  Other  Changes  in  the  Internal  Arrangements  of 
the  Corporation.  —  After  a  railroad  company  had  been  char- 
tered, and,  under  the  charter,  subscriptions  had  been  made  to 
the  stock,  the  legislature  passed  several  amendatory  acts,  as  fol- 
lows:  1.  To  allow  the  stockholders  to  elect  three  additional 
managers.  2,  That  each  share  of  stock  should  give  the  holder 
one  vote  to  all  elections  of  officers  and  other  stock  votes,  pro- 
vided he  had  held  it  for  more  than  thirty  days  prior  to  such  vote. 
3.  Authorizing  an  issue  of  preferred  stock,  which  last  amend- 
ment was  accepted  by  a  majority  of  the  stockholders,  and  the 
stock  was  issued.  It  was  held,  that  these  acts  created  no  snch 
changes  in  the  objects  or  organization  or  liabilities  of  the  cor- 
poration, as  to  discharge  one  who  had  subscribed  under  the 
original  charter,  from  liability  on  his  subscription.^ 

§  1295.  Selling  Out. —  We  have  already  seen, 'that  selling 
the  entire  corporate  property  to  another  corporation,  or  what  is 
in  practical  effect  the  same  thing,  leasing  it  for  999  years,  is 
such  a  fundamental  change  as  releases  a  dissenting  subscriber. 
If  this  cannot  be  done  with  the  authority  of  the  legislature  so  as 
to  bind  a  dissenting  stockholder,  for  stronger  reasons  it  cannot 
be  done  without  authority  of  law.* 

§  1296.     Extending  Time  for  Completing  the  Enterprise.  — 

Additional    holdings  are  found  which  support  the  proposition 

Burlington  &c.  E.   Co.  v.  White,  ^  j^nte,  §  76. 

5  Iowa,  409.  ■*  South    Georgia    &c.    R.    Co.    v. 

2  Everhart  v.  West  Chester  &c.  R.  Ayres,   56   Ga.  230.     See  also  ante,  § 

Co.,  28  Pa.  St.  339.  1272.  ^ 

100(5 


ALTERATION  OF  TflE  CONTRACT.     [I  Thomp.  Corp.  §  1298. 

already  stated,^  that  an  extension  by  the  legislature  of  the  time 
allowed  by  the  corporation  to  the  railroad  company  in  which  to 
build  its  road,  will  not  release  the  subscribers  to  its  stock,^ 
although  the  obliofation  to  construct  it  within  the  time  first 
limited  may  have  been,  on  the  part  of  the  subscriber,  an  essen- 
tial inducement  to  the  making  of  the  contract. ^ 

§  1297.  Elements  of  Estoppel.  —  On  grounds  heretofore 
and  hereafter  considered,*  although  a  change  may  have  been 
made  of  such  a  fundamental  character  as  would  release  a  dissent- 
ing subscriber,  — yet  unless  he  seasonably  dissents  and  attempts 
a  rescission  of  his  contract,  he  may  become  bound  on  the  theory 
of  waiver,  acquiescence  or  estoppel.  Thus,  a  subscriber  to  a 
public  work,  who  permitted  it  to  be  carried  on  without  objection, 
could  not,  it  was  held,  be  relieved  from  the  payment  of  his  sub- 
scription on  the  ground  that  the  plan  was  changed  and  that  the 
work  became  of  no  benefit.^  And  where,  in  Tennessee,  a  corpo- 
ration, organized  by  the  permission  of  the  chancery  court,  sued 
a  subscriber  to  its  stock  upon  his  subscription,  the  latter,  who 
h;id  dealt  with  it  as  a  corporation,  could  not  deny  the  validity  of 
the  proceeding  by  which  the  name  of  the  corporation  was 
changed;  although  the  subscription  recognized  the  old  name  of 
the  corporation.^ 

§  1298.  Burden  of  Showing  Dissent.  —  If  a  subscriber  is 
sued  by  the  corporation  on  his  contract  of  subscription,  and 
defends  on  the  ground  of  a  material  alteration  of  the  con- 
tract, by  the  act  of  the  directors,  the  corporation,  or  the  legis- 
lature, it  is,  on  principle,  a  necessary  part  of  his  defense  that  he 
did  not  assent  to  it,  and  the  burden  is  on  him  to  show  that  such 
was  the  fact.^  But  in  Ohio  it  has  been  reasoned  that  the  bur- 
den of  showing  such  assent  rests  with  the  party  seeking  to  hold 
the  stockholder  liable.^     It  is  supposed  that  the  form  of  the 

1  Ante,  §  82,  *'  Greenville  &c.  R.  Co.  v.  Johnson, 

2  Jacks  V.  Helena,  41  Ark,  213.  8  Baxt.  (Tenn.),  332. 

3  Henderson  v.  Railroad  Co.,  17  ^  North  Carolina  &c.  R.  Co.  v. 
Tex.  560,  s.  c.  G7  Am.  Dec.  675.  Leach,  4  Jones  L.  (N.  C.)  340. 

4  Ante,  §  101  etseq.;post,  21877.e«  ^  Ireland  v.  Palestine  &c.  Tump. 
scq.  Co.,  19  Oh.  St.  369. 

fi  Doane  v.   Treasurer  of  Pickaway, 
Wrij;ht  (Oliio),  7.')2. 

1007 


jrl= 


1  Thomp.  Corp.  §  1299.]     the  contract  of  subscription. 

pleadings  may  be  such  in  a  particular  case  as  to  justify  this  con- 
clusion,—  as  where  the  corporation  counts  on  the  contract,  and 
the  subscriber  admits  the  contract,  but  pleads  the  alteration,  and 
the  corporation  replies,  alleging  his  assent  thereto.  But  where 
an  alteration  of  the  subscription  paper  is  proved  by  the  sub- 
scriber, in  an  action  against  him  for  calls,  it  has  been  held  that 
the  corporation  must  then  prove  that  the  alteration  was  made 
without  its  knowledge  or  consent ;  otherwise  it  cannot  recover.^ 

§  1299.  When  Validity  of  Amendment  Submitted  to  Jury. — 

We  have  already  seen  that  the  question  of  the  materiality  of  the 
alteration,  in  cases  such  as  we  are  considering,  is,  like  the  question 
of  the  materiality  of  the  alteration  of  any  other  written  instru- 
ment, a  question  of  law  for  the  court,  and  is  not  to  be  submitted 
to  a  jury. 2  One  case  is  found  where,  in  seeming  violation  of 
this  principle,  the  question  was  regarded  as  proper  to  be  sub- 
mitted to  the  jury.  By  a  supplement  to  an  act  incorporating  an 
iron  and  railroad  company,  the  name  of  the  company  was  changed , 
authority  was  given  to  purchase  and  cancel  the  original  stock, 
and  the  main  purpose  of  the  new  company  was  to  be  that  of  a 
general  transportation  company.  The  court  held  that  it  was  a 
fair  question  for  the  jury,  whether  a  combination  to  change  the 
fundamental  purpose  of  the  original  act  by  the  supplement,  and 
divert  the  stock  of  an  original  subscriber  to  this  new  end,  was 
not  a  fraud  upon  him;  and  if  they  so  found,  an  action  for  the 
amount  of  this  original  subscription  could  not  be  sustained.^ 

1  Bery  v.   Marietta  &c.  K.  Co.,  26  3  Southern  Pa.  Iron  &c.  Co.  ».  Stev- 

Oh.  St.  673.  ens,  87  Pa.  St.  190. 

■^  Ante,  §  85. 

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